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Taxation _Russia_


									                                                                     Paper F6 (RUS)
Fundamentals Level – Skills Module

Tuesday 6 December 2011

Time allowed
Reading and planning:   15 minutes
Writing:                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
1. Calculations and workings need only be made to the nearest RR
2. All apportionments should be made to the nearest month, unless the law requires otherwise
3. All workings should be shown

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                                         400 RR (up to 40,000 RR)
Children allowance                                      1,000 RR per child (up to 280,000 RR)

                                       General limitation on ‘property’ allowance
Investments in residential property and land for tax purposes     2,000,000 RR (upper limit)

                                        Statutory exclusions from taxable income
Prizes and awards                                                      4,000 RR (upper limit)
Gifts at work                                                          4,000 RR (upper limit)
Support payments                                                       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 deduction –   general                                                       20%
                       –   architects                                                    30%
                       –   for music writer                                              40%
                       –   for sculptor                                                  40%

                                                  Gains on property sales
– immovable property                                               1,000,000 RR (upper limit)
– movable property                                                   250,000 RR (upper limit)
Housing allowance (deduction)                                      2,000,000 RR (upper limit)

                                     Statutory per diem rate for personal income tax
– for domestic business trips                                                 700 RR per day
– for foreign business trips                                                2,500 RR per day

                              Threshold interest rates for personal income tax purposes
Rouble bank deposits                                                   CB refinancing rate increased by 5%
Foreign currency bank deposits                                         9%
Rouble loans                                                           2/3 of the CB refinancing rate
Foreign currency loans                                                 9%

                                     Threshold interest rates for profits tax purposes
From 1 January 2011 to 31 December 2012
Foreign currency loans                                                  0.8 of the CBR refinancing rate
Rouble loans received                                                   1.8 of the CBR refinancing rate

                           Single threshold for social insurance contributions for the year 2011

                                                              Income amount in 2011         Rate
For employers (general) and individual entrepreneurs          up to 463,000 RR              34%

For employers (licences, copyrights, civil contracts)         up to 463,000 RR            31.1%

                                         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 accidents at work resulting in death or permanent physical disability are limited to
15,000 RR per employee per annum.

Certain advertising expenses 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
Non-current assets received under financial leasing                    3 (upper limit)
Historic cost of non-current assets                                      40,000 RR per unit (minimum)

                                                Allowances for receivables
General limitation                                                     10% of sales
Aged 0 to 44 days                                                      0% of receivables
Aged 45 to 90 days                                                     50% of receivables
Aged more than 90 days                                                 100% of receivables

                                                  Value added tax (VAT)
Standard                                                              18%
Exports                                                               0%

General profits tax rate                                                 20%
Tax on dividends for residents                                           9%
Tax on dividends for foreign companies                                   15%

Property tax rate                                                        2.2%

Personal income tax rates
Basic rate                                                               13%
Higher rate                                                              35%
Tax on dividends for residents                                           9%

                                                             3                                                        [P.T.O.
Central Bank refinancing rates (notional)
1 January to 30 June 2011                                      25%
1 July to 30 September 2011                                    20%
1 October to 31 December 2011                                  10%

Number of calendar days in calendar months for the year 2011
January                31
February               28
March                  31
April                  30
May                    31
June                   30
July                   31
August                 31
September              30
October                31
November               30
December               31

   This is a blank page.
Question 1 begins on page 6.

             5                 [P.T.O.
ALL FIVE questions are compulsory and MUST be attempted

1   OOO Botillion (‘Botillion’) is operating as a company engaged in the production of exclusive tailor-made shoes in
    Russia and CIS. Botillion is 60% owned by a Russian company, Snegir; 10% by a French company, Chaussure SA;
    and 30% by a Dutch company, Lim BV.
    Botillion always applies the accruals method for both value added tax (VAT) and corporate profits tax purposes. In
    respect of profits tax reporting, Botillion uses a quarterly profits tax reporting period. Botillion applies the non-linear
    method of depreciation for tangible non-current assets and linear amortisation to intangible assets for tax purposes.
    In its tax policy for the year 2011 Botillion stipulates its right to an immediate 30% write-off of tangible non-current
    asset cost.
    Botillion uses the standard social insurance contribution rates without any incentives on wages and salaries.
    The following information is available for the year 2011. All figures are inclusive of VAT, unless stated otherwise. All
    products sold in Russia during the year 2011 were subject to VAT at the standard rate.
    Sales, receivables and prepayments for the year 2011 (in RR):
    Domestic sales of goods                                                 318,718,000
    Confirmed export sales                                                   17,700,000
                                                   1 January 2011         31 December 2011
    Prepayments from domestic customers             15,080,400                6,690,600
    Trade receivables                                 6,195,000               3,292,000*
    * In October 2011 Botillion received a positive court decision for penalties and interest charges in respect of an
    outstanding debt from its customer Krona, for the value of 4,500,000 RR (non-vatable item). The principal amount
    receivable of 2,903,000 RR had been paid by Krona in November 2011.
    During the year 2011 only 85% of the shoes produced were sold, the remaining 15% were kept in the year-end
    Direct expenses incurred in the production process in 2011 (in RR):
    Materials (annual expense)                                                59,354,000
    Monthly wages of the 200 employees directly involved in the production of shoes were 16,967 RR per capita per
    month. 10% of the employees were hired on temporary labour contracts for periods of less than three months each,
    and were subject to rotation.
    Depreciation of non-current assets:
    Category                         Quantity         Historic cost per      Monthly tax           Date brought
    of non-current asset                                 unit in RR        depreciation rate         into use
    Production equipment                  1             35,400,000              1.8%              February 2011
    Indirect expenses incurred for the year 2011 (in RR):
    Intangible assets:
    Botillion acquired the following patent for a seven year period.
    Name                             Quantity         Historic cost per       Patent term         Date brought
                                                         unit in RR                                 into use
    Patent 1                              1               554,600               7 years          December 2010
    Depreciable assets:
    Category                         Quantity         Historic cost per      Monthly tax           Date brought
    of non-current asset                                 unit in RR        depreciation rate         into use
    Computers                           35                53,100                5.6%                June 2010
    For the year 2011 Botillion incurred the following gross monthly salaries for administrative personnel:
    General director – 500,000 RR
    Middle management – 47,000 RR each for 25 employees

Professional training for employees was provided for both permanent (90%) and temporary employees (10%) to the
value of 590,000 RR. The training agreement was concluded with a licensed Russian educational entity.
Botillion provided both voluntary medical insurance for its permanent employees for 3,700,000 RR and voluntary
medical insurance to permanent employees’ relatives for 1,700,000 RR. The term of each insurance agreement was
one year.
During the year 2011 the following business entertainment expenses were incurred in respect of a visit of French
colleagues from Chaussure SA. The amounts include VAT, where applicable.
Official dinner in a restaurant                                            73,986
Interpreter’s services rendered by a professional firm                     18,054
Air tickets Lyon–Paris–Moscow                                              75,000
Hotel expenses in Moscow                                                   53,600
Transportation in Moscow to the office and back (taxi firm invoice)         6,136
Interest expense
On 9 November 2011 Botillion received a seven-year loan for €2,700,000 from Chaussure SA with interest at the
rate of 10% per annum. Interest is payable on the last date of each month (i.e. the first interest instalment was
payable on 30 November 2011). No repayments of the loan principal were made in 2011.
Tax losses
Botillion has the following unutilised deductible tax losses as of 1 January 2011:
2009                                                                  2,570,000 RR
2008                                                                  1,450,000 RR

(a) Assuming that all the expenses referred to in the scenario are properly confirmed by necessary documents,
    calculate the taxable profit and corporate profits tax liability of OOO Botillion for the year 2011. Show
    separately all elements of taxable income and deductible expenses and the unused balance of tax losses, if
    1. For social insurance contributions purposes ignore all expenses other than salaries.
    2. Ignore property tax.
    3. The following notional €/RR exchange rates are to be used:
         9 November 2011                    41.0
         30 November 2011                   40.5
         1 December 2011                    41.5
         31 December 2011                   42.0                                                     (24 marks)

(b) Calculate OOO Botillion’s value added tax (VAT) liability for the year 2011. Show separately all elements of
    output/input VAT.                                                                                  (6 marks)

                                                                                                     (30 marks)

                                                       7                                                  [P.T.O.
2   Sergey works as a senior financial business analyst for an internationally recognised company Artisan. He is married
    to Anna. They have one daughter, aged six years, and one son, aged eight years. Sergey’s gross monthly salary is
    200,000 RR.
    In addition to his salary, Sergey received the following benefits from his employer Artisan during the year 2011:
    –   Incentive trip to Vietnam with the value of 100,000 RR (it was a reward for good work, not a gift)
    –   I-pad with the value of 25,000 RR as a gift on the fifth anniversary of his working for the company
    –   A 25% discount on the purchase of a car with the market value of 850,000 RR based on the special agreement
        between his employer and an automotive company
    –   Voluntary medical insurance for Sergey of 15,000 RR
    –   Voluntary insurance for his wife, Anna, of 12,000 RR and their two children of 10,000 RR for each child.
    In 2011 Artisan offered all its employees participation in an additional non-state pension scheme by way of making
    personal contributions of 9,000 RR per annum to the chosen licensed non-state pension fund, LJL. Sergey made an
    application to this scheme for the year 2011 and the relevant amount has been withheld from his salary.
    Sergey has never used his housing allowance before. On 24 February 2011 he invested his savings into the
    acquisition of a plot of land for the construction of a residential house. The purchase price of the plot of land was
    1,700,000 RR. In order to finance the construction of the residential house, on 1 March 2011 Sergey took a loan
    from a bank of 1,000,000 RR at the interest rate of 9% per annum for a seven-year period. In addition, on 7 March
    2011 Artisan provided Sergey with another mortgage loan of 3,000,000 RR at the annual interest rate of 3% for a
    ten-year period. Interest on Artisan’s loan will be payable starting from the year 2012, whereas interest on the bank
    loan is payable on a monthly basis starting from 1 April 2011 (the first date after the end of the preceding month).
    Taking into account Sergey’s achievements at work, Artisan at its own expense redeemed all of his interest due to the
    bank which accrued from 1 June 2011 onwards. The above interest was treated as a deductible expense for profits
    tax purposes by Artisan.
    Documents confirming the construction expenses have been collected by Sergey for the amount of 4,500,000 RR.
    Title of ownership was received in December 2011 and Sergey managed to submit this along with the confirmation
    from the tax authorities to Artisan’s accounting department before the 2011 year end.
    In August 2011 Sergey inherited a garage with the market value of 500,000 RR from his grandfather. In December
    2011 Sergey made the decision to sell the garage for 520,000 RR due to its inconvenient location to his apartment.
    Sergey paid 46,000 RR for the education of his daughter in the School of Art and Ballet and 7,000 RR for a sports
    school for his son respectively. Both the above educational schools are licensed institutions under the law of the
    Russian Federation.
    Anna works as a freelance music writer for different theatre performances for the company Sonata.
    Under the agreement with Sonata, Anna’s gross remuneration was 1,000,000 RR for the year 2011 and its allocation
    was as follows (in RR):
    January                                  12,000
    February                                 20,000
    March                                    15,000
    April                                   105,000
    May to December                         106,000 per month
    Anna’s business expenses, as confirmed by documents for her music writing, were 150,000 RR.
    On her birthday in April 2011 Anna received a new piano with the value of 170,000 RR from Sonata. Her husband,
    Sergey, gave her a present of a bracelet which cost 35,000 RR.
    In March 2011 Anna received tickets for the spring season free of charge, which had a market value of 5,000 RR,
    as a gift from Moscow theatre X.
    During the year 2011 Anna paid 6,000 RR for her daughter’s School of Art and Ballet and 12,000 RR for her son’s
    sports school respectively.
    In addition Anna provided 10,000 RR in cash and 12,000 RR of educational toys in kind, as donations to an
    orphanage school.

Assuming that all the expenses incurred by Sergey and Anna in 2011 are confirmed with proper supporting
documents, unless the question specifically states otherwise:
(a) Calculate the personal income tax of Sergey withheld at source by Artisan for the year 2011, assuming that
    Sergey has asked Artisan for all possible deductions to be given;                               (11 marks)

(b) Calculate the final settlement of Sergey’s personal income tax liability (additional payment or refund) upon
    submission of his 2011 personal income tax return;                                                 (4 marks)

(c) Calculate the final settlement of Anna’s personal income tax liability for the year 2011.          (10 marks)
Notes relevant to all subparts:
1. To the extent possible use all personal income tax deductions that are potentially available to Sergey and Anna.
2. State separately the amounts of all personal income tax deductions claimed and the deductions (if any) carried
    forward to future years.
3. Ignore social insurance contributions.

                                                                                                       (25 marks)

                                                      9                                                     [P.T.O.
3   (a) OOO Rostock (‘Rostock’) reviewed the situation with regards to its customers’ debts in October 2011 and decided
        to write off the debt from Platan, based on the market situation for this company, and to sell two further
        outstanding debts (as listed below) to ZAO Pine Tree under the following conditions:
        Customer Due date                 Receivable       Date of sale/           Proceeds received     Amount
                                           including       write-off of             from ZAO Pine       written-off
                                          VAT in RR        the receivable              Tree in RR         in RR
                                                                                     including VAT
        Birch       1 October 2010         826,000         12 October 2011              660,800
        Oak         24 February 2011       472,000         15 October 2011              554,600
        Platan      30 November 2010       295,000         30 October 2011                               295,000
        Rostock has applied the accrual basis for value added tax (VAT) from the beginning of its activity and all of its
        sales are subject to the standard VAT rate.

        (i)   Explain the impact on OOO Rostock’s VAT liability of each of the above transactions which occurred
              during October 2011, clearly identifying the VAT amount, if any, of each transaction;    (2 marks)
        (ii) State the VAT impact, if any, of prepayments received from (1) foreign customers for export sales and
             (2) from local customers for the domestic sale of goods.                                     (1 mark)

    (b) ZAO Panacota (‘Panacota’) concluded an agency agreement with OOO Promode (‘Promode’) to sell its goods in
        the region. Promode is an agent participating in settlements. It receives the full sales proceeds from customers
        and withholds the relevant agent’s fee. Under the above agreement, Promode carried out the following sales (in
        RR) on behalf of Panacota:
        Date of shipment        Date of sale        100% prepayment      Date of revenue         Date of Promode’s
        from Panacota           by Promode              received by      received by             invoice to Panacota
                                                         Promode         Panacota from
                                                     from customers      Promode
                                                     (notes 1 and 2)     (note 3)                (note 4)
        26 July 2011            3 August 2011            454,300         1 September 2011        15 September 2011
        5 August 2011           15 August 2011           678,500         30 August 2011          30 September 2011
        15 September 2011       2 October 2011           359,900         31 October 2011         1 November 2011
        1. All the above amounts are inclusive of value added tax (VAT), where applicable. All the sales of goods by
            Panacota are subject to VAT at the standard rate.
        2. The customers all made prepayments to Promode in the same month in which the relevant sale of goods
            was carried out by Promode.
        3. The agent’s fees withheld by Promode from all the sales revenues received from customers were 5%.
        4. The date of Promode’s invoice is the date when Promode provided the agent’s report together with the VAT
            invoice to Panacota.
        5. Both Panacota and Promode account for VAT on an accruals basis.

        (i)   State how value added tax (VAT) on the sales made to customers by OOO Promode should be
              documented and declared by OOO Promode;                                        (1 mark)
        (ii) Calculate the VAT for both OOO Panacota and OOO Promode for the third quarter (Q3) of the year 2011,
             based on the above transactions. Show separately the output VAT, input VAT and VAT
             payable/recoverable.                                                                       (5 marks)

(iii) Assume that the date of Promode’s invoices to Panacota for the sales to customers on 3 August 2011 and
      15 August 2011 were 7 October 2011 and 8 November 2011 respectively, but that all the remaining
      information stays the same as in the original scenario.

    Calculate the VAT for both OOO Panacota and OOO Promode for the fourth quarter (Q4) of the year
    2011, based on the above transactions as amended. Show separately the output VAT, input VAT and
    VAT payable/recoverable.                                                               (6 marks)

                                                                                                (15 marks)

                                                11                                                   [P.T.O.
4   (a) Vladimir Suvorov works for the company OOO Nutellar (‘Nutellar’) with a gross monthly salary of 20,000 RR.
        During the year 2011 Nutellar provided Vladimir with the following benefits:
        A net bonus for the last quarter 2011, paid in April 2012 in the amount of 45,000 RR.
        A semi-annual club membership of 20,000 RR.
        Material aid of 35,000 RR. This benefit was booked in the accounting records of Nutellar as a non-deductible
        Material aid according to the law on the occasion of his daughter’s birth in November 2011 of 45,000 RR.
        Professional seminar in Moscow for the value of 13,000 RR.
        Cell phone expenses reimbursed by Nutellar in the amount of 36,000 RR, but only 80% of these expenses were
        related to business purposes.
        Annual voluntary medical insurance for Vladimir in the amount of 50,000 RR, for his wife of 40,000 RR and
        for his child of 25,000 RR;
        Contributions to a non-state pension fund were paid by Nutellar for Vladimir in the amount of 60,000 RR.

        Calculate the social insurance contributions (SIC) base for the year 2011 and the amount of SIC to be paid
        by OOO Nutellar for Vladimir, if Vladimir works under (1) a labour agreement; and (2) a civil law agreement.
        You should state where any items will not be subject to SIC.
        Note: you are advised to present your answer in a tabular (columnar) format.                      (11 marks)

    (b) Andrey Vinner works as a individual entrepreneur and runs an advertising business. His business income for the
        year 2011 was 1,700,000 RR. His actual expenses for the year were 500,000 RR. In addition, he has two
        employees with a monthly salary of 35,000 RR. These employees were working for the whole of year 2011.

        Calculate Andrey Vinner’s personal income tax liability for the year 2011, in his current capacity as an
        individual entrepreneur. You should compare the liability using actual expenses, and assuming that Andrey
        has lost the primary supporting documents for all the expenses incurred, and clearly identify which method
        is more tax efficient.
        Note: you should ignore SIC on business income.                                                     (4 marks)

                                                                                                          (15 marks)

5   (a) OAO Krola (‘Krola’) had profits before tax of 340,000,000 RR for the year 2010. Krola made the decision to pay
        35% of its distributable profits as dividends to its shareholders. Irina Lomova is a Russian tax resident, who owns
        7,000 shares out of the total 100,000 shares of Krola. In addition to the dividend paid to Irina, Krola paid
        20,000,000 RR as dividends to non-residents.
        In April 2011 Krola received 45,000,000 RR as dividends for the year 2010 from the company Gumex.
        The taxable profits of Krola are equal to its accounting profits.


        Calculate the personal income tax to be withheld by Krola from the dividend paid to Irina Lomova and the
        net amount of the dividend she received.                                                       (5 marks)

    (b) OOO Langidok (‘Langidok’) is owned 70% by a US company, Superfish; 21% by a French company, Cheval SA;
        and 9% by a UK company, Hitch Ltd.
        On 7 July 2011 Langidok received a €1,250,000 loan for three years from Cheval at an interest rate of 7% to
        finance its capital expenditure. No payments of loan principal or interest were made in 2011. No other loans
        were included in Langidok’s liabilities as at 30 September 2011.
        The following data is available regarding assets and liabilities as at 30 September 2011:
        Assets                                    304,000,000 RR
        Liabilities                               278,000,000 RR
        Including tax liabilities                  96,000,000 RR

        (i)   Calculate the interest expense deductible for profits tax purposes for OOO Langidok in the first nine
              months of the year 2011;
              Note: relevant €/RR exchange rates are as follows (notional):
              1 July                             40.1
              7 July                             39.9
              31 July                            39.7
              1 August                           39.8
              31 August                          39.9
              1 September                        39.6
              30 September                       39.5
              1 October                          40.0                                                           (7 marks)
        (ii) Re-calculate the maximum deductible loan interest expense for OOO Langidok in the first nine months
             of 2011, if the company’s net assets for thin capitalisation purposes as at 30 September 2011 were
             equal to 15,000,000 RR.                                                                    (3 marks)

                                                                                                               (15 marks)

                                                 End of Question Paper


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