Ministry of Finance Has Expressed New Ideas on the Development of the Investment Tax Credit

On April 12, 2010, in the framework of the Russian Business Week, the VIII Conference of the Russian Union of Industrialists and Entrepreneurs on Tax Issues1, at which S.D. Shatalov, Deputy of the RF Minister of Finance has presented new ideas on the development of the investment tax credit, which can be addressed, among other objectives, for the additional support of innovative enterprises. Currently the challenge is that this institution of tax administration practically does not work.

We would like to remind, that a chance to provide an investment tax credit to the innovative companies was provided by Art. 66-67 of the Tax Code. Actually, the investment tax credit is an extension of the tax deadline, when the organizations are provided an opportunity within a specified term and certain limits to reduce their tax payments, followed by a stepwise payment of the credit amount and accrued interest. Currently, it can be provided to a corporate profit tax, as well as regional and local taxes for a period fr om one to five years2. Tax Code Articles on investment tax credits were repeatedly amended within 2008-2009, but this did not allowed to introduce drastic changes to the situation.

The practical impossibility of using this tool is due to inefficient management of the order and conditions of its presentation. Currently:

  • credit is applicable only to income taxes, as well as regional and local taxes, the significance of which is minimum; to the taxpayer;
  • its receipt is dependant on the need for coordination with the tax authority and the regional financial agency;
  • herewith, the region, of course, is not interested in providing investment tax credit and the temporary loss of budget revenue;
  • the selection of borrowers is nontransparent. Even if the region has included in the budget the missing revenues in the INC, it is unclear how they re to be distributed between the budget applicants;
  • the procedure for obtaining the investment tax credit was permissible, which provokes the risks of corruption.

    Under the current legislation terms, it is unclear:
  • how to bring the regions concerned in the provision of tax incentives and the appearance of missing revenue;
  • what has to be done, if the taxpayer carries out activities in the territory of several Subjects of the Russian Federation and its tax base should be shared between a number of regional budgets;
  • even if the region agreed in its budget law to provide a limit on the investment tax credit, how should it be distributed among the applicants;
  • how to ensure that the taxpayer performs deferred tax liabilities (mortgage and guarantees, specified under the RF Tax Code, ineffective in the present time).

S.Shatalov has proposed to simplify the procedure of granting the investment tax credit through the transfer of powers for decision-making entirely to the regional level. In his view, the relevant authority can be transferred to either to the regional financial authorities, or to the specialized agencies. Of course, this will reduce the number of approvals required for approvals and, consequently, may contribute to a more common practice of providing investment tax credits.

However, in our opinion, the key issues related to disinterest in the regions in their presentation, as well as the non-transparency their limits distribution allocated to investment credits, among specific recipients, will not be solved. In this regard, the very possibility of maintaining the investment tax credit as an alternative to benefits for certain types of taxes and direct budget support is rather disputable.

A.V. Kireeva – PhD, Head of Laboratory examination and normative-legal acts development



  2 The organization, which has received an investment tax credit may reduce its payments under the relevant tax during the term of the contract for the investment tax credit. In each reporting period (regardless of the number of agreements on investment tax credit) the amounts by which the tax payments are reduced can not exceed 50% of the amount of the tax payments as defined by the general rules regardless the availability of contracts for the investment tax credit. At the same time, the accumulated credit amount during the tax period cannot exceed 50% of the amount of tax payable by the organization for the tax period. If the accumulated amount of credit exceeds the lim it of the allowed tax reduction imposed by this paragraph for such period, the difference between this amount and the maximum allowable amount should be transferred to the next reporting period.