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- Application of Internal Taxes on Imports
  1. The representative of the Russian Federation stated that, as from 1 January 2010, the legal framework governing the application of indirect taxation on imports (and exports) among the CU Parties was contained in the Agreement on the Principles of Indirect Tax Collection at Export and Import of Goods, Performing Work and Rendering Services in the Customs Union, signed on 25 January 2008, and as amended by the Protocol on Amending the Agreement On the Principles of Collection of Indirect Taxes on Exports and Imports of Goods, Performing Works and Rendering Services in the Customs Union of 11 December 2009 (hereafter: Protocol on Amending the Agreement on Indirect Tax on Exports and Imports). Its provisions were elaborated in the Protocol on the Order of Levying of Indirect Taxes in View of Performance of Works and Rendering Services in the Customs Union of 11 December 2009, and the Protocol on the Procedure of Collection of Indirect Taxes and on the Mechanism of Carrying Out the Control over their Payment while Exporting/Importing Goods in the Customs Union, signed on 11 December 2009.
  2. These CU Protocols and the Agreement established that imports among CU Parties would be subject to excise and Value Added Taxes (VAT) and that exports among CU Parties would be exempted or taxed at a zero rate, provided that documentary confirmation of the fact of the export was submitted and that the tax authorities of the CU Parties possessed information confirming tax payment to the budgets of other CU Parties for these goods. The Agreement also confirmed that the rate of duty of these indirect taxes applied to imports would not exceed the rate applicable to domestic goods. The Agreement on Indirect Tax on Exports and Imports (as amended) provided that application of indirect taxes on imports into Special Economic Zones (SEZs) would be established in a separate CU Treaty. Article 70 of the CU Customs Code, adopted on 27 November 2009, and implemented on 1 July 2010, confirmed that CU Parties' customs services (the FCS in the Russian Federation) would collect VAT and excise taxes on imports into the Customs Union from third parties. Articles 72, 73, and 75 stated that the levels, method of collection and taxable base for these taxes on imports were determined by the national legislation of the CU Parties. Thus, to a large extent, the national legislation of the Russian Federation determining the application of indirect taxes to imports and exports, prior to 1 January 2010, continued to apply.

- (a) Excise Taxes
  1. The representative of the Russian Federation noted that the legal framework for excise taxation in the Russian Federation was provided in Chapter 22 (Excise Tax) of the Tax Code (Federal Law No. 110-FZ of 24 July 2002 "On the Introduction of Chapter 22 into Force"). It set the list of products, which were subject to excise taxes and tax rates (see Table 25). In pursuance of the above-mentioned Act, excise tax rates for imports and those for domestic products were identical.
  2. He further noted that Article 193.1 of the Tax Code of the Russian Federation provided that excise taxes were applied on the basis of specific rates for all types of excisable goods, excluding cigarettes with filters, non-filter cigarettes, and mouthpiece cigarettes. For these tobacco products combined tax rates applied, consisting of both a specific and an ad valorem tax rate. Currently, ad valorem tax rates were not applied in respect of other excisable goods. The tax base for calculating the ad valorem alternative for the excise tax for cigarettes was the ex-factory price exclusive of VAT for domestic products and the duty paid customs value exclusive of VAT for imported cigarettes.
  3. If excisable goods were placed under customs treatments of transit, bonded warehouse, re export, processing under customs control, free customs area, destruction and refusal in favour of the State, the excise tax did not have to be paid. Products for which a zero level excise tax was indicated (e.g., beer with an alcohol content less than or equal to 0.5 per cent) were included in the list of excisable goods only for the effective State monitoring of their turnover.
  4. In respect of further concerns of some Members related to the principle of levying excise taxes on imports from CIS countries, including other CU Parties, the representative of the Russian Federation noted that from 1 July 2001, when Chapter 22 of the Tax Code of the Russian Federation had entered into force, excise taxes had been levied in a uniform manner on all imports, based on the country of destination principle, except for Belarus. As from 1 February 2005, on the basis of the Agreement of 15 September 2004 between the Russian Federation and the Republic of Belarus, the country of destination principle was also applied to imports from Belarus. This principle was extended to the Customs Union with Kazakhstan and Belarus on 1 January 2010, in accordance with the Agreement on Indirect Tax on Exports and Imports for which Chapter 7 of the CU Customs Code confirmed these principles for taxation of imports from third countries.
  5. Some Members noted that excise taxes on imports of automobiles were applied on the basis of the engine capacity, which was an unjustified discrimination against trade in similar products. Members also sought information on an announced prospective application of a similar discriminatory excise tax on agricultural machinery on the same basis. In their view, these measures were not in conformity with WTO provisions, e.g., Articles I, III, XI of the GATT 1994.
  6. The representative of the Russian Federation replied that the excise tax on automobiles was being applied on the basis of engine capacity. It was aimed at the taxation of Russian consumers of luxury cars and taking into account the environmental concerns and that it constituted a usual and normal measure. The measure>
  7. Some Members requested additional information on how the Russian Federation calculated the single payment that natural persons importing motorcars paid in place of the customs duty, VAT and excise tax.
  8. The representative of the Russian Federation explained that the calculation of single payment was regulated by Chapter 23 of the Customs Code of the Russian Federation, as elaborated by the Government Resolution No. 718 of 29 November 2003 "On the Approval of the Regulation on the Application of the Uniform Rates of the Customs Duties and Taxes With Respect to Goods Transferred Across the Customs Border of the Russian Federation by Natural Persons for Personal Use" and based on the uniform rates set in the above-mentioned Resolution. According to Article 360.4 of the CU Customs Code, the application of customs duties, taxes, and customs fees on goods imported by physical persons for personal use and also terms of their payment were governed by the Agreement on the Order of Transportation of Goods through the Customs Border of the Customs Union by Physical Persons for Personal Purposes and on Performance of Operations, signed on 18 June 2010. Based on these provisions, there had been no changes to the regime of the Russian Federation in calculating a single import payment for physical persons importing motorcars.
  9. The rates applied under this regime were differentiated, depending on the age of the cars, within three categories: (i) new ones from the date of the production of which not more than three (full) years passed; (ii) used ones from the date of production of which not less than three, but not more than seven (full) years passed; and (iii) used ones from the date of production of which more than seven (full) years passed. The Government Resolution provided that imports by natural persons of motor cars into the customs territory of the Russian Federation were subject to a single payment, which replaced the customs duty, VAT and excise tax. The amount of such single payments was approximately equal to the sum of customs duty, VAT and excise tax.
  10. Several Members expressed appreciation for the comprehensive listing of excise taxes and other information on their application to domestic and imported goods in Table 25. They noted that the differentiation of excise tax rates within specific categories of alcoholic beverages, e.g., for different types of beer, wine, and spirits, might have a de facto discriminatory effect on imports. In addition, a higher excise tax was levied on alcoholic beverages containing more than 28 per cent alcohol by volume. At a later stage, Members sought confirmation that any differential in the rates of excise tax applied to alcoholic beverages had been eliminated, and sought information on how the Russian Federation intended to eliminate these measures and bring its excise tax regime on alcohol and alcoholic beverages into conformity with the WTO Agreement. Furthermore, on alcoholic beverages, some Members sought clarification regarding the excise warehouses of the Russian Federation and whether this would be extended to imported products. They considered that an extension to imported products would create a barrier to trade and could have a discriminatory result.
  11. In response, the representative of the Russian Federation stated that the differentiation of excise tax rates applied to specific categories of alcoholic beverages (beer, wine and spirits) was based on the principle of harmonizing the applied rate of taxation with the concentration of pure alcohol in those beverages and, therefore, these taxes were not having a discriminatory effect on imports. For example, Russian-produced wines (fortified wines) were subjected to the highest excise rates in comparison with imported wines (natural wines). The representative of the Russian Federation confirmed that the Russian Federation would not apply any system of excise taxation to imported alcoholic products that would be discriminatory.
  12. With respect to the excise warehouses for alcoholic beverages, the representative of the Russian Federation explained that, in accordance with Federal Law No. 107-FZ "On the Alteration of Part II of the Tax Code of the Russian Federation and on the Invalidation of Certain Legislative Acts", the regime of excise warehouses for excisable goods had not been applied since 1 January 2007.
  13. Noting further that differential rates of excise tax were levied on natural gas depending on whether it was sold in the Russian Federation for export to other CIS countries (15 per cent), or whether it was for export to other countries (30 per cent), some Members felt that this practice was discriminatory and asked how the Russian Federation would bring it into conformity with WTO rules upon accession.
  14. The representative of the Russian Federation clarified that the excise tax on sales of natural gas had been eliminated as of 1 January 2004 and replaced by a 30 per cent export duty (see Section on "Export Duties").
  15. Some Members also asked for a detailed clarification on the national treatment implications of calculating excise taxes on imports on the customs value plus the total of customs duties and levies payable, while the excise taxes on domestically produced goods were based on actual value only. Members sought the elimination of these practices and a commitment from the Russian Federation that full conformity with WTO provisions would be ensured in the application of excise taxes, as from the date of accession to the WTO.
  16. In response to concerns about the inclusion of the customs duty in the taxable base for the excise taxes levied on imports of goods to the customs territory of the Russian Federation, the representative of the Russian Federation stated that this requirement of the legislation of the Russian Federation was consistent with the practice of implementation of the GATT 1994 and the only excisable products partially subject to ad valorem rates were cigarettes. All other were subject to specific rates.

- (b) Value Added Tax
  1. Some Members requested confirmation that the Value Added Tax (VAT) was now applied in a uniform manner to all domestic and imported products and that this was also the case with respect to CIS countries, including the other CU Parties. Clarification was also requested on whether the same principle applied to imports and exports of energy products such as gas and oil. A Member requested clarification concerning the different VAT treatment of ice-cream produced from milk and dairy products (10 per cent) and ice-cream produced from fruits and berries (18 per cent).
  2. In response, the representative of the Russian Federation replied that, in accordance with Chapter 21 of Federal Law No. 117-FZ of 5 August 2000 "Part II of Tax Code of the Russian Federation" (as amended on 30 July 2010) and Federal Law No. 118-FZ of 5 August 2000 "On Introduction of Part II of the Tax Code", VAT was applied in a uniform manner to all domestic and imported products on the basis of the country of destination principle, and that it had also been the case with CIS countries since 1 July 2001, except for bilateral trade with the Republic of Belarus. As from 1 February 2005, on the basis of the Agreement of 15 September 2004 between the Russian Federation and the Republic of Belarus, the country of destination principle was also applied on imports from the Republic of Belarus. An appropriate provision was included in Article 2 of Federal Law No. 102-FZ of 18 August 2004 "On Amending Part II of the Tax Code of the Russian Federation and Other Legislative Acts of the Russian Federation", bringing the legislation of the Russian Federation into conformity with the above Agreement. This was confirmed for Parties to the Customs Union with the implementation, on 1 January 2010, of the Agreement on Indirect Tax on Exports and Imports and, for imports from third countries, in Chapter 7 of the CU Customs Code. An exhaustive list of basic food products and products for children subject to 10 per cent VAT was adopted by Government Regulation No. 908 of 31 December 2004. Ice-cream produced from fruits and berries>
  3. He noted that, according to the Tax Code of the Russian Federation, VAT was levied at a single rate of 18 per cent for most products. However, according to Articles 149 and 164 of the Tax Code, for some goods, the rates of zero per cent and 10 per cent were applied. The comprehensive list of these goods was presented in Table 26 and Table 27. All these rates and exemptions were applied in a non-discriminatory manner both to domestic and imported goods. Also, according to Article 151 of the Tax Code, goods placed under the specified customs regimes of transit; customs warehouse; re-export; duty free shop; processing under customs control; free customs zone; free warehouse; destruction and refusal in favour of the state, and movement of stores (e.g., fuel-on-board means of transport for consumption during the trip), were exempt from VAT. The tax base for the imposition of the VAT included excise taxes, if any. For imported goods, the tax base for the imposition of the VAT also included customs duties.
  4. Referring to the list of VAT exemptions listed in Table 26, some Members noted that a reference was made therein that "sale of products of own manufacture of organizations engaged in the production of agricultural products which generate 70 per cent and more of the overall share of incomes from the sale in the total sum of their incomes" were exempted from VAT. They enquired about the products in question and whether imports of similar products also qualified for exemption and, more generally, how the exemption of domestic agricultural output from VAT could be justified under Article III:2 of the GATT 1994. Noting that fish caught in the high seas by Russian registered vessels were also VAT exempted, these Members further enquired whether this exemption was extended to imported fish products as well. Some Members also enquired whether the provision for VAT exemption for certain agricultural producers, or producers in any other sector, also applied where output was bartered for goods or services or used as payment in kind for discharging financial obligations to financial institutions or other creditors. If that was the case, these Members requested full details on the legal basis for such goods and services being deemed to satisfy the relevant criteria for VAT exemption.
  5. The representative of the Russian Federation replied that, in the case of fish caught in the high seas by Russian registered vessels, the VAT collection resulted from the fact that fish so caught were considered to be Russian produced fish and, as such, its delivery into the customs territory of the Russian Federation did not constitute an importation. These goods were thus not subject to VAT when brought to the customs territory of the Russian Federation, but were subject to VAT when the first transaction had been performed.
  6. In response to the concerns of Members concerning VAT exemption for agricultural products of some producers, he further explained that under Article 149:3(20) of the Tax Code of the Russian Federation these products substituted payments for the job of natural persons employed by the producers, if 70 per cent or more of own income of such producers was generated from the sale of the agricultural products of their own manufacture. Such form of payments was used in the agricultural sector by entities in critical situations with no actual money either to pay salaries or VAT when paying for the job of employed persons by agricultural products. This VAT exemption was widely used in the 1990s, but its usage had since declined to negligible levels. The agricultural products at issue were unprocessed products of plant growing and cattle breeding (meat, fish, eggs, vegetables, fruits, etc.). This provision>
  7. The representative of the Russian Federation confirmed that the VAT exemption under Article 149:3(20) of the Tax Code of the Russian Federation exempting certain domestic agricultural products from payment of the VAT would be eliminated as from the date of accession. The Working Party took note of this commitment.
  8. Members also noted that discriminatory application of the VAT existed in the automotive sector. Used cars imported by individuals were not charged a VAT or excise tax. They also noted that the VAT was applied on an arbitrary basis on medical equipment, medical devices, and pharmaceuticals. These measures were not in conformity with Article III of the GATT 1994. Some Members also expressed concern about the practice of the customs authorities of the Russian Federation to apply the previously existing VAT rate of 20 per cent (now 18 per cent) to imports of pharmaceutical products instead of the special VAT rate of 10 per cent introduced by the Tax Code and sought confirmation from the Russian Federation that this practice had been abolished. In addition, these Members sought clarification on the application of the maximum VAT on imports of pharmaceutical products for clinical trials rather than the reduced rate provided for by law. In addition to a discriminatory VAT (20 or 18 per cent instead of 10 per cent), which customs tended to apply in the absence of a special permit from the Ministry of Health, these Members stated that the Part II of the Tax Code allowed for exemptions and asked the Russian Federation to consider VAT exemption of these products as they were not for resale.
  9. As regards the application of VAT in the automotive sector, the representative of the Russian Federation explained that Government Resolution No. 718 of 29 November 2003 "On the Approval of the Regulations on the Application of the Uniform Rates of the Customs Duties and Taxes with Respect to Goods Transferred across the Customs Border of the Russian Federation by Natural Persons for Personal Use" provided that in respect of imports by natural persons of motor cars into the customs territory of the Russian Federation a single payment could be applied, which accumulated the customs duty, VAT and excise tax. The authority of the Russian Federation in the context of the Customs Union to apply this regime to imports of automobiles by physical persons for their own use had been confirmed by Article 360.4 of the CU Customs Code and by the Agreement on the Order of Transportation of Goods through the Customs Border of the Customs Union by Physical Persons for Personal Purposes and on Performance of Operations, signed on 18 June 2010, as described in paragraph above.
  10. He added that the application of the single payment in question>
  11. On the application of VAT on pharmaceutical products and medical equipment, as well as products for clinical trials, the representative of the Russian Federation explained that such products had to be registered in the Ministry of Health as pharmaceutical products and medical equipment to be eligible for the reduced VAT rate. The VAT rate was zero per cent for the products included in the exhaustive list of the products of high importance adopted by the Government Resolution No. 19 of 17 January 2002, the list of medical products intended for rehabilitation of invalids adopted by Government Resolution No. 998 of 21 December 2000, the list of medical products intended for production of immunobiological substances adopted by Government Resolution No. 283 of 29 April 2002, the list of spectacle lens and spectacle frames (except for sunglasses) adopted by Government Resolution No. 240 of 28 March 2001, the VAT rate was zero per cent. For other registered pharmaceutical products and medical equipment, as well as products for the clinical trials registered in the Ministry of Health, the VAT rate was 10 per cent. In the absence of such registration, these products were subject to the general VAT rate of 18 per cent. In addition, since 1 January 2008, Articles 164.2(4) and 164.5 of the Tax Code of the Russian Federation had provided that medical products for clinical studies registered in the Ministry of Health were subject to the reduced excise tax rate of 10 per cent.
  12. Some Members of the Working Party noted that space equipment originating in some countries faced, at a minimum, a 20 per cent (now 18 per cent) VAT, while those from other countries enjoyed an exemption from the VAT. They indicated that this was inconsistent with the MFN provisions in Article I of the GATT 1994 and sought the immediate application of equivalent VAT treatment to all space equipment regardless of its country of origin.
  13. The representative of the Russian Federation confirmed that there had been some cases of exemptions from levying VAT on space equipment, resulting from bilateral agreements. Since November 2007, the MFN VAT rate applicable to space equipment had been zero per cent, according to Article 164 of the Tax Code (see Table 26).
  14. The representative of the Russian Federation confirmed that from the date of accession, the Russian Federation would apply its internal taxes and exemptions thereof, including VAT, excise taxes, and other taxes in a non-discriminatory manner in compliance with Articles I and III of the GATT 1994. In particular, the representative of the Russian Federation confirmed that from the date of accession the Russian Federation would apply VAT for space equipment on an MFN basis. The Working Party took note of this commitment.

- Quantitative Import Restrictions, including Prohibitions and Quotas and Import Licensing Systems