Major Changes In The Tax Legislation Entering Into Force On January 01, 2009

TAX AUDIT (ADMINISTRATION)

On January 01, 2009, the provisions which has long been

introduced into the Tax Code (hereinafter the "Tax Code")

will enter into force prescribing the mandatory extrajudicial

procedure for appealing against decisions of tax authorities to

subject a taxpayer to tax liability or to refuse to subject to tax

liability.

Judicial appeal against such decisions is only possible after

taking recourse to a higher tax authority.

In the event an appeal is filed with a higher tax authority, the

decision being appealed enters into force only upon examination of

the taxpayer's appeal application. Prior to the date specified

the tax authority does not have the right to perform any actions

aimed to enforce the decision being appealed.

Thus, in the event you have, or are going to, become a subject

of tax inspections, appeals against the results of such inspections

(both cameral and field) where a decision is made after January 01,

2009, shall be made in accordance with the new procedure.

INCOME TAX

1. Expenses on remuneration of labor (Article 255

of the Tax Code)

1) From January 01, 2009, the list of expenses on remuneration

of labor recognized for tax purposes (toward reducing the income

tax base) is to be extended. A taxpayer is entitled to include the

following into such expenses:

Amounts of payments (contributions) of employers made pursuant

to the Federal Law "On additional insurance contributions to

the funded component of labor pensions and state support for the

formation of pension savings". These contributions are

recognized for tax purposes within the overall limit – in

the amount not exceeding 12 percent of expenses on remuneration of

labor fixed for employers' payments (contributions) payable

under employee long-term life insurance contracts, voluntary

pension insurance and/or employee non-state retirement plan;

Expenses on reimbursing employees for expenditures for interest

payments on loans (credits) for purchase and/or construction of

residential premises. The indicated expenses are recognized for tax

purposes in the amount not exceeding 3% of expenses on remuneration

of labor. This provision shall be in effect until January 01,

2012.

Amounts paid to reimburse employee expenditures for interest

payments on loans (credits) for purchase and/or construction of

residential premises are also exempt from the unified social tax

and the personal income tax. We believe that these developments of

the Tax Code may be used to the mutual benefit of employers and

employees as a legal way of optimizing expenses on remuneration of

labor (for instance, these payments may substitute year-end bonuses

etc.).

2) The maximum value of contributions under voluntary personal

insurance agreements, which may be recognized towards reducing the

income tax base, has been increased. From January 01, 2009, such

expenses may be included by the taxpayer in the amount not

exceeding 6 percent of the expenses on remuneration of labor

(currently 3 percent).

2. Expenses on scientific research and/or

development activity (Article 262 of the Tax

Code)

For the purpose of encouraging scientific research and

development activity, taxpayer expenses in these fields (including

those that yielded no positive result) in accordance with the list

determined by the Government of the Russian Federation, shall be

recognized in the reporting (tax) period in which they were

incurred and included into other expenses in the amount of actual

expenditures with the factor of 1.5.

For the first time in tax legislation a provision enabling the

taxpayer to decrease the income tax base by an amount exceeding the

taxpayers actual expenses is established.

3. Other expenses related to production and/or sale

(Article 264 of the Tax Code)

1) From January 01, 2009, the taxpayer is entitled to include

into expenses not only those amounts spent on training and

retraining of employees, but also those spent on their training at

professional education programs in Russian and foreign educational

institutions.

In addition, it will be allowed to recognize expenses on

training of prospective employees who are to be employed for no

less than a year. However, a labor agreement shall be entered into

within three months following the completion of training. If such

agreement is terminated prior to the expiry of one year (except for

termination of a labor agreement on account of circumstances beyond

the reasonable control of the parties – Article 83 of the

Labor Code of the Russian Federation), the taxpayer shall include

the amounts spent...

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