VAT ON CROSS-BORDER SUPPLY OF E-SERVICES IN RUSSIA: EFFECTIVENESS, EFFICIENCY AND COMPARISON WITH THE BEST PRACTICES

Introduction

The global tax system has been constantly developing, but most of its core principles were designed prior to the digitalization and globalization processes. Thus, the weaknesses of outdated rules have impeded the integration and growth of national economies. Taxation gaps and mismatches (especially in the cross-border trade) have allowed companies to minimize their tax burden, consequently eroding national tax bases. Therefore, issues of base erosion and profit shifting (BEPS) have been emerging in the international political agenda for several decades (Kingson, 1981; OECD, 2015).

There is no worldwide consensus on the design of the digital taxation. The OECD’s model of the VAT on digital services in the cross-border context prevails in the realm of indirect taxes. The value-added tax is of vital importance for the countries as almost 20% of budget revenues on average come from VAT (OECD, 2018).

Non-OECD countries are usually the followers, but not the drivers of the reform, although they have sovereignty to alter the amendment. Russia has chosen to partially implement the proposed practices but introduced alternative solutions as well.

Both domestic and international practices evolve rapidly; therefore, this study aims to eliminate gaps in the understanding of the recent shifts in taxation mechanisms. The study contributes to the discussion of VAT rules on cross-border digital services in Russia by answering the following research questions:

• Is Russian VAT on digital services consistent with the stated objectives?

• Is Russian VAT on digital services efficient and to what extent?

• Which practices of indirect taxation on digital commerce can be adopted to improve the existing VAT regulations in Russia?

5

We use theoretical qualitative methods to answer these questions. We conduct a systematic literature review, apply deduction and induction, synthesize the information to provide a coherent analysis of the situation.

We expect this paper to have both theoretical and practical implications. We will contribute to the international discussion of the digital taxation. Currently, many countries are adopting the analyzed set of principles; therefore, the challenges faced by the non-OECD country and ways to surmount them are noteworthy to the global community. Moreover, we will suggest certain policy changes to increase the efficiency of the Russian VAT on cross-border digital services. Our suggestions might be used by the local authorities or by future researchers.

Table of Contents
Introduction ......................................................................................................................................................
4

1. Nature of Digital Supply ...........................................................................................................................
6

2. Overview of Tax Designs for Digital Supplies ........................................................................................
8

2.1.
Overview .............................................................................................................................................
8

2.1.1.
Origin Versus Destination Principle ........................................................................................
11

2.1.2.
Control ......................................................................................................................................
14

2.2. Comparative analysis of taxing B2B/B2C transactions in Russia and abroad ..........................
16

2.2.1.
Foreign Experience ..................................................................................................................
16

2.2.2.
Russian Experience ..................................................................................................................
24

2.2.3.
Taxing B2B/B2C Transactions in Russia and Abroad ...........................................................
33

3. Issues in Taxing Digital Supply ..........................................................................................................
42

3.2.
Issues .............................................................................................................................................
42

3.3.
B2B Transactions. Russia ............................................................................................................
42

3.4.
B2C Transactions .........................................................................................................................
45

4.
Suggestions ...........................................................................................................................................
51

Conclusion ........................................................................................................................................................
58

Bibliography ....................................................................................................................................................
61

Appendix 1
.......................................................................................................................................................
69

Добрый день! Уважаемые студенты, Вашему вниманию представляется дипломная работа на тему: «VAT ON CROSS-BORDER SUPPLY OF E-SERVICES IN RUSSIA: EFFECTIVENESS, EFFICIENCY AND COMPARISON WITH THE BEST PRACTICES»
Оригинальность работы 91%

Bibliography


Alekseev, D. (2018). VAT for e-services provided by foreign companies. Accountor. Retrieved from https://www.accountor.com/en/russia/vat-e-services-provided-foreign-companies

Bopp, M., & Vincke, M. (2018). The road towards a definitive European Vat system.

Switzerland: KPMG.

Cockfield, A., Hellerstein, W., & Lamensch, M. (2019). Taxing global digital commerce. Kluwer Law International BV.

COM/2018/0148 final - 2018/073 (CNS)

Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

Council Implementing Regulation (EU) 2017/2459 of 5 December 2017 amending Implementing Regulation (EU) No 282/2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax

Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax

Council Regulation (EU) 2017/2454 of 5 December 2017 amending Regulation (EU) No 904/2010 on administrative cooperation and combating fraud in the field of value added tax

62

Council Regulation (EU) No 967/2012 of 9 October 2012 amending Implementing Regulation (EU) No 282/2011 as regards the special schemes for non-established taxable persons supplying telecommunications services, broadcasting services or electronic services to non-taxable persons

de Wilde, M. F. (2018). Comparing Tax Policy Responses for the Digitalizing Economy: Fold or All-in. Intertax, 46(6), 466–475.

Deloitte & Touche RCS Ltd. (2016). Russian Vat rules for electronically supplied

services. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/tax/russian-vat-rules-for-electronically-supplied-services.pdf

Doernberg, R. L., & Hinnekens, L. (1999). Electronic commerce and international taxation. The Hague: Kluwer Law International.

Draft Law № 274631-7 from 29.09.2017 “O vnesenii izmeneniq v chasti pervuyu i vtoruyu Nalogovogo Kodeksa Rossiiskoi Federacii i otdel’nye zakonodatel’nye akty Rossiiskoi Federacii” [“On Introducing Amendments to Parts One and Two of Tax Code of the Russian Federation and the certain laws of the Russian Federation”], retrieved from https://sozd.duma.gov.ru/bill/274631-7#bh_hron

Draft law № 962487-6 from 24.12.2015 “O vnesenii izmenenii v chasti pervuyu i vtoruyu Nalogovogo Kodeksa Rossiiskoi Federacii”[“On Introducing Amendments to Parts One and Two of Tax Code of the Russian Federation”].

Dunn, W. N. (2015). Public policy analysis. Routledge.

Em, A. (2018). Osnovnyie napravleniya sovershestvovaniya systemy vzimaniya naloga na dobavlennuyu stoimost’ pri okazanii inostrannymy organizaciyami uslug v electronnoi forme [The main directions of improving the system of Value Added Tax collection when foreign entities provide services on-line]. Aktual'nye Problemy Rossiiskogo Prava, (3), 77–86.

63

Federal State Statistics Service. (2017). Trade in Russia. Moscow.

Federal Tax Service (2020, May 3). List of foreign online service providers registered as VAT payers in Russia, retrieved from https://lkioreg.nalog.ru/ru/registry

Federal Tax Service (2020, May 3). State Register of the Accredited Branch Offices,

Permanent Establishments of Foreign Entities, retrieved from https://service.nalog.ru/rafp/

Fox, J. J., & Bartholomae, S. (2008). Financial education and program evaluation. In Handbook of consumer finance research (pp. 47-68). Springer, New York, NY.

Haslehner, W., Kofler, G., Pantazatou, K., & Rust, A. (2019). Tax and the Digital Economy: Challenges and Proposals for Reform. Kluwer Law International BV.

James, K., & Ecker, T. (2017). Relevance of the OECD International VAT/GST guidelines for non-OECD countries. Austl. Tax F., 32, 317.

Keen, M., Hellerstein, W., 2010, Interjurisdictional Issues in the Design of a VAT, Tax Law Review 2010

Kingson, C. I. (1981). The coherence of international taxation. Columbia Law Review, 81(6), 1151–1289.

Klerk.ru (2019, November 21). Mishustin otchitalsya Putinu o sborah po nalogu na Google [Mishustin accounted to Putin about budget revenues from the “Tax on Google”], retrieved from https://www.klerk.ru/buh/news/492718/

Kommersant (2019, November 18). Iz cifrovyh zakupok vychitayut NDS (Digital

purchases will be VAT-exempt), retrieved from https://www.kommersant.ru/doc/4162786

KPMG. (2018). Russian VAT Rules for E-Services, retrieved from https://assets.kpmg/content/dam/kpmg/ru/pdf/2018/06/ru-en-russian-vat-rules-for-e-services.pdf

64

Lahiri, A. K., Ray, G., & Sengupta, D. P. (2017). Equalisation Levy. New Delhi: BROOKINGS INDIA. Retrieved from: https://www.tmf-group.com/en/news-insights/articles/2019/june/india-equalisation-levy/

Life (2016, June 15). Sud’ba “naloga na Google” [The fate of the “Tax on Google”], retrieved from https://life.ru/p/420281

Millar, R., Roeleveld, J., Xu, Y., Yap, M. (2018). Beyond the EU VAT: Global Perspectives on VAT/GST in the Traditional and Global Economies. In Michael Lang, Pasquale Pistone, Alexander Rust, Josef Schuch et al (Eds.), CJEU - Recent Developments in Value Added Tax 2017, (pp. 141-191). Vienna: Linde Verlag Ges.m.b.H.

Milogolov, N., & Berberov, A. (2017). Analis effectivnosti nalogovoi l’goty po NDS dlya IT-kompanii [The analysis of efficiency of the tax relief on VAT for IT-companies]. Nalogi i Nalogooblojenie, 11, 18–26.

Nalogovyi kodeks Rossiiskoy Federacii (chast’ pervaya) ot 31.07.1998 N 146-FZ (red. From 01.04.2020) [“The Tax Code of the Russian Federation” (part one) from 31.07.1998 N 146-FZ (red. от 01.04.2020)]

Nalogovyi kodeks Rossiiskoy Federacii (chast’ vtoraya) ot 05.08.2000 N 117-FZ (red. ot 24.04.2020) [“The Tax Code of the Russian Federation” (part two) from 05.08.2000 N 117-FZ (red. From 24.04.2020)]

Nejvyšší kontrolní úřad. (2019). Zpráva o koordinované kontrole daně z přidané hodnoty v režimu MOSS provedené NKÚ a BRH [Report on the Coordinated Control of the Value Added Tax in the MOSS Regime]. https://nku.cz/cz/publikace-a-dokumenty/ostatni-publikace/dan-z-pridane-hodnoty-v-rezimu-moss-spolecna-zprava-cr--nemecko-id10608/

65

OECD (2015), Addressing the Tax Challenges of the Digital Economy, Action 1 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264241046-en

OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264271401-en

OECD (2017), Mechanisms for the Effective Collection of VAT/GST When the Supplier Is Not Located In the Jurisdiction of Taxation, OECD Publishing, Paris.

OECD (2018), Consumption Tax Trends 2018: VAT/GST and Excise Rates, Trends and Policy Issues, OECD Publishing, Paris, https://doi.org/10.1787/ctt-2018-en.

OECD (2018), Tax Challenges Arising from Digitalisation – Interim Report 2018: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264293083-en

Papis-Almansa, M. (2019). VAT and electronic commerce: The new rules as a means for simplification, combatting fraud and creating a more level playing field? Era Forum, 20(2), 201–223.

Proposal for a COUNCIL DIRECTIVE on the common system of a digital services tax on revenues resulting from the provision of certain digital services

Publications Office of the EU. (2019). VAT MINI ONE-STOP-SHOP (VAT MOSS),

retrieved from https://ec.europa.eu/taxation_customs/sites/taxation/files/moss-statistics-2019.pdf

Publications Office of the European Union. (2016). Vat Aspects of cross-border ecommerce - Options for modernisation. Luxembourg.

RBC (2019, December 2). Payments of several companies on the “Tax on Google” got

hung up, retrieved from https://www.rbc.ru/economics/02/12/2019/5ddfd8309a7947d582785435

66

RBC (2019, December 2). Platezyi nekotoryh kompaniy po naalogu na Google zavisli u nekotoryh kompaniy [Payments of several companies on the “Tax on Google” got

hung up], retrieved from https://www.rbc.ru/economics/02/12/2019/5ddfd8309a7947d582785435

RBC (2019, October 3). Global’nye cifry dlya rossiisskogo byudjeta [Global figures

for the Russian budget], retrieved from https://www.rbc.ru/newspaper/2019/10/03/5d946e0d9a79470aa64f9ffe

RBC (2020, March 13). Ananlytiki ocenili preimushestva dlya Rossii ot naloga na Google i Facebook [Analytics estimated the benefits from the tax on Google and

Facebook for Russia], retrieved from https://www.rbc.ru/economics/13/03/2020/5e6a26569a7947101d1bd128

Schön, W. (2017). Ten questions about why and how to tax the digitalized economy.

SkLegal 06: Nalogooblozeniye (2020, January 3). Skolkovo Community, Retrieved from http://sk.ru/foundation/legal/m/sklegal06/

The European Union. (2018). The Vat e-commerce package and the Moss What

changes on 1 January 2019. Retrieved from https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services/sites/mossportal/files/what_is_new_as_of_2019.pdf

The European Union. (2020). Guide to the mini One Stop Shop (MOSS). Retrieved

from https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services/content/mini-one-stop-shop_en

The Federal Law №63-FZ from 6 April 2011 “Ob elektronnoy podpisi” [“On the digital signature]

The Federal Tax Service. The Letter of the Federal Tax Service from 24/04/2019 № СД-4-3/7937@, (2019). Moscow.

67

The Federal Tax Service. The Order of the Federal Tax Service from 29.08.2017 № ММВ-7-15/693@, (2019). Moscow.

The Law No. 7194 on Digital Service Tax and the Amendment of Certain Laws and Law Decree No. 375 ("Law No. 7194")

The Letter of the Federal Tax Service from 24.04.2019 N СД-4-3/7937 "O poryadkie primeneniya NDS pri okazanii inostrannymy organizaciyami uslug v electronnoy forme s 1 yanvarya 2019 goda" ["On the procedure of the VAT on cross-border digital supply from 1 January 2019"]

The Ministry of Finance of the Russian Federation. The Letter of the Ministry of Finance of the Russian Federation from 15.03.2019 No. 03-07-08/17231, (2019). Moscow.

The Ministry of Finance of the Russian Federation. The Letter of the Ministry of Finance of the Russian Federation from 28.03.2019 No. 03-07-08/21484, (2019). Moscow.

The Ministry of Finance of the Russian Federation. The Letter of the Ministry of Finance of the Russian Federation from 04.04.2019 No. 03-07-08/23760, (2019). Moscow.

The Ministry of Finance of the Russian Federation. The Letter of the Ministry of Finance of the Russian Federation from 28.03.2019 № 03-07-08/21484, (2019). Moscow.

The Ministry of Finance of the Russian Federation. The Letter of the Ministry of Finance of the Russian Federation from 15.03.2019 № 03-07-08/17231, (2019). Moscow.

68

The Ministry of Finance of the Russian Federation. The Letter of the Ministry of Finance of the Russian Federation from 05.04.2019 № 03-07-08/24055, (2019). Moscow.

The OECD (2018), Model Tax Convention on Income and Capital 2017 (Full Version), OECD Publishing. https://doi.org/10.1787/g2g972ee-en

Tikhonova, A. (2018). Nalog na Google: kak ne sdelat shag nazad v blizhaishem buduschem? [Google tax: how to avoid stepping back in the near future?] . International Accounting, 21(19), 1129–1139.

Tissot, D., & Kabanova, M. (2019). VAT for foreign e-services providers: the Russian tax authorities' new approach. C/M/S Law&Tax;. Retrieved from https://www.cms-lawnow.com/ealerts/2019/06/vat-for-foreign-eservices-providers-the-russian-tax-authorities-new-approach

Turina, A. (2018). Which "Source Taxation" for the Digital Economy? Intertax, 46(6/7).

WTO. (1999). Subsidies and Countervailing Measures overview. WTO. Retrieved from https://www.wto.org/english/tratop_e/scm_e/subs_e.htm