Russia's Ministry of Finance is exploring new approaches to taxing digital companies, according to recently released budget guidelines for 2020-2022.
A budget and tax policy document released by the MOF October 3 says legislation under which profits would be declared in the jurisdictions of consumers and users of digital services should be reviewed to stem revenue losses.
Deficiencies in digital taxation are contributing to lower tax rates for digital companies than for those in other sectors because digital companies generally don’t have significant physical footprints where their users reside, according to the document. It notes that several countries have already introduced new digital taxation measures that will also be considered in Russia in developing “new approaches to taxation of the income of digital companies.”
Foreign entities providing electronic services in Russia are already required to register with Russian tax authorities and collect and remit VAT on those services. The Russian government considered draft legislation on the issue as early as 2016, when the MOF reportedly said that the legislation was meant to implement action 1 of the OECD’s base erosion and profit-shifting project.
The MOF’s latest declaration echoes actions by France and the United Kingdom, which have unilaterally developed digital services taxes without waiting for international consensus on adapting tax rules for the digital age.
The budget document also calls for the introduction of domestic software to the competitive market, the use of a cloud-based digital platform for government services, and the “creation of a system of legal regulation of the digital economy, including the creation of a legislative framework for the formation of a single digital environment” in order to introduce more digital technology to the economy.