Google App and Ad Sales Taxes
We continue a series of notes on taxes when monetizing mobile applications on foreign sites.
In the last article, What taxes should be paid when withdrawing income from applications in Apple iTunes, we briefly outlined the tax calculation algorithm for generating income in Apple iTunes. We’ll now discuss the sales taxes for Google Play apps and Google AdSense ads .
We will be guided by the following Google agreements, which are in the official Russian translation on the corporation's website:
- Google Play Software Distribution Agreement
- Google Play Terms of Service
- Google AdSense Terms of Service
Details under the cut.
1) Taxes of the author-developer of the application
Like last time, let's start with the most interesting - a single author, who receives income from the results of his creative activity.
Current legislation does not require registration as an individual entrepreneur in the event a citizen receives income from the use of his own works. Computer programs are protected by copyright as literary works. Hence the conclusion : any methods of using the software that bring income to the author do not fall within the definition of entrepreneurial activity.
But at the same time there is a significant nuance: by “using” the software we mean the disposal of rights to it from the point of view of copyright. In other words, the receipt of income by the author under a software license agreement is not related to entrepreneurial activity.
As a result, at the end of the fiscal year, the author only needs to file an income statement, where he should indicate the proceeds from the sale of his applications on Google Play and pay 13% of personal income tax from them. At the same time, the author does not care where and how Google pays taxes on such income and what fees it holds.
It should be remembered that the considered option is valid only when selling your own software . In other words, the author, if necessary, must confirm the exclusive rights to such software.
The easiest way to confirm is the state registration of computer programsin Rospatent. Based on the results of registration, a Certificate is issued in which the copyright holder and author are clearly indicated. In the case under consideration, they should coincide 100%. Unless another person indicated in the Certificate is proved, it will be considered the author and copyright holder of the program.
Other options for the systematic extraction of income through the use of software can be attributed to entrepreneurial activity. What does this relate to? For example, displaying Google AdSense ads in an app might be considered an advertising service . With this method of monetizing applications, we recommend that the author register as an individual entrepreneur and withdraw the income from Google AdSense to the bank account of the IP with all the resulting tax obligations.
2) Taxes of application developers in the form of individual entrepreneurs and organizations
Tax on income and income under the simplified tax system
The issue of taxing the income from the sale of applications is described in detail in the previous article on the withdrawal of money from Apple iTunes. Therefore, we will not repeat.
With regard to advertising revenue under the Google AdSense program, the approach is as follows: only funds received in your account are considered revenue, since Google acts as the customer of advertising services.
In other words, in the case under consideration, not an agent scheme for working with end consumers is used, but a subcontract. Google buys and resells advertising services on its behalf. Therefore, the Google margin does not increase the amount of developer’s income, unlike the sale of applications through the Google Play platform under an agent scheme.
VAT on the implementation of applications and agency services
As you recall, from January 1, 2017, the concept of “services in electronic form” was introduced into the Tax Code of the Russian Federation (hereinafter referred to as the Tax Code of the Russian Federation) and an obligation was established to pay VAT on them, which is commonly called “Google tax”.
In a previous article on Apple's income taxes, we discussed in detail what types of services are subject to VAT under the new law.
However, developers continue to ask questions on the validity of retention by foreign service companies, including Google, of VAT on sales to Russian consumers.
Let's return to the definition of services in electronic form:
the provision of services in electronic form is the provision of services through the information and telecommunication network, including through the information and telecommunication network "Internet", automatically using information technologies "(Clause 1, Article 174.2 of the Tax Code of the Russian Federation). Among these services, the Tax Code of the Russian Federation directly refers to “granting 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 .
We look at clause 2 of article 174.2 of the Tax Code of the Russian Federation:
When providing foreign organizations to individuals who are not individual entrepreneurs (hereinafter referred to as individuals) services in electronic form ... ”. Next, paragraph 3 repeats the disposition: “Foreign organizations providing electronic services to individuals specified in paragraph 1 of this article ...
Conclusion: this condition should be applied only in the case when a foreign organization provides rights to the software on its own behalf. If in the case of Apple it is still possible to agree with a stretch to the fulfillment of these conditions, then under the agreement with Google, in our opinion, they are absent.
Let us explain that Apple acts under a contract with the developer as a commission agent. Therefore, contracts with the end user are concluded on behalf of Apple. Google, on the contrary, positions itself in relations with end users as a developer agent who concludes transactions on behalf of the developer.
See section 2 of the Google Play Terms of Service:
Sales directly, through an intermediary and through applications. By purchasing Content on Google Play, you buy it:
a) directly from Google (the “Direct Selling”);
b) the content provider (hereinafter - the Provider), in relation to whom Google acts as a Reseller (hereinafter - the Reseller);
c) from the Provider of the application in the case of a purchase through the Android application (hereinafter - Sale through the application).
For each purchase of Content, you enter into a separate sales contract:
d) on the basis of the Terms (if applicable) with Google Commerce Limited (in the case of Direct Sale);
e) on the basis of the Terms (if applicable) with the Provider of the acquired Content (in the case of Sales through an intermediary);
f) with the Provider of the acquired Content (in the case of Sales through the application).
Such a separate contract as provided for in subparagraph (e) or (e) above complements the contract with Google Inc. use of the Service (i.e. these Google Play Terms of Service).
Therefore, from the position of contracts concluded with the end user, the implementation of software and content is carried out under contracts with the developer.
Some difficulties for developers are interpreted in paragraph 3.4. Google Play Software Distribution Agreements. The latter directly relate to the terms of payment of Google VAT for the developer.
If Google collects and pays value added tax on customer payments (in accordance with applicable local laws) and these payments comply with the requirements for value added tax on such payments, payment of this tax is not the responsibility of the Developer. In cases where Google is required to collect and pay taxes, as described in this section, the Developer and Google take into account for tax purposes the delivery from the Google Developer, and the Developer assumes all tax obligations associated with such an additional supply.
Additionally, we pay attention to the second significant point. Remuneration under a software license agreement is exempted from Russian VAT on the basis of paragraphs 26, paragraph 2, Article 149 of the Tax Code of the Russian Federation. These provisions apply equally to foreign organizations. See, for example, on this issue, the letter of the Ministry of Finance of 03.04.2017, N 03-07-08 / 19407 .
I admit, we don’t understand why Google doesn’t use the above 2 grounds to exempt Russian users from paying for software purchased on Google Play from VAT. It’s just right for Russian consumers to
Tax implications of discrepancies for developers.
It is often asked whether such provisions create additional VAT risks for Russian developers. What if Google does not pay VAT in Russia or pays it unreasonably? Should the developer, as a tax agent, not pay VAT again in this case?
I think that such risks are absent for the following reasons:
- In the case under consideration, a VAT taxpayer is considered a foreign organization (see article 174.2 of the Tax Code of the Russian Federation);
- Additionally, you can refer to the fact that the rights under a software license agreement are exempted from VAT (paragraph 26, paragraph 2, article 149 of the Tax Code of the Russian Federation).
- Developers at the STS, in principle, do not pay VAT, and the duties of a tax agent are absent here.
If the fulfillment of the first condition does not depend on you, then the second is completely within the power of each developer. In order to reduce the risk of tax liability for non-payment of VAT from the sale of applications to Russian users on DOS developers, it is enough to submit their own License Agreement with the end user (EULA) when downloading the software , which takes into account the nuances of exemption from VAT of software applications. If desired, the EULA terms can be extended to online services. How to do it correctly, the subject of a separate article.
VAT on Google’s fee under a contract with the developer.
There are no differences from paying for Apple. In the case under consideration, Google unambiguously renders services to the Russian developer in electronic form with a place of sale in Russia. Therefore, the developer, as a tax agent, is required to withhold and pay VAT on the amount of the agent’s fee for Google.
VAT on sales of advertising services
In this matter, everything is quite simple and unambiguous. See section 6 of the Google AdSense Terms of Service:
As part of your relationship with Google, Google is responsible for all taxes (if any) associated with transactions between Google and the advertisers who place Ads on the Inventory. You are responsible for all taxes (if any) associated with the Services, other than taxes based on Google’s net profit. All payments made to you by Google in connection with the Services will be considered to include tax (if applicable) and will not be subject to adjustment.
According to Article 148 of the Tax Code of the Russian Federation, the place of sale of advertising services is determined by the location of the buyer. The buyer of advertising services is Google. Therefore, there is no place of sale in Russia. Therefore, the Russian VAT on the remuneration of the developer for the placement of Google ads in applications is not charged .
Moreover, if the developer uses the simplified tax system, then he basically has no obligation to pay VAT on the cost of his services .
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