Taxation
(Russia)
Monday 7 June 2010
Time allowed
Reading and planning:
Writing:
15 minutes
3 hours
ALL FIVE questions are compulsory and MUST be attempted.
Tax rates and allowances are on pages 2–4.
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.
The Association of Chartered Certified Accountants
Paper F6 (RUS)
Fundamentals Level – Skills Module
SUPPLEMENTARY INSTRUCTIONS
1. You should assume that the tax rates and allowances shown below will apply for the June 2010 exam
2. Calculations and workings need only be made to the nearest RR
3. All apportionments should be made to the nearest month, unless the question requires otherwise
4. All workings should be shown
TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used in answering all questions on this paper unless the question
states otherwise.
Personal and children allowances
Standard personal allowance
Children allowance
400 RR (up to 40,000 RR)
1,000 RR per child (up to 280,000 RR)
General limitation on ‘property’ allowance
Investments in residential property and land for tax purposes
Statutory exclusions from taxable income
Prizes and awards
Gifts at work
Support payments
2,000,000 RR (upper limit)
4,000 RR (upper limit)
4,000 RR (upper limit)
4,000 RR (upper limit)
Maximum limit for social deductions listed below
120,000 RR (upper limit)
(medical, personal educational, non-state pension insurance, voluntary pension insurance and additional insurance
contributions for the accumulated part of labour pension – subject to certain conditions set out in the law)
Educational deduction for children
50,000 RR (upper limit)
Professional deductions – general
20%
Professional deduction for architects
30%
Gains on property sales:
– immovable property
– movable property
1,000,000 RR (upper limit)
250,000 RR (upper limit)
Statutory per diem rate for personal income tax:
– for domestic business trips
– for foreign business trips
700 RR per day
2,500 RR per day
Threshold interest rates for personal income tax purposes
Rouble bank deposits
Foreign currency bank deposits
Rouble loans
Foreign currency loans
CB refinancing rate increased by 5%
9%
2/3 of the CB refinancing rate
9%
Threshhold interest rates for profits tax purposes
Foreign currency loans – 15%
Rouble loans received – 1.1 of the CBR refinancing rate
2
Single threshold for social insurance contributions for the year 2010 (several categories of insurance contributions
subject to special incentives and reduced rates are not examined)
For employers (general) and individual entrepreneurs
Income amount
up to 415,000 RR
Rate
26%
For employers (licence, copyrights, civil contracts)
up to 415,000 RR
23.1%
Expenses for profits tax purposes
Voluntary medical insurance expenses (subject to conditions set out in the law) are limited to 6% of labour costs.
Voluntary life insurance expenses (subject to conditions set out in the law) are limited to 12% of labour costs.
Voluntary personal insurance against accident at work resulting in death or permanent physical disability are limited to
15,000 RR per insured employee per annum.
Certain advertising expenses listed in the law are limited to 1% of sales revenue.
Reimbursement of interest on employees’ mortgage loans is limited to 3% of labour costs.
Entertainment expenses (subject to conditions set out in the law) are limited to 4% of labour costs for the reporting period.
Special depreciation ratios
Fixed assets received under financial leasing
3 (upper limit)
Allowances for receivables
General limitation
Aged 0–44 days
Aged 45–90 days
Aged more than 90 days
10% of sales
0% of receivable
50% of receivable
100% of receivable
Value added tax (VAT) rates
Standard
Exports
18%
0%
General profits tax rate
Tax on dividends for residents
Tax on dividends for foreign companies
20%
9%
15%
Property tax rate
2.2%
Personal income tax rates
Basic rate
Higher rate
13%
35%
Tax on dividends for residents
9%
3
[P.T.O.
Central Bank refinancing rates (notional)
1 January to 30 April 2010
1 May to 30 September 2010
1 October to 31 December 2010
40%
30%
20%
Number of calendar days in calendar months for the year 2010
January
31
February
28
March
31
April
30
May
31
June
30
July
31
August
31
September
30
October
31
November
30
December
31
4
ALL FIVE questions are compulsory and MUST be attempted
1
OOO Camarg (‘Camarg’) is a company engaged in the trading of watches and designed bijouterie in Russia and
abroad. Camarg is 81% owned by a Russian company, Shkatulka and 19% by a Swiss company, Swatchson. Camarg
imports watches and rings from foreign manufacturers, but its earrings although designed abroad are produced and
purchased in Russia from approved local suppliers.
Camarg always applies the accruals method for both value added tax (VAT) and corporate profits tax purposes and
uses a quarterly profits tax reporting period. Camarg applies the non-linear method of depreciation for profits tax
purposes and its tax policy for the year 2010 stipulates its right to an immediate 30% write-off on asset cost. Camarg
uses standard social insurance contribution rates without any incentives. Camarg uses FIFO method for tax accounting
purposes.
The following information is available for the year 2010.
Merchandise goods:
The inventory of goods for re-sale as at 1 January 2010 consisted of the following items (amounts net of VAT):
Type of goods
Watches:
Model 1
Model 2
Rings:
Model 1
Model 2
Earrings:
Total
Quantity
units
Cost per unit
RR
Total cost
RR
67
45
15,000
18,000
1,005,000
810,000
41
34
85
7,500
5,000
7,000
307,500
170,000
595,000
2,887,500 RR
The transportation costs allocated to the opening stock were equal to 150,000 RR (net of VAT).
All the imported goods in stock were paid for and customs cleared in 2009. VAT invoices were received in 2009 for
all the local items purchased and allocated transportation costs.
The following purchase transactions occurred during 2010.
Type of goods
Quantity,
units
Watches (amounts net of VAT):
Model 1
48
Model 2
45
Model 2
50
Subtotal
Rings (amounts net of VAT):
Model 1
45
Model 2
52
Sub total
Local purchases (amounts including VAT):
Earrings
450
Grand total
Purchase price
RR
Total purchases
RR
15,750
18,900
19,845
756,000
850,500
992,250
2,598,750
7,800
5,513
351,000
286,676
637,676
9,086
4,088,700
7,325,126 RR
Acquisition date
21 February
5 April
16 September
18 April
25 July
7 October
VAT at 18% is assessed on the purchase price of imported watches and rings and is paid at customs. All imported
goods were paid for and customs cleared in 2010. VAT invoices were received in full for the year 2010 in respect of
all local purchased goods during 2010.
Transportation costs paid to deliver the goods to the shop were 657,260 RR (including VAT).
Property insurance costs paid for 2010 were 140,000 RR.
5
[P.T.O.
Accruals sales, cash collections and prepayments (including VAT):
During the year Camarg sold:
– 100 watches of Model 1,
– 98 watches of Model 2,
– 80 rings of Model 1
– 77 rings of Model 2
– 470 earings
Accrued 2010 sales
Export sales
27,581,573 RR
3,200,000 RR
Sales receivables
Prepayments from domestic customers
1 January
RR
5,516,315
4,703,636
31 December
RR
6,216,315
5,126,963
Debts subject to write-off
During the year 2010 Camarg had to write off two outstanding debts from customers as follows:
(1) In June 2010 1,500,000 RR (including VAT) was written off due to the bankruptcy of customer A. The official
documents confirming A’s liquidation have been received.
(2) In August 2010 Camarg made the decision to waive a debt of 2,000,000 RR (net of VAT) due to it by
customer B.
Wages and salaries.
In 2010 Camarg accrued 3,406,407 RR of wages and salaries relating to its trading activities. Salaries and wages
(including other employees benefits) do not exceed 415,000 RR per person for the year 2010. In addition, under the
terms of their employment contracts Camarg purchased one-year voluntary medical insurance for its employees (total
annual cost of 640,000 RR) and donated the lunches provided to the staff by a third-party lunch-provider (total cost
of 120,000 RR net of VAT). In 2010 Camarg also paid voluntary medical insurance for the employees relatives for
the total amount of 90,000 RR.
Depreciation of fixed assets categories:
Category
of fixed
asset
Passenger cars
Quantity
40
Historic cost
per unit (VAT
inclusive)
RR
731,600
Tax
depreciation
in years
5
Date of
putting
into use
February 2010
Monthly
non-linear
depreciation
rate
5.6%
Capital improvements to rented fixed assets
Camarg rented a warehouse from the landlord CMR Services under a three-year rent agreement with a monthly rent
of 164,610 RR (VAT inclusive). On 15 April 2010 capital improvements to the leased premises were finalised with
the value of 804,760 RR (VAT inclusive). The improved asset was booked in Camarg’s balance sheet and put into
use on 30 April 2010. The landlord agreed with the changes but did not reimburse the amount spent on the capital
improvements, and its right not to reimburse these expenses was stipulated in an addendum to the rent agreement.
The tax useful life of these improvements under the statutory rules is five years. Non-linear depreciation does not apply
to the above capital improvements.
Financial assistance to employees
During the year 2010 Camarg decided to help its employees by paying them 500,000 RR to partly reimburse the
interest paid on their mortgage bank loans. All the payments have been documentally supported.
Interest expense
On 23 October Camarg received a five-year loan for 1,500,000 SFR from its Swiss shareholder with interest at the
rate of 7% per annum. Interest is payable on the last date of each quarter (i.e. the first interest instalment is payable
on 31 December 2010).
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Tax losses brought forward
At 1 January 2010 Camarg had the following unused tax losses:
2008 year – 700,000 RR
2009 year – 500,000 RR
Required:
(a) Calculate the taxable profits and corporate profits tax liability of OOO Camarg for the year 2010. Show
separately all elements of the taxable income items and deductible expenses.
Notes:
1. The following notional SFR/RR exchage rates are to be used:
1 October 2010
23 October 2010
31 October 2010
1 November 2010
30 November 2010
1 December 2010
31 December 2010
2.
31
35
30
30.5
32.5
32.3
27
Ignore property tax.
(22 marks)
(b) Calculate OOO Camarg’s value added tax (VAT) liability for the year 2010. Show separately all elements of
output/input VAT.
(8 marks)
(30 marks)
7
[P.T.O.
2
Irina works as a creative director of a well-known advertising agency Lumiere. She is married to Alexei and they have
two daughters of seven years and eighteen years respectively. Irina’s gross monthly salary is 200,000 RR.
On 20 February 2010 Lumiere paid for voluntary medical insurance policies for employees under a one-year
agreement with the insurer Ural for the value of 12,000 RR per person. Lumiere also offers its employees the
opportunity to insure their relatives at the employer’s expense for the value of 15,000 RR per person. Irina made a
decision to obtain from Lumiere medical insurance for her two daughters in the year 2010. In respect of her mother
in 2010 Irina, herself, paid 17,000 RR as a voluntary medical insurance in a Russian licensed clinical centre.
During the year 2010 Irina also made a contribution to the non-state pension fund of 35,000 RR for herself and
50,000 RR in favour of her parents (25,000 RR for her mother and 25,000 RR for her father).
On August 22 Irina paid 40,000 RR out of the total fee of 60,000 RR for a one-year course in journalism for her
elder daughter. The remainder of the fee was reimbursed by Alexei.
Based on her excellent professional experience Irina received an annual bonus for the year 2010 of 170,000 RR. The
bonus was paid in two equal amounts of 85,000 RR as follows: the first part was received on 25 December 2010,
the second part is to be paid no later than 21 March 2011.
Alexei started a new job as commercial area manager for the production and trading company, Orange, in January
2010. His net monthly salary is 150,000 RR for all months with the exception of January 2010 when he received
the net amount of 34,000 RR. Alexei paid for his own voluntary medical insurance in the amount of 10,000 RR
under an agreement with a Russian licensed clinic.
In addition to the fees for his elder daughter, during the year 2010 Alexei paid 45,000 RR for the education of his
20-year-old brother Denis who was doing his daily studies in the Moscow Superior School of Economics.
On 13 February 2010 Alexei received a plot of land as an inheritance from his grandfather. The market value of the
inheritance received is 1,500,000 RR.
After inheriting the above plot of land the family made a decision to build their own house on the land. In order to do
this Irina and Alexei raised corporate and bank mortgage loans, the terms and conditions of which were as follows:
1.
3,000,000 RR borrowed from Irina’s employer. On 7 March 2010 Lumiere provided Irina with this loan with the
interest rate of 3% per annum for a ten-year period. Interest is payable on a quarterly basis starting from 1 April
2010 (i.e. on the first date of each quarter following the preceding quarter).
2.
1,500,000 RR from the bank by Alexei. On 5 July 2010 BNB bank provided Alexei with the loan at the interest
rate of 7% per annum for a seven-year period. The loan principal amount is to be repaid at the end of loan period,
not by instalments. Interest is accrued for the entire loan period and is payable starting from 1 October 2010 on
the first date of each month (i.e. the first interest payment is for the entire period from July to September, while
subsequent interest payments are made strictly on a monthly basis).The bank loan agreement contains a
provision for changes in CBR rate, though no changes were made in the actual loan interest rate during 2010.
The actual expenses incurred for the construction of the new owned house were 5,000,000 RR for the year 2010
(of which 3,000,000 RR was incurred by Irina, and 2,000,000 RR by Alexei). In addition, Irina also incurred the
amount of 40,000 RR for the development of the project documentation in respect of their house.
Irina and Alexei received joint ownership rights for their newly constructed house in early November 2010. Irina
managed to submit to her employer the document confirming her entitlement for property allowance from the tax
inspection in late November 2010. Irina has never used her property allowance before, but Alexei used his property
allowance in the year 2006 for the apartment where the family currently lives.
8
Required:
(a) Assuming that all the above mentioned expenses incurred by Irina and Alexei are confirmed with proper
supporting documents and where possible, all tax allowances have been split between the spouses in the
most beneficial proportion, calculate:
(i)
The personal income tax of Irina withheld by her employer at source for the year 2010;
(8 marks)
(ii) The final settlement of Irina’s personal income tax liability (additional payment or refund) upon
submission of her 2010 personal income tax return;
(4 marks)
(iii) The final settlement of Alexei’s personal income tax liability for the year 2010.
(11 marks)
Notes:
1. To the extent possible use all the personal income tax deductions that are potentially available to both
Irina and Alexei.
2. State separately the amounts of all personal income tax deductions claimed by Irina and Alexei for the
year 2010 and the deductions carried forward to future years, if any.
(b) State, giving reasons, whether or not Alexei’s personal income tax liability for 2010 will change if Orange
agreed to reimburse to him the bank mortgage interest paid during the year and this interest is deductible
by Orange in calculating its corporate profits tax liability.
Note: recalculation of Alexei’s personal income tax liability is not required.
(2 marks)
(25 marks)
9
[P.T.O.
3
(a) In 2010 ZAO Avenuda (‘Avenuda’) entered into a long-term lease agreement with company Regus. All the
activities of Regus are subject to value added tax (VAT).
All the amounts given in each of the scenarios of this question include VAT unless stated otherwise.
(i)
The following transactions were processed between Avenuda and Regus in the first quarter of 2010:
On 4 February 2010 Avenuda received a 100% prepayment to the value of 200,600 RR from Regus for
the office premises lease services to be provided on a quarterly basis under the long-term lease agreement
between the parties.
On 30 March 2010 Avenuda provided to Regus with the act of acceptance for the lease services for the two
months (February and March 2010) for the slightly increased amount of 220,660 RR due to some
additional services being provided for this period. Regus received and signed this act of acceptance on the
same date. Along with the act of acceptance Avenuda provided to Regus with a VAT invoice for the same
amount in respect of the provided lease services for those two months.
Required:
Show for both ZAO Avenuda and Regus the output and input VAT arising from the above transactions
for the first quarter of the year 2010. Clearly identify all separate elements together with the relevant
dates and state the deadline for the VAT declaration and payment to the budget of final VAT liability.
(3 marks)
(ii) Assuming the same transactions as in sub-part (i) except that on 7 February 2010 Regus received an
advance VAT invoice from Avenuda for the prepayment made on 4 February 2010.
Required:
State the general rules as to when VAT on a prepayment can be treated as recoverable under the tax
law and show how your answer in sub-part (i) will change as a result of the issue of the advance VAT
invoice.
(3 marks)
(iii) In April 2010 Regus made the decision to sublease part of the office premises to a third party, which is the
accredited representative office of a foreign company Knives Plc. The leasing of office premises is a VAT
exempt activity.
The following transactions occurred in the second quarter of 2010:
On 4 April a prepayment of 200,600 RR was made by Regus to Avenuda for sub-lease services.
On 7 April an advance VAT invoice was received by Regus from Avenuda for 200,600 RR.
On 15 April a prepayment of 80,000 RR was made by Knives Plc to Regus for sub-lease services.
On 30 June the act of acceptance along with the VAT invoice were received by Regus from Avenuda for the
value of 200,600 RR. On the same date the act of acceptance and the VAT invoice for 80,000 RR were
received by Knives Plc from Regus.
The total VATable sales of regular services made by Regus to its customers during its normal business activity
in the second quarter of 2010 were 495,600 RR. The costs related to the sublease activity were 20% of
all Regus’ costs net of VAT for the second quarter of 2010.
Required:
Calculate the impact of the sub-lease on the amount of VAT recoverable by Regus in the second quarter
of 2010.
Note: no full calculation of the quarterly tax liability or the VAT on the prepayments is required in this
subpart of the question.
(4 marks)
(iv) Explain the effect on Regus’ input VAT in both April and June 2010 if Regus were to sublease 100% of
premises leased from Avenuda to Knives Plc in the second quarter of 2010.
Note: no calculations are required in this subpart of the question.
10
(2 marks)
(b) ZAO Miramar a company whose trading activities are all subject to VAT, started to build a small hotel in Sochi
using its own workforce in January 2010. The wages and salaries of the construction workers were all less than
415,000 RR per person. Information about the construction costs is provided below (in 000 RR):
Materials used for construction (including VAT)
Wages and salaries of construction workers (net of contributions)
Services paid to subcontractors (including VAT)
63,720
40,800
49,088
The construction was completed and the fixed assets were booked on 7 September 2010. The state registration
of the building was received by ZAO Miramar in November 2010.
Required:
Calculate the impact of the above transactions on ZAO Miramar’s VAT liability for 2010, clearly stating when
the VAT on the whole of the construction object is recoverable.
Notes:
1. Show all elements of the output and input VAT.
2. You are not required to give details of the timing of the VAT payments and offsets except for the whole of
the construction object.
(3 marks)
(15 marks)
11
[P.T.O.
4
Igor Melnikov works as an financial controller in the financial department of the company Suites. Igor is married and
has two children: a daughter of eight and a son of two years. In 2010 his monthly gross salary is 200,000 RR with
the exception of January when he received the net amount of 30,450 RR due to his taking a long unpaid vacation
with his children.
In January Igor and his wife made a decision to purchase a plot of land not too far from Igor’s working location for
the construction of their future residential house. The purchase price of the plot of land was 1,700,000 RR. Igor has
never used his property allowance.
In February 2010 Igor decided to take a five-year bank loan to finance the acquisition of the plot of land. The loan
principal amount of 1,500,000 RR was received on 7 February 2010. The interest rate on this loan is 12% per
annum and interest is payable on the last date of each quarter starting from 31 March 2010 with the exception of
the last quarter of the year. Interest for the last quarter of 2010 is payable on 10 January 2011. The agreement does
not contain a provision for possible interest rate changes. The principal amount will be repaid starting from February
2011.
In February 2010 Igor invested in the plot of land partially from his own savings (200,000 RR) and partially from
the above bank loan (1,500,000 RR)
In March 2010 Igor made the decision to sell his car for the value of 480,000 RR. The car had been purchased by
Igor and registered in his name from August 2006.
In addition, in April 2010 Igor found a purchaser for the garage which he had owned from June 2006. Igor negotiated
to sell this garage for 300,000 RR in May 2010.
Construction of the residential house was completed in November 2010 and Igor managed to submit to the tax
inspection documents confirming property rights for the plot of land along with the ownership certificate for the
residential house before the end of that month. The statement from the tax inspection, confirming Igor’s entitlement
to the property allowance, was received by Suites in December 2010.
Required:
(a) Calculate Igor’s final personal income tax liability for the year 2010.
Note: Ignore monthly tax withheld by his employer.
(8 marks)
(b) Igor’s bank unilateraly changed the repayment schedule for the loan of 1,500,000 RR and as a result Igor must
repay part of the loan principal in the amount of 500,000 RR by 1 July 2010.
As he could not afford to repay this amount by the above deadline, Igor negotiated with another bank to refinance
the current debt on the initial loan of 500,000 RR with a new bank loan under the following conditions:
The new loan in the amount of 500,000 RR will be for seven years with a 10% (notional) interest rate per
annum. The new loan will be received on 28 June 2010 and the principal amount will be repayable from the
year 2011. The first interest instalment is payable on 30 September 2010 and the second on 11 January 2011.
Using the new loan proceeds, Igor repaid the 500,000 RR of the first loan on 1 July 2010.
Required:
(i)
Explain whether or not Igor will need to obtain any further confirmations (in addition to those already
received) from the tax authorities in order to maximise his claim for the property allowance following the
refinancing of part of the loan;
(2 marks)
(ii) Calculate the revised amount of the property allowance to which Igor is entitled following the refinancing
of part of the loan;
(2 marks)
(iii) State, giving reasons, whether or not Igor will be liable to tax on imputed interest income in respect of
the refinanced loan.
(1 mark)
Note: in answering sub-parts (ii) and (iii) you should assume that all necessary confirmations have been
received for the property allowance for the year 2010 in respect to all expenses incurred in 2010.
12
(c) Instead of raising a new bank loan (as in part (b)) Igor requested his employer to refinance the first bank loan
and received from Suites the loan amount of 500,000 RR on 28 June 2010 under the following favourable
conditions: interest at the rate of 3% per annum, with the first interest instalment due on 30 September 2010
and no payment of the principal amount in 2010.
Required:
State, giving reasons, what impact, if any, this change of lender would have on Igor’s 2010 tax liability.
Note: calculations are not required for this part.
(2 marks)
(15 marks)
13
[P.T.O.
5
(a) Marina is a young freelance architect. She has a contract with the company ‘Ecoproject’. During the year 2010
Marina prepared several projects for this company and received in total a payment of 800,000 RR (net) as a
copyright fee. Her gross income in the month of January was 50,000 RR. Marina did not keep any source
documents for her business expenses.
In February 2010 Marina made donations to the state charity fund for disabled persons of 3,000 RR in cash and
10,000 RR in kind.
Marina had no other sources of income in 2010.
Required:
(i)
Calculate Marina’s taxable remuneration income for the year 2010 and the amount of personal income
tax withheld at the 13% rate;
(4 marks)
(ii) Calculate the social insurance contributions with respect to Marina’s remuneration income for the year
2010.
(1 mark)
(b) Anna owns 700 shares in the Russian company OOO KML (‘KML’) out of the company’s total of 7,000 shares.
In March 2010 the shareholders of KML made the decision to distribute as dividends 65% of the company’s
after-tax profits of the 2009 financial year. The dividend from KML will be paid into Anna’s bank account in
September 2010.
KML’s 2009 profits before tax (equal to the taxable profits in its annual profits tax return) were 34,000,000 RR.
No dividends were received from subsidiaries in 2009 but in 2010 KML received 4,300,000 RR (gross) of
interim dividends from its Russian subsidiary OOO Aberia.
Required:
Calculate the personal income tax withheld on Anna’s dividend income and the net amount she will receive
from OOO KML.
(4 marks)
(c) Company Pantera is owned by a Dutch company, Merier (15%), a Polish company, Ricon (25%) and a Russian
company, Elephant (60%).
On 12 April 2010 Pantera received a loan of 1,000,000 EUR from Ricon with the interest rate of 7% per annum.
The interest due is payable on a quarterly basis on the last day of each quarter.
Details of Pantera’s forecast assets and liabilities as at 30 June 2010 are as follows:
Assets
Liabilities
65,400,000 RR
53,000,000 RR, including tax liabilities of 3,000,000 RR
Required:
Calculate the loan interest deductible by Pantera for profits tax purposes for the quarter to 30 June 2010.
Note: the following notional EUR/RR exchange rates are to be used:
1 March
9 March
31 March
1 April
12 April
30 April
1 May
31 May
1 June
30 June
45.3
45.4
46.1
46.0
45.7
45.9
45.7
45.8
46.2
46.3
(6 marks)
(15 marks)
End of Question Paper
14