Google tax changes in 2019
- What has changed in the VAT on electronic services in 2019?
- From which organizations are the duties of a tax agent for VAT services in electronic form from 2019?
- Who pays VAT on Google and Apple in 2019?
- Should a foreign software distributor pay VAT on a non-resident?
- Which foreign organizations should register for VAT on services in electronic form in 2019?
- Do foreign distributors have to register for VAT in 2019?
Answers under the cut.
1. What has changed in the VAT on electronic services in 2019
On January 1, 2019, amendments to article 154.2 of the Tax Code of the Russian Federation on VAT for electronic services, which are commonly referred to as the “ Google tax ” , came into force . Now, foreign organizations selling services in electronic form to Russian organizations and entrepreneurs must register for tax purposes and pay VAT on their own.
Until 2019, Russian legal entities and individual entrepreneurs purchasing services in electronic form from a foreign organization were required to pay VAT as tax agents. From 2019, this duty is removed from Russian buyers of services in electronic form in full, due to the fact that they are no longer recognized as tax agents for VAT.
Changes in VAT on electronic services are related to the following amendments:
- Previously, foreign organizations were required to get registered for tax purposes and pay VAT in Russia when selling services in electronic form to individuals. Since 2019, reference to individuals has been excluded from article 83 of the Tax Code of the Russian Federation on tax accounting of organizations and article 174.2 of the Tax Code of the Russian Federation on services in electronic form. Therefore, now the grounds for tax registration and VAT payment are not limited to the sale of electronic services to individuals: the purchase of such services by a Russian organization or an individual entrepreneur entails equivalent tax obligations for a foreign organization.
- Taking this logic into account, paragraph 9 of Article 174.2 of the Tax Code of the Russian Federation, which previously imposed obligations on Russian organizations and entrepreneurs in the case of purchasing services in electronic form from a foreign organization to calculate and pay VAT as tax agents, became invalid. Now the non-resident pays VAT on the cost of services in electronic form, regardless of the status of the buyer.
2. From which organizations are the duties of a tax agent for VAT on services in electronic form removed from 2019
According to the Letter of the Ministry of Finance 03-07-08 / 76139 dated 10.24.2018 , if a foreign organization selling services in electronic form did not register for tax accounting in Russia, this foreign organization is responsible for non-payment of VAT. In the case of voluntary payment of VAT by a Russian organization or an individual entrepreneur as a tax agent, deductions of the paid tax amounts are not provided for in Chapter 21 of the RF Tax Code.
As we indicated above, from 01/01/2019, non-residents are charged with the obligation to calculate and pay VAT, regardless of the status of the buyer of services in electronic form.
Until 2019, when purchasing services in electronic form from a foreign organization, Russian organizations and individual entrepreneurs bore the duties of a tax agent on the basis of paragraph 9 of Article 174 of the Tax Code of the Russian Federation. The use by the buyer of USN or UTII, which exclude the payment of VAT from its own sale, did not remove from Russian organizations and individual entrepreneurs the obligation to pay VAT on a foreign company. Such a foreign company should not have been registered for tax purposes in Russia and tax agents paid for it for VAT.
From 2019, the above-mentioned paragraph 9 of article 174.2 of the Tax Code of the Russian Federation loses its force. Therefore, Russian organizations and entrepreneurs stop paying VAT as tax agents in the case of purchasing services in electronic form from non-residents.
At the same time, it doesn’t matter whether the given foreign organization got tax registration in Russia or not, and whether it actually pays VAT or not.
At the same time, the provisions of paragraph 10 of Article 174.2 of the Tax Code of the Russian Federation, according to which Russian organizations, individual entrepreneurs or separate subdivisions of foreign organizations located in the Russian Federation - intermediaries registered with the tax authorities, are still recognized as valid, are tax agents. and carrying out business activities with participation in settlements directly with the buyer on the basis of contracts of commission, commission, agency or other similar agreements with foreign organizations animations providing such services.
As a result, if a Russian entrepreneur or organization purchases services in electronic form for their own use, they are not recognized as tax agents and do not pay VAT for a non-resident. And vice versa, if an entrepreneur or a Russian organization only participates in settlements with the buyer of the service as an intermediary under an agreement with a foreign organization, the Russian intermediary has a duty to pay VAT on the amount of the sale of services to such a buyer. A direct exception to this rule was made only for members of the national payment system and telecom operators.
The open list of “intermediary” contracts creates legal uncertainty. In our opinion, a licensed rights transfer scheme is not mediating in its legal nature. Rights are acquired and realized with the payment of own taxes in Russia from the full amount of the sale.
However, there may be problems with the qualification of relations under distribution agreements, where there is no clear description of the licensing scheme, but only the “right to resell”. To reduce these tax risks, localization of distribution agreements is required by bringing them in line with the types of contracts described in Russian law.
3. Who pays the VAT from the commission of Google and Apple in 2019
Among the services in electronic form, among other things, the provision of services through the Internet to provide technical, organizational, informational and other opportunities, carried out using information technologies and systems, to establish contacts and enter into transactions between sellers and buyers. It is for these services that Google and Apple charge developers to commission the sale of their applications through their sites.
As we found out above, since 2019, foreign organizations, when selling services in electronic form to Russian persons (not important: individuals, businesses or individual entrepreneurs) must pay VAT on their own. Therefore, when purchasing services in electronic form from Google or Apple, Russian organizations and entrepreneurs are exempted from the duties of a tax agent and do not pay VAT.
4. Should a foreign software distributor pay VAT for a non-resident?
Usually a distribution agreement with a foreign rightholder provides for granting end users the right to use the software in two ways, depending on the characteristics of such software. In one case, it is about providing the possibility of installing computer programs on user equipment, in the second about providing remote access to an online service that operates on the basis of such software.
Accordingly, if a non-resident implements a license to use the software to a Russian buyer, there are two independent reasons for the emergence of VAT obligations:
- The sale of a license for software that requires installation on a user equipment (“downloadable software”) is governed by paragraphs.4.4 and paragraph.148 of the Tax Code of the Russian Federation;
- Providing access to the service in the form of issuing a license to use its software is subject to Article 174.2 of the RF Tax Code on services in electronic form.
Therefore, one should not confuse the grounds for VAT payment in connection with the provision of services in electronic form with the implementation of “downloadable” software or rights to it.
Yes, the list of services in electronic form refers to, among other things, “the granting of rights to use programs for electronic computers (including computer games), databases via the Internet, including by providing remote access to them, including updates to them and additional functionality.
However, this is a special case, which is made dependent on the presence of the main features of the service in electronic form. The services in electronic form include only services that are provided automatically with the use of information technology.
In classic software licensing agreements , the license is granted and software copies are transferred manually. This is especially true of complex software systems that require customization and implementation. In other words, the transmission of an instance of software over the Internet does not generate the service in electronic form.
Therefore, Russian buyers or distributors of foreign software retain the duties of a tax agent on the general basis of Article 161 of the Tax Code of the Russian Federation, since The provisions of Article 174.2 of the RF Tax Code on services in electronic form have not been applied to them and will not apply.
In 2019, as before, the procedure for applying VAT when importing “downloadable” software is governed by a combination of the following rules of the RF Tax Code:
- on determining the place of sale of licenses for copyright objects at the location of the buyer (Clause 4, Clause 1, Article 148 of the RF Tax Code);
- on the duties of a tax agent to calculate and pay VAT for foreign companies that are not tax registered in Russia (Clause 1, Article 161 of the RF Tax Code)
- on the release of the implementation of the right to use the software under a license agreement (p.26. Clause 1 of Article 149 of the Tax Code of the Russian Federation).
With this in mind, the Russian distributor (buyer) of foreign software is a tax agent, but the remuneration paid to a foreign company under a software license agreement does not have to pay VAT, referring to clause 26 of paragraph 1 of Article 149 of the RF Tax Code. Other sales objects associated with software licenses (for example, consulting services and technical support) continue to be subject to VAT. Therefore, the Russian distributor continues to pay VAT in 2019 from such services as a tax agent, as before.
In the case of "licensing" access to cloud services, from 2019 the distributor is relieved of his duties as a tax agent. If this is pure SaaS, the relations of the parties should be qualified according to article 174.2 of the RF Tax Code. In this regard, the obligation to pay Russian VAT is assigned to a foreign organization that provides access to such a service to Russian users.
5. Which foreign organizations should register for VAT on services in electronic form in 2019
The procedure for tax registration of foreign organizations in connection with the sale of services in electronic form is set out in clause 4.6. Article 83 of the Tax Code.
Until 2019, foreign organizations were required to get up for tax accounting:
- in the implementation of services in electronic form and the implementation of direct calculations with an individual;
- when participating in settlements directly with an individual when rendering intermediary services to a foreign organization that provides services in accordance with claim 1 above.
From 2019, the mention of individuals is excluded from the indicated norms. Therefore, these rules apply to the sale of services in electronic form to any Russian customers, including organizations and individual entrepreneurs.
6. Should foreign distributors register with VAT in 2019
A foreign organization distributes software in Russia through a distributor. Should it get registered for VAT in 2019?
If we are talking about the distribution of software that requires installation on the user equipment (“downloadable software”), then registration of a foreign organization with the Russian tax authority is not required.
In this case, the rules on VAT when importing “downloadable software” into Russia have not changed. Here you need to be guided by the provisions of Clause 4, Clause 1, Article 148 of the RF Tax Code, which establish the place of sale at the location of the buyer (in Russia) when transferring licenses, copyrights and other similar rights, consulting services, and information processing services.
When purchasing these licenses and services by a Russian organization or individual entrepreneur, the latter perform the duties of a tax agent in the general manner provided for in Article 161 of the Tax Code of the Russian Federation.
Therefore, foreign copyright holders of “downloadable” software delivered to Russia under license agreements do not have tax registration obligations from 2019.