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Foreign companies like Google and Apple may pay VAT in Russia even if they sell their services from abroad

As reported rbc, under new proposed draft law foreign companies, selling e-books, music, software, must pay VAT in Russia, even if they sell goods or services in Russia from abroad. This law can cause increase of prices for images, software, music, movies, games, e-books. It was proposed to impose VAT also on advertising in internet and hosting services. According to statement of Vladimir Parahin, one of the authors among others, foreign companies are the main suppliers of such services in Russia. He believes it is not fair, if someone downloads software through App Store on a territory of Russia, and Apple pays nothing to Russian budget. Russian companies pay VAT to Russian budget. Such disparity forces Russian companies to incorporate abroad in order to avoid taxation. It is not good for Russian budget.

Parahin believes there will be no complexities in implementation of this law. In order to pay VAT foreign company need to be registered online on Federal Tax Services website. What is could mean for companies and their customers. Companies like Google, Apple could accept such conditions, but what about other companies? If customer would like to buy software of e-book in other online store, not so famous in Russia and in the world, and store sells services or goods online to this customer, what should such store to do, even if this store does not know about this law amendments? De jure it can infringe the Russian law. And in a case of law infringement by such store what kind of punishment will be imposed? Russian customers will be prohibited to buy services or goods abroad at this store? Or Russian government hopes that all foreign companies will register on website of Federal Tax Service? Even if this law will apply to foreign companies having representative offices or subsidiary in Russia, they can leave Russian jurisdiction if the economic climate will be not so good for their business. Or as a result all expenses, connected with implementation of proposed amendments in tax law, can be “included” in prices and Russian customers will pay for “fair balance” of conditions for Russian and foreign companies.

Such tax law amendments have high chances to be adopted. One of game developers thinks that if legislators really want to help to Russian companies, they should not only impose VAT on foreign companies but also abolish all rates of unified social tax (about 26%), because introduction of VAT will cause increase of expenditures and decrease of revenues for Russian companies benefiting from defects in Russian law. Due to crisis Russian customer are not ready yet to adapt to price increases. Karen Kazaryan from Russian association of electronic communications proposes to abolish VAT for Russian companies.