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In view of the above, the return to the country-wide practice of assignment the corporate profit tax to local budgets looks unreasonable.

Alternative ways to enhance fiscal sustainability of local governments are:

1. Introduction of real estate tax. The real estate tax, among all other options, available to local authorities, meets the above criteria best of all. Its tax base is practically immobile. Tax revenues are usually predictable and stable, as they are less dependant on ups and downs in economic activity, than the proceeds from individual income tax and and taxes, based on consumption.

The share of the tax, levied on residential real estate, could hardly be used for export. The tax is transparent and fair, as far as it covers the cost of services, provided to the benefit of the entire local community. If the real estate tax is levied exclusively at the local level (and upper level authorities are not involved), there should be no problems with harmonization and unfair tax competition. Apparently, it would be more difficult to administer that tax than a local tax, embedded in the existing system of federal or regional level, but this is a relatively low price, worth paying for municipalities to gain autonomy and flexibility in fiscal policy, the most important attributes of responsible, efficient and accountable local authority.

2. There is a risk of some growth of individual income tax, assigned to the municipal budgets, as this tax is one of the most evenly distributed taxes in Russia. Moreover, local authorities might have higher incentives in the growth of individual income, which is feasible only in favorable business environment in the municipality. It would be possible to introduce additional regulations on income tax for the municipalities and/or amend the budget law with the liabilities of the regions to distribute income tax proceeds between municipalities at the unified or special rates. In so doing, it is reasonable to expand the revenue sources at the municipal level, since according to the estimates, the most effective way is to assign revenue sources to the local settlements. As mentioned earlier, municipal budgetsТ difecit is significantly higher than that of the settlements.

There is a need to give special consideration to the problems, arising from replacement of donations by a greater share in income tax proceeds in order to equalize the municipal budgets sufficiency. Currently the Budget Code of the Russian Federation (Article 137, 138) provides regulations on total or partial replacement of donations for a greater share in income tax proceeds in order to equalize the municipal (settlements and municipal districts) budgets sufficiency. Nevertheless, that opportunity is not implemented by regional authorities to the full extent44. In the effective and coming into force on January 1, 2009 procedure for replacement of donations by a greater share in income tax proceeds in order to equalize the municipal budgets sufficiency looks far from perfect. The methodology for tax proceeds estimates can be designed in such a way as to exceed the budget forecast on income tax. This can lead to inadequate replacement of donations by a greater share in income tax proceeds in order to equalize the municipal budgets sufficiency. The procedure for assessment and assignment of the above replacement of donations by a greater share in income tax proceeds to local budgets should be approved by the law of the Subject of the Russian Federation.

Moreover, there is no mentioning (in writing) on the consent of any municipality to adopt that measure, starting from January 1, 2009. It seems necessary to obtain the consent of the municipalalities for replacement of donations by a greater share in income tax proceeds in order to equalize the municipal budgets sufficiency after January 1, 2009, the measure will affect their revenues. Furthermore, pursuant the effective wording of the RF Budget Code, amendments to the standards of a greater share in income tax to the budgets of settlements and municipal districts is impermissible for only one fiscal year. If the purpose of the re We have reviewed the legislation bases of Subject of the Russian Federation, among which partial replacement of donations by additional income tax proceeds in order to equalize the municipal budgets sufficiency is foreseen only in 22 Subjects.

placement of donations by a greater share in income tax proceeds to equalize the municipal budgets sufficiency is used as an incentive for local authorities to to take active measures to expand the tax base, the assignment of new responsibilities for only one year looks insufficient. During one fiscal year local authorities will, at the most, be able to take measures for investment climate improvement to attract investors, create new jobs, develop infrastructure, etc. However, those mesures will have a positive impact on the growth of individual income in the mid-term prospective. Therefore, it is unlikely that local authorities will be interested in the growth of the income tax base, as in the next fiscal year, the greater share of income tax might be substantially reduced in the background of extended tax base (as per estimates), while the donations for equalization the municipal budgets sufficiency will be cut down in view of the grown tax base in municipality. Thus, it looks reasonable to assign the right for a greater share of income tax proceeds for at least three years in the frameworkof of the three-year budget, though the best term to apply that measure by the municipalities would be five years.

3. The assignment of a share of tax on corporate property to municipalities is less desirable than the increase of municipalities share in the income tax proceeds in view of high diversification of the tax distribution. As an alternative, the decision of that issue could be assigned to the Subjects of the Russian Federation, as well as the right for extension of the term for replacement of donations by equalizing measures to treefive years.

VAT for international transactions in Цcommerce: Russian practice N. Korniyenko To continue the discussion, started in the July survey on the issue of taxation in e-commerce, letТs review the situation with VAT regulations, applicable to the relevant operations. As mentioned earlier, the issue of taxation of e-commerce in our country is quite new and poorly developed in legislation. To eliminate conflicts, distortions and obstacles in the issue of VAT in e-commerce transactions for both, the government and the taxpayers, it is necessary to identify legal regulatory approaches to this issue.

E-commerce definitions There is no definition of e-commerce neither in the RF Tax Code, nor in сivil legislation. There is no relevant definition found in either RF Civil or Customs Codes as well. In the previous article we have analyzed an option to define the e-commerce on the basis of similar and adequate notions. In the current article we are reviewing the definitions, proposed by experts in legislation issues.

Currently, there are various studies, where the national experts are trying to give the definition to the subject under review. Thus, the following definitions were proposed.

Experts of Russian Association of Networks and Services(RANS)45 define the e-commerce as follows:

Electronic commerce or electronic business is the type of business activity, in which business records, payments and sales operations are made in electronic format.

The comprehensive definition of the notion under consideration is provided by A. Tadeyev, the author of the book "E-commerce. Legal regulation and taxation"46. "Electronic business activity is the type of activity, implemented either via the Internet global information environment with the help of that network, or with other electronic means (such as electronic terminals, connected to the local and designated computer networks )." Usage of the Internet as a commercial environment provides an opportunity to enter into direct online transactions for the purchases or sales of goods and services in compliance with the Civil Code provisions, adapted to the electronic environment.

In the Russian Federation, the right for a businessman to enter into contracts through the Internet and deal with suppliers and customers in electronic form is provided, in particular, by the Law on electronic signature, adopted in 2002. There are provisions for protection of electronic signature in the Law, aimed at ensuring the transactions safety.

Therefore, we one can say that the e-commerce can be considered as a type of business activity. Consequently, pursuant the Article 143 of the Tax Code, companies and individual entrepreneurs, engaged in ecommerce (sales of goods or servicesvia the Internet), should be regarded as VAT taxpayers.

Tadeyev, the author of the book "E-commerce. Legal regulation and taxationФ, PRIOR Publishers, 2002. ISBN 59512-0001- VAT policy in electronic sales of goods and services We are aware, that value added tax is a territorial consumption tax. The tax is characterized by rigid territorial regulations, in particular in terms of the definition of the place of the goods/services delivery.

In Russia the VAT specifics is the same, and this issue becomes especially important in case of international transactions, including those performed via the Internet.

The definition of the place of the goods/services delivery in the European legislation, as well as in the RF Tax Code, are highly dependant on the type of taxable transaction.

There are two types of e-commerce, transactions, which should be highlighted in regard to VAT administration:

- sales of goods;

- provision of services.

Sales of goods via the Internet The first type of transactions is the sale-purchase transaction with any tangible property via the Internet.

In this case, the transaction includes electronic interaction between the buyer and seller and>

Therefore, the general territorial regulations on VAT are applicable in this case to the electronic sales of goods.

The definition of the place of the goods sale for the purpose of VAT are specified in Article 147 of the RF Tax Code: "Е territory of Russia is recognized as the place of sale of goods in the following cases:

- the goods are located in the territory of the Russian Federation, not shipped and not relocated from that territory;

- at the moment of the goods shipment or transportation they are located in the RF territory".

As you are aware, the principle of the country of destination is applied (with some remarks) in regard to export and import operations in the Russian Federation. The value-added tax is charged on import operations, while export transactions are exempt from the tax. This regulation is fully applicable to the sales of goods via the Internet. Therefore, the export e-commerce sales are taxed at zero rate (0 per cent), subject to the conditions, specified in Articles 164 and 165 of the Tax Code.

Services, provided via Internet Web-site: commodity of services The first question that arises as to taxation of a newly created Internet web-site is how to qualify it: as a commodity, which should be treated for the tax purposes as the sale of goods, or a result of services, provided to the client. It is worth mentioning that there is no direct answer to that question in the Russian legislation.

In order to distinguish the objects of taxation, the definitions for such notions as "commodity", "works", "services" are provided in the Article 38 of the TF Tax Code.

Taking into account the provisions of Paragraph 3, Article 38 of the RF Tax Code, coupled with the provisions of the RF Customs Code, the following definition of commodity can be given. Any realizable, or designated for sale property, including cash assets, material values, electricity, thermal power and other types of energy carriers, excluding vehicles, used for international transportation of passengers and goods.

Therefore, in this case the physical perception of things is taken into regard. The object is real, tangible.

The term "works" is understood in the RF Tax Code, first of all, as УactivityФ, i.e., tangible result of the activities. As stipulated in Paragraph 4 of Article 38 of the RF Tax Code: "Е activities, the results of which are tangible and can be utilized to meet the requirements of a legal person or an individual (physical person), shall be regarded as УworksФ for the tax purposes".

The term УservicesФ is also defined as "activitiesФ. However, unlike the works, the results of services are intangible. In accordance with paragraph 5, Article 38 of the RF Tax Code, "activities, the result of which have no material form, which are provided and consumed in the process of those activities, are regarded as services for tax purposesФ.

Now letТs try to apply all three types of definitions, reviewed above, to a newly created Internet site.

It is impossible to consider an Internet site as a commodity for tax purposes, because it is not a tangible commodity, which necessarily has to be a material object. Otherwise, further updating or development of the site would be ignored.

Development of an Internet site should not be considered as УworksФ in terms of tangible product thereof, as the web-site is a set of intangible results (images, sounds, texts). Hence, the development of the web-site should be treated as a service as per intangible results of services provided.

Therefore, development of a web-site should be regarded as УserviceФ in terms of provided results.

Location of services, provided via Internet, for VAT purposes Further on, the question arises, how to identify the location of services, provided via Internet, for VAT purposes The criteria for identification, whether the Russian Federation should be regarded as the territory of provided services, are specified in Article 148 of the RF Tax Code. These criteria differ as to the type of services. In case the services are related to the movable property or real estate, located in the territory of the Russian Federation, they are subject to VAT in Russia.

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