31.03.2017 — Rospatent Proposes to Change Profit Taxation of Intellectual Property
The Russian patent authority (Rospatent) submitted a proposal on amending the tax legislation to the Ministry for the Economic Development. The proposal is aimed at promoting the intellectual property in Russia and its commercialization. The proposed amendments include VAT exemption for several IP transactions, preferential taxation for intellectual property exporters and privileges for small innovative enterprises.
The proposals developed by Rospatent include extending the list of operations with intellectual property exempted from VAT. Currently, according to Article 149 (2-26) of the Tax Code such operations include sale and licensing of several types of intellectual property, namely inventions, utility models, industrial designs, computer programs, databases, integrated circuit topographies and trade secrets (know-how). In the opinion of Rospatent, the said tax exemption should be broadened to include sale of scientific, literary and artistic works and selection inventions, and complex transfer of rights to the intellectual property under commercial concession contracts.
Furthermore, it is proposed to introduce preferential taxation for intellectual property exporters via lowering the income tax rate, applicable to the use or sale of intellectual property, from 20% to 5%. The tax benefit is aimed at stimulating foreign companies to transfer the intellectual property into Russia, and in the long run to increase the budget revenue from intellectual property currently located in other jurisdictions. At the same time, this regime will not be applicable to the means of individualization (trademarks, trade names, etc).
The proposal also suggests introducing several privileges for small innovative enterprises.
30.03.2017 — Supreme Court: No Taxes for “Golden Parachutes” up to Five Monthly Salaries
An employer provided severance compensation in the amount of up to five monthly salaries to its former employees at labor contract termination. Afterwards, the company credited these expenses towards deductibles for profit tax purposes. However, the tax authorities and lower instance courts found this decision illegal, stating that severance compensation (“golden parachutes”) are not mandatory under labor law, and therefore they cannot reduce the taxable base. The Supreme Court, however, ruled in favor of the company, invalidating the Federal Tax Service’s decision to re-assess taxes and to impose liability on the company. Therefore, if the compensation for termination of a labor contract does not exceed the employee’s five monthly salaries, then it can be recorded as the company’s expenses, deductable from the profit tax base.
Over several years the company dismissed eight employees, paying them the termination compensations in total amount of RUB 1,3 mln, which brought the tax authorities’ attention. In the opinion of the Federal Tax Service, these payments were not economically justified and necessary, since they were not mandatory under labor law. Hence, the company included them into the deductable expenses illegally and therefore the Federal Tax Service re-assessed taxes and imposed overdue interest and fines on the company.
However, the company did not agree with the tax authorities and resorted to court, arguing that the payments were economically justifiable, because they allowed the company to minimize its expenses in comparison to the expenses it would have borne at staff reductions, and allowed the company to avoid conflicts with its former employees. Still, the courts of the first, appellate and cassation instances ruled in favor of the Federal Tax Service, arguing that the severance compensations were not part of the company’s labor expenses, since they were made on the basis of additional agreements simultaneously with the order on employee’s dismissal.
The Supreme Court, however, disagreed with this approach, declaring the decision of the tax inspectorate illegal. The Court took into consideration the fact that the payments in question were aimed at maintaining the balance of interests between the parties and were not intended exclusively at the enrichment of the dismissed employees. The Court also emphasized that the amount of payments may be only disputed only if it is significant and manifestly exceeds the conventional amount of the termination compensation, what was not the case.
Therefore, this decision of the Supreme Court limits the Federal Tax Service’s margin of appreciation in assessment the taxpayer’s decisions on paying compensations when the labor contract is terminated by the mutual agreement of the parties.
28.03.2017 — Supreme Court to Decide Whether It Is Legal to Assign Receivables Arising out of Government Contract
Currently, the Supreme Court is considering the claim of a company, which has acquired receivables from the municipal customer via assignment. Lower instance courts have dismissed the claim, stating that from 1 June 2015 the prohibition to assign the rights arising out of contracts concluded via mandatory tender procedure to any third parties entered into force (Art. 448(7) of the Civil Code). However, the company argues that the prohibition of assignment provided by the Civil Code is not applicable, since government contracts are regulated by special legislation, which lacks such a prohibition.
In this case the company purchased a receivable towards the municipal authorities, which have accepted the works under the government contract, but have not paid for the works performed. The court of first instance granted the claim on the recovery of debt in part. However, the appellate and the cassation court dismissed the claim and referred to the new provision of the Russian Civil Code (Art. 448(7), effective from 1 June 2015), which prohibits winners of tenders to assign rights and obligations arising out of contracts concluded via tender procedure if the tender was mandatory by law. Consequently, in the courts’ opinion, in the case at hand the assignment of the receivables was illegal and void.
But in the company’s opinion the general rule of the Civil Code is not applicable, and the case should be decided on the basis of the special legislation regulating public procurement (Art. 95 (5) of the Federal Law on contractual system No. 44-FZ). These norms only prohibit the change of the contractor and do not contain prohibition on assignment of a receivable arising out of government contracts. On 13 April the Supreme Court will decide whether the receivables could have been assigned.