Tax Deferment Agreements

The State Duma has passed in the first reading the draft law extending the tax rights of the regional authorities. They will be able to decide on the terms of tax deferment agreements.

As the law stands, businesses can enter special arrangements and pay corporate tax in instalments - that is to receive an ‘investment tax credit’. The agreement is made with the regional offices of the Federal Tax Service or the Ministry of Finance. A tax credit can be given for up to five years at 0.5 to 0.75 the Central Bank’s base rate.

Few qualify for the privilege. These are suppliers to the Armed Forces, companies 'making special contributions to the development of the region', ‘innovative companies’ and those who invest in the creation of objects with a high degree of energy efficiency.

Despite the fact that the law on deferred tax payments has been in existence for years, it does not actually work. The reason, probably, is that the exact criteria are somewhat ambiguous and taxmen, fearing accusations of favouritism and corruption, do not grant tax credits at all.

This may change with the adoption of this law. Regions will be able to add their own criteria for the investment tax credit and decide which companies can qualify. At the moment they have this right in respect of local taxes.

The draft law gives wide powers to regional authorities, including the right to grant the investment tax credit for any period of time, even indefinitely, and at any rate, even interest free.