Oda Russian Commercial Law 2007-1

Losses can be carried forward for 10 years. The amount of loss carried forward may no not exceed 30% of the taxable base in any tax year (Art.283, paras.1 and 2).

(3)Tax Rate

The maximum pro t tax rate used to be 35%, of which 11% went to the Federal budget, 19% to the budget of the constituent entities of the Russian Federation, and 5% to the local self governments. In 2001, the rate was signi cantly reduced. At present, the maximum rate of pro t tax is 24%, of which 6.5% goes to the Federal budget, and 17.5% to the budget of the constituent entities.

2)Value-Added Tax (VAT)

Value-Added Tax is said to be the “most fundamental and stable” revenue in Russia. In fact, even in the socialist period, there was a similar indirect tax called “circulation tax”, which was also a source of stable revenue for the state.

VAT was introduced by the 1991 Law on VAT. This Law was incorporated in Part Two of the Tax Code. The basic structure of VAT is the same, but the provisions have become clearer.

(1)Taxpayers

Taxpayers are organisations and individual entrepreneurs. Those with a turnover of less than two million roubles for the preceding three months are exempted from VAT (Art.145).

Other entities may be acknowledged as a taxpayer in relation to the crossing of the customs border of the Russian Federation (Art.143). Foreign companies carrying out entrepreneurial activities in Russia are also regarded as taxpayers. Imported goods are subject to import VAT at the border.

(2)The Object of Taxation

The object of VAT is the realisation of goods, services and work in the Russian Federation. Importation of goods into the customs territory of Russia is also covered (Art.146). The place of realisation is regarded to have been Russia, if the goods were actually in Russia and do not involve dispatching or transportation, or the goods were dispatched or transported from Russia. In cases of work or service, if the work or service is directly related to immovables in Russia, e.g.

design and construction of a piece of architecture in Russia, the place of realisation is Russia. If the recipient of the work/services is engaged in entrepreneurial activities in Russia, Russian VAT is imposed (Art.148). These include legal and accounting services as well as engineering service.

The taxable base of VAT is the value of the product, work, or service including excise, but without taxes (Art.154, para.1).

(3)Tax Rates

The standard rate of VAT is 18%. Reduced rate of 10% is applied to food products and children’s goods.

(4)Exemptions

There is a list of exemptions from VAT including the sale of medical products and the provision of medical services (Art.149). Concerning import VAT, technological equipment which is to be contributed to the capital of Russian entities are exempted. This exemption has been considerably narrowed from the previous VAT Law.

3)Uni ed Social Tax

Uni ed social tax is a novelty introduced by Part Two of the Tax Code. It combines the payment to extra budgetary funds, i.e. the Pension Fund, Social Insurance Fund, and Mandatory Medical Insurance Fund. Contributions to the mandatory work accident insurance are not included and therefore, are still payable separately.

(1)Taxpayers

Taxpayers are employers including organisations, individual entrepreneurs as well as individuals.

(2)The Object of taxation

Object of taxation is determined as “payments and other remuneration paid by the employer to the employee on all grounds” (Art.236, para.1).

vidual entrepreneurs, notaries and other professionals) are required to submit a tax declaration by April 30 every year.

(2)The Object of Taxation

The object of taxation is the world-wide income for residents and Russian sourced income for non-residents (Art.209). The taxable base is all of the income of the tax payer, i.e. not only monetary income, but also income received in kind as well as rights of disposal and material bene ts (Art.210, para.1). Pensions, payments of compensation, alimony, income of farmers (5 years) and state subsidies, among other payments, are exempted from the taxable base (Art.217).

There are some allowances available. These include 3,000 roubles per month standard allowance and 300 roubles per month per child. The minimum taxable annual income has been reduced from 50,000 to 20,000 roubles. The current minimum wage is 83.49 roubles per month.

Deduction of expenses is not generally available for individual income tax, but there are standard deductions, social policy deductions, property deductions and professional deductions. Standard deductions are applicable to those who suffered from the Chernobyl accident and other major accidents, “heroes of the USSR and RF”, and “participants of the Second World War and other military operations for the defence of the USSR” (Art.218). Social policy deductions include donation to a charity, expenses for the taxpayer’s own education and medical expenses (Art. 219). Property deduction covers income received from the sale of a residential house, at, dacha etc. which has been in the ownership of the taxpayer for less than 5 years and expenditure for the construction or purchase of a house or a at (Art.220).

As for “professional deduction”, people who are registered as individual entrepreneurs are allowed to deduct the actual costs directly related to the earning of the income provided that these are supported by documents. Those who receive an income from providing a service or work based upon civil law contracts are entitled to a deduction of the cost directly related to the carrying out of the service or work. Those who receive royalty payments are also entitled to a deduction of expenses (Art.221).

(3)Tax Rates

By the latest amendments to the tax law, individual income tax rate was set at 13% at, instead of the progressive rate which existed earlier. There is a 35% tax rate set for bank interest exceeding three-quarters of the Central Bank re nancing rate. Non-resident individuals are taxed at the rate of 30% (Art.224, paras. 1-3).

8TAXATION OF FOREIGN COMPANIES

1)Foreign Companies with a Permanent Establishment in Russia

The Chapter on Pro t Tax in Part Two of the Tax Code has some provisions on taxation of foreign organisations. Foreign organisations (companies) which perform entrepreneurial activities in the Russian Federation are taxed on the income received as a result of their activities carried out via a permanent establishment (permanent representation – postoiannoe predstavitel’stvo) as well as income from the possession, use, or disposal of the property of the permanent establishment. Costs are deducted.

“Permanent establishment” in this context includes representative of ces, divisions, of ces, agencies, and other places through which the organisations conduct entrepreneurial activities. Permanent establishments are assumed to have been set up as a division of a foreign organisation to conduct entrepreneurial activities such as the following on a regular basis:

i)the use of sub-soil and/or other natural resources;

ii)construction, assembling, repairing etc., service and operation of equipment;

iii)sale of products in the Russian Federation;

iv)providing of other works, services, and other activities in the Russian Federation.

However, the establishment of a division does not in itself create a permanent establishment (Art.306, para.2). The conclusion of a contract by a foreign company of simple partnership (consortium) or a joint venture to be implemented in Russia does not necessary mean that this company is doing business in Russia through a permanent establishment (ibid., para.6).

As a rule, foreign companies with a permanent establishment are taxed at the same rate applicable to Russian organisations (Art.307, para.6).

2)Foreign Companies without a Permanent Establishment in Russia

Foreign organisations without a permanent establishment in Russia are liable for pro t tax on income from Russian sources (Art.309, para.1):

i)dividends paid by Russian companies;

ii)distribution of pro ts or assets of organisations, including distribution of the assets at the time of liquidation;

iii)interests;

15

THE SYSTEM OF SETTLING DISPUTES – PROCEDURE

1JURISDICTION

In the commercial court system, the commercial court of the constituent republics, regions, provinces, cities of Federal signi cance, autonomous provinces and regions handles cases as the rst instance court. The basic rule is that the claim has to be presented to the court of the location of the defendant juridical person or the place of residence of the individual. As an exception, claims against a juridical person which arise from the activities of its subdivision such as a branch or a representative of ce are to be presented to the court where this subdivision is located (Code of Commercial Court Procedure, hereafter, “the Code” Art.35).

A claim vis à vis a defendant located or resident in a foreign country can be brought to the commercial court of the place where the assets of the defendant are located (Art.36, para.3). In addition to the above general jurisdiction, a claim arising from an agreement which has a clause regarding the place of performance can be brought to the court of the place of performance (ibid., para.4). Parties may agree to a different venue in the above cases (Art.37).

There are cases where jurisdiction of a speci c venue is mandatory. These include (Art.38):

i)actions involving real property – the court of the location of the property;

ii)actions involving ships and airplanes – the court of their place of registration;

iii)actions involving the carriage of goods and passengers – the court of the location of the carrier;

iv)actions for the recognition of the debtor as a bankrupt – the court of the location of the debtor;

v)actions for setting aside or enforcement of arbitral awards – the court of the location of the arbitration institution which rendered the award;

vi)actions for the recognition and enforcement of foreign judgments and foreign arbitral awards – the court of the location or place of residence of the defendant, or if it is unknown, of the location of the assets.

The commercial court is empowered to handle cases with foreign and international organisations as well as foreign individuals who are performing entrepreneurial activities as a party in cases including the following (Art.247):

i)the defendant juridical person is located or the individual has residence in the Russian Federation or assets of the defendant are located in the Russian Federation;

ii)the management body, branch, or a representative of ce of the defendant is located in the Russian Federation;

iii)the dispute has emerged from a contract the place of performance of which is the Russian Federation, or which was performed in the Russian Federation;

iv)the claim to property arose by an act or other circumstances which took place in the Russian Federation, or the loss occurred in the Russian Federation.

There is another provision which provides for the exclusive jurisdiction of Russian commercial courts (Art.248 – See Chapter 2).

2COMPOSITION OF THE COURT

At the rst instance, in the commercial court, cases are heard by a single judge. As an exception, insolvency cases are heard by three judges. The same applies to cases where the validity of an act of government or local government agencies is contested (Art.17, paras.1 and 2). Whereas in the socialist period, the gosarbitrazh heard cases with one arbitrator and the representatives of both parties as a panel as in international commercial arbitration process, this is no longer the case.

In civil procedure, the system of people’s assessors used to be one of the fundamental principles under socialism. This system was introduced after the October Revolution in lieu of the jury system. It was thought to be inconvenient to have an independent body of laymen to determine the outcome of the case – in contrast to juries, assessors could be kept under the control of the judge.

While the previous Code did not have the system of assessors, the 2002 Code has reintroduced the system of assessors. Upon application of the parties, the case can be heard with the participation of arbitrazh assessors. Arbitrazh assessors exercise the same rights and bear the same duties as judges. A law on arbitrazh assessors was enacted in 2001. These assessors are invited to take part only when “specialised knowledge in the area of entrepreneurial and other economic activities is needed for the solution of a speci c case”. This is different from the system of lay assessors in the civil procedure where assessors are

not required to have any specialist knowledge. In 2005, arbitrazh assessors took part in 1,115 cases.1

In practice, in the ordinary court where the system of lay assessors existed, a majority of civil cases in the rst instance were heard by a single judge without people’s assessors. The primary reason was nancial. Many companies were reluctant to release employees to perform the duty of a lay assessor. Enormous delay in the civil procedure due to the shortage of lay assessors “spread like an epidemic in the courts of many regions in Russia”.2

3PARTIES AND OTHER PARTICIPANTS IN THE PROCEDURE

The Code provides that all interested persons are entitled to have recourse to court action in order to defend their infringed or disputed rights or lawful interests (Art.4, para.1).

Russian procedural law contains the concept of “participants in the procedure”. These include the following (Art.40):

i)parties;

ii)petitioners and interested parties in the bankruptcy procedure;

iii)third parties;

iv)procurator and government agencies.

One of the unique characteristics of the traditional Russian civil procedure was that procurators had a role to play in it. Under socialism, procurators, who were regarded as the guardians of legality, took part not only in criminal procedure, but also in civil procedure as a party in order to protect public interest. Procurators also exercised the power of “judicial supervision”. The latter term was abolished after the collapse of socialism, but the role of the procurator taking an action out of public interest remained.

However, the 2002 Code has signi cantly reduced the scope of the participation of procurators in the procedure in order to “align the Code with international standards”.3 Now procurators are only entitled to initiate an action in the following instances (Art.52, para.1):

1VVAS, 2006 No.5, p.7.

2V.Taranenko ed., Grazhdanskoe protsessual’noe pravo Rossii, Moscow 1999, pp.36-37.

3V.F.Iakovlev and M.K.Iukov eds., Kommentarii k arbitrazhnomu protsessual’nomu kodeksu RF, Moscow 2005, p.5.