Foreign Representative Office: How to Confirm the Tax Status And Avoid Disputes with the Tax Inspectorate
Attention to management of Foreign Representative Office in Russia.
We present our issue of the publication of our auditing firm, designed specifically for managers and accountants of representative offices of foreign companies in Russia . In each issue of newsletter, we will talk about one of the pressing issues of accounting and taxation of representative offices. Also, we try to offer solutions based on our solid practical experience of working with rep-offices.
If you want to leave your comments or discuss a topic, you can write to the address info@rtf-group.ru or directly to the author of the material.
The theme of this issue: «Foreign Representative Office: How to Confirm the Tax Status And Avoid Disputes with the Tax Inspectorate».
G. NEVEROV
Director RTF-Audit
neverov@rtf-group.ru
About author:
The auditor qualification certificate, certificate of competence as a professional accountant, total work experience as a chief accountant and auditor for 15 years. Author of "Accounting forms: problems of manufacture and application", numerous articles in trade press.
Read more in this issue:
The term of a "permanent establishment".
First of all, let us concern the term a "permanent establishment". Both in international agreements on double taxation avoidance and in Chapter 25 of the Tax Code (TC) of the RF this term is traditionally intended for the purposes of income taxation: in case of having a permanent establishment in the Russian Federation, a legal entity is obliged to pay income tax. Besides the "permanent establishment" status influences its general tax status and changes not only the scope of its income tax obligations.
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VAT.
According to clause 1, Article 148 of TC of the RF the place of provision of works (services) shall be determined as the territory of the Russian Federation, if the buyer of works (services) carries out its economic activity within the Russian Federation. This provision covers only those kinds of work and service stipulated in subclause 4, clause 1, Article 148 of TC of the RF: advising, legal, accounting, engineering, advertising services, etc.
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Property Tax.
Pursuant to clause 1, Article 373 of TC of the RF companies, to which the property considered as an item of taxation in pursuant to Article 374 of TC of the RF belongs, shall be recognized as property tax payers. Movable and immovable property relating to fixed assets, and the property granted under a concession agreement shall be recognized as taxation items for foreign companies that carry out their activity in the Russian Federation through their permanent establishments. For the purpose of Chapter 30 of TC of the RF such foreign companies keep accounting records of taxation items in the procedure stipulated in the Russian Federation for maintaining accounting records.
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Income Tax.
For the purposes of charging income tax it does not matter, which accounts of a foreign company (the headquarters' accounts abroad or accounts of the Representative office in the Russian Federation) were used to make settlements with the buyer (this fact is mentioned in cl.3.2. of Recommended Practice).
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How to Prove Activities of an Auxiliary Nature.
For the purposes of income tax evasion the activity of a separate subdivision of a foreign company in Russia shall not cause the foundation of a permanent establishment. In order to have no disputes arisen with the tax authorities concerning the status of the Representative office, the latter should avoid taking any actions that may be related to income provision.
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The Existence of a "Permanent Establishment".
Direct participation of the Russian Representative office of a foreign company in conducting foreign economic transactions involves the foundation of a permanent Representative office in the RF, especially if such transactions concern further introduction of commercial activities in Russia.
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The Absence of a "Permanent Establishment".
The activity of a foreign company, the offices of which receive orders throughout the Russian Federation for trading under price-lists and issue to buyers the goods they ordered and paid for, is recognized as the activity of an auxiliary nature without further foundation of a permanent representative office in the Russian Federation, as the headquarters sent the goods to the appropriate individuals, and after receiving the goods by post, the Representative office could transfer them to no third parties, but to the given buyer (Regulation dated March 01, 2002 of the Presidium of the Supreme Commercial Court of Moscow District under case No. КА-А40/948-02).
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