Adopted a law on Google tax

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

What threaten tax amendments to Russian intermediaries and consumers?
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List of services in electronic form

The provision of services in electronic form is recognized as their provision through an information and telecommunications network, including through an information and telecommunications network, the Internet, automated using information technologies.

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

1. the granting of 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. provision of services for the placement of proposals for the acquisition (sale) of goods (works, services), property rights in the network
"The Internet";

4. rendering services through the Internet to provide technical, organizational, informational and other opportunities carried out using information technologies and systems for establishing contacts and concluding 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 websites on the Internet), providing access to them for other network users, enabling users 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 for placing information in the information system;

8. provision of domain names, hosting services;

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

10. Provision of services carried out automatically via the Internet when data is entered by the purchaser of the service, automated data retrieval services, their selection and sorting by request, providing the specified data to users via information and telecommunication networks (in particular, stock exchange reports in real-time, real-time 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, and audiovisual works via the Internet, including by providing remote access to them viewing or listening through the Internet;

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

13. providing access to search engines on the Internet;

14. statistics on sites on the Internet.

The following transactions are not in electronic services, in particular:

1. the sale of goods (works, services), if when ordering through the Internet the delivery of goods (works, services) is carried out without using the Internet;

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

3. provision of consulting services by e-mail;

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

When does VAT arise for services in electronic form?

VAT is charged on the provision of electronic services by foreign entities to Russian buyers. It is considered that the buyer is in Russia in the following cases:

1. Buyer organization or individual entrepreneur - at the place of state registration;

2. Buyer - an individual in respect of which any of the conditions is fulfilled:

• the buyer’s residence is the Russian Federation;
• the location of the bank where the account is opened, used by the buyer to pay for the services, or the operator of electronic money, through which the buyer pays for the services, is in 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 has been assigned to the Russian Federation.

The effect of VAT rebates on electronic services

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

The intersection with the list of “electronic services” is only at the point that provides for “the granting of rights to use programs for electronic computers (including computer games) and databases via the Internet, including by providing remote access.”

However, this conflict is only visible. When qualifying transactions in tax legislation, the terms and provisions of civil law are used. As we repeatedly wrote earlier, in civil law a license agreement can be concluded only in cases of transferring a separate copy of the software 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 (does not load) to the user's device.

Accordingly, the VAT exemption in cases of “rendering services in electronic form” does not apply.

Who pays Russian VAT on electronic services

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

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 independently calculate and pay VAT on the amount transferred to the foreign company as a tax agent.

When the “Google Tax Law” comes into force

The document was sent for approval to the Council of Federation. After approval in the upper house of parliament (of which there is little doubt), the bill “on Google tax” will be submitted to the President.

The law is scheduled to enter into force on January 1, 2017.

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