Google tax law passed

On June 15, the State Duma of the Russian Federation adopted in its third final reading the so-called “Google tax law”. The bill received its name in connection with the introduction of VAT on the "provision of electronic services" by foreign IT companies. The full text of the bill can be found here .

What are the risks of tax amendments to Russian intermediaries and consumers?

The list of services in electronic form

The provision of services in electronic form recognizes their provision through the information and telecommunication network, including through the information and telecommunication network Internet, automatically using information technologies.

A complete list of such electronic services is provided in a new article 1742 of the Tax Code of the Russian Federation.
Electronic services include:

1. 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;

2. the provision of advertising services on the Internet, including using programs for electronic computers and databases operating on the Internet, as well as the provision of advertising space (space) on the Internet;

3. the provision of services for the placement of proposals for the acquisition (sale) of goods (works, services), property rights on the
Internet;

4. the provision through the Internet of services for the provision of technical, organizational, information and other opportunities, carried out using information technologies and systems, to establish contacts and enter into transactions between sellers and buyers (including the provision of a trading platform operating on the Internet in real time, at which potential buyers offer their price through an automated procedure and the parties are notified of the sale by sending automatically cally generated messages);

5. ensuring and (or) maintaining a commercial or personal presence on the Internet, supporting electronic resources of users (sites and (or) pages of sites on the Internet), providing other users of the network with access to them, providing users with the opportunity to modify them ;

6. storage and processing of information, provided that the person who submitted this information has access to it through the Internet;

7. Providing real-time computing power to place information in an information system;

8. the provision of domain names, the provision of hosting services;

9. the provision of services for the administration of information systems, sites on the Internet;

10. the provision of services carried out automatically through the Internet when the buyer enters data, automated data retrieval services, their selection and sorting by requests, the provision of these data to users through information and telecommunication networks (in particular, stock exchange reports in the mode real time, real-time implementation of automated translation);

11. Granting rights to use electronic books (publications) and other electronic publications, informational, educational materials, graphic images, musical works with or without text, audio-visual works through the Internet, including by providing remote access to them for viewing or listening through the Internet;

12. the provision of services for the search and (or) presentation to the customer of information about potential buyers;

13. providing access to search engines on the Internet;

14. conducting statistics on sites on the Internet.

The services in electronic form do not include , in particular, the following operations:

1. sales of goods (works, services) if, when ordering via the Internet, goods are delivered (work is performed, services are provided) without using the Internet;

2. implementation (transfer of rights to use) of programs for electronic computers (including computer games), databases on tangible media;

3. Providing consulting services by e-mail;

4. the provision of services for providing access to the Internet.

When does VAT arise for services in electronic form

VAT is charged on the provision of electronic services by foreign individuals to Russian customers. It is assumed that the buyer is in the territory of Russia in the following cases:

1. The buyer is an organization or individual entrepreneurs - at the place of state registration;

2. Buyer - an individual in respect of whom any of the conditions is met:

• the place of residence of the buyer is the Russian Federation;
• the location of the bank where the account is used, used by the buyer to pay for services, or the electronic money operator through which the buyer pays for services, is located on the territory of the Russian Federation;
• the buyer's network address used to purchase services is registered in the Russian Federation;
• The international country code of the telephone number used to purchase or pay for services is assigned to the Russian Federation.

Validity of VAT exemptions for electronic services

During the consideration of the bill, amendments to paragraph 26 of paragraph 2 of Article 149 of the Tax Code of the Russian Federation, which provides for the exemption from VAT of license fees under contracts for the use of computer programs, were excluded from it.

The intersection with the list of “services in electronic form” is available only in the clause stipulating “granting rights to use programs for electronic computers (including computer games), databases via the Internet, including by providing remote access”.

However, this collision is only visible. When qualifying transactions in tax legislation, the terms and provisions of civil law are used. As we wrote repeatedlyearlier, in civil law, a license agreement can be concluded only in cases where a separate copy of the software is transferred to the actual use of the licensee.

Thus, when providing services based on software, including by providing remote access to it, a license agreement cannot be concluded, because the software instance is not transmitted (not loaded) to the user's device.

Accordingly, the VAT exemption in cases of "the provision of electronic services" is not applied.

Who pays the Russian VAT for electronic services

In general, the following algorithm applies:
1) In the case of the provision of electronic services by a foreign company under a direct contract with an individual, such a foreign organization pays Russian VAT.

2) If the services in electronic form are provided by a foreign company of a Russian organization or individual entrepreneur or a representative office of a foreign company in Russia, the latter shall independently calculate and pay VAT on the amount transferred to the foreign company as a tax agent.

When the "Law on Value Google" will come into force

document sent for approval to the Council of the Federation. After approval in the upper house of Parliament (of which there is no particular doubt) the bill "on tax on Google" will be submitted to the President.

The law is planned to enter into force on January 01, 2017.

Source .