The territory of rapid development will appear in the Far East

In April 2014 the Ministry of the Russian Federation on development of the Far East introduced a bill of creating territories of rapid development in the Far East. The bill projects the creation a range of preferences for business on these territories on sample of the most successful similar projects in the countries of Asia-Pacific Region like South Korea, China and Singapore.

Conversations about the necessity of the development of the Far East region have being holding for a long time. In the frames of the annual state-of-the-nation address in 2013, Vladimir Putin has set a task to create all necessary conditions for rapid development of the Far East. The government program of the development of the region is scheduled until 2025. The top-priority task is lifting of infrastructure restrictions, which put the brakes on the economy.

In debating the decision of the need to create the rapid development territories was adopted. According to the Deputy Minister of the RF on development of the Far East Kirill Stepanov, pioneer territories of rapid development will be realized in the framework of major cities of the region. In prospect such territories will appear in the whole Far East. Currently more than 400 sites were examined; 23 were selected as primary and they are located at all 9 regions of the Far. However these territories haven’t been specified in the bill yet.

The key idea of the project is to set competitive environment with similar sites in the countries of Asia-Pacific Region, inter alia by means of various benefit programs for business.

It is expected that special land tenure system, preferential rental rates, tax and insurance payment benefits will be applied. In particular the territories’ residents will be given full release from VAT, corporate property tax and import tax on products for industrial needs (materials, raw materials). Income tax crediting to the federal budget will be 0%; it will be 5% to the regional budget during the next 5 years and then 10% maximum. At this rate the total tax burden for the enterprises of the rapid development territories will be 12,2%.

Moreover the custom procedures of free economic zone, technical and sanitary regulations of Largest Economies will be applied. The residents will be given an opportunity to engage qualified foreign specialists in a fast-track procedure.

However it should be noticed that all mentioned benefits will be extended not over the whole Far East, but over sites of rapid development territories.

The Federal Tax Service will be obliged to carry out compensating adjustments

The Ministry of Finance of the RF has prepared amendments to the Tax Code, according to which companies will get the right to apply to the Federal Tax Service for carrying out of compensating adjustments to accrued taxes. The innovation acquires especial actuality in the situation with the transfer pricing. Because transaction price affects both sides, one side receives proceeds from sales, another one - incurs expenses on transaction security. And if formerly it was possible to correct only one of these performances (proceeds or purchase costs) by the decision of taxation authorities, then now after the adjustment of one of them the allocation of another will follow. Both parties are placed into fair economic field, what on its own is a meaningful step forward. Today under the current scheme, by the additional tax assessment by the one side, another side has the right to reduce the tax amount by the same rates. Carrying out of such adjustment by the transaction party in case of self-increase of tax amount by its contractor is not provided. If amendments are accepted, then similar contradiction is settled.

Even so there are unsatisfactory features in the suggested innovations, first of all it is due to the fact that the bill will allow to carry out compensating adjustments only to related-party transactions, while the voluntary increase of taxation base is provided as well in related-party, as in uncontrolled transactions. One more essential fault is that only Russian organizations will be able to carry out compensating adjustments, IE and foreign companies are deprived of this right. It may be assumed that the Ministry of Finance was motivated by purposes of deoffshorization of the economy – to deprive similar foreign enterprises of this advantage, because most often, as is known, just foreign contractors are offshores, fly-by-night companies founded for « tax mitigation».

Information agency Credinform is developing own independent transfer pricing module, which will allow the parties to a transaction to put a fair contract price on the group of associated companies.