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Taxation Russia
(TX RUS)
December 2021
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.

Contents
General Comments ............................................................................... 2
Section A ................................................................................................... 2
Example 1 ............................................................................................ 2
Example 2 ............................................................................................ 3
Section B ................................................................................................... 4
Question One ...................................................................................... 5
Question Two ...................................................................................... 6
Question Three .................................................................................. 6
Question Four ..................................................................................... 7
Question Five ...................................................................................... 8
Question Six ......................................................................................10

Examiner’s report – TX RUS December 2021 1

General Comments

There were two sections to the examination and all the questions were compulsory.
Section A consisted of 15 multiple choice questions of two marks each, which covered
a broad range of syllabus topics.
Section B had four questions worth 10 marks each and two longer questions worth 15
marks, each testing the candidates’ understanding and application of Russian taxation
rules in more depth.
This report should be used in conjunction with the published exam which can be found
here.

Most candidates attempted all six questions. Where parts of questions were left
unanswered by the candidates, this appeared to be due to a lack of knowledge or poor
exam technique, as opposed to time pressure.

Candidates, who made reasonable assumptions across the answers, earned

appropriate marks.

A number of common issues arose in candidates’ answers:

• Failing to read the question requirements and notes carefully, and therefore
providing sometimes irrelevant points or omitting points which scored marks;
• Making irrelevant calculations; and
• Failing to demonstrate an understanding of basic rules of taxation.

The following paragraphs report on each section and focus on some of the key learning
points.

Specific Comments

Section A

Section A questions seek to provide a broad coverage of the syllabus; accordingly,

candidates should study all areas of the TX-RUS syllabus in order to be in a good
position to answer Section A questions correctly.

A good performance in section A greatly facilitates the task of obtaining an overall

pass in this exam as it accounts for 30% of the overall mark allocation.

The following questions are reviewed to provide a technical debrief with the aim of
giving future candidates an indication of the applied skill level required.

Example 1

On 30 June 2021 OOO Purple sold an industrial printing machine for 3,200,000 RR
(excluding value added tax (VAT)) which was accounted as a fixed asset. The
machine had been used for five years out of its ten-year useful life at the time of
sale. The tax net book value of the machine was 4,000,000 RR (excluding VAT) at
the date of sale.

Examiner’s report – TX RUS December 2021 2

What is the amount of expense that should be deducted by OOO Purple for
profits tax purposes in respect of the sale in 2021?

A 3,280,000 RR
B 4,000,000 RR
C 3,291,803 RR
D 3,293,333 RR

This computational question required candidates to calculate the expense and

portion of loss from the sale that should be deductible for corporate profit tax (CPT)
purposes in the year 2021. The portion of loss is calculated using the remaining
useful life of the fixed asset item.

The correct answer is option A, according to Item 3 of Art 268 of Russian Tax
Code (RTC) the loss (negative difference between sales proceeds and Tax Net Book
Value) from sale of fixed asset should be depreciated during the rest of useful life.
Tax net book value not exceeding the sales proceeds is also deducted as expense
at the moment of sale (Item 1 of Art 268 of RTC).
3,200,000+((4,000,000-3,200,000) /(10 years of useful life -5 years left)*(6month
after the sale/12months in the year)) = 3,280,000 RR

In option B wrongly deducted the Net Book Value without allocation of loss
(4,000,000 RR).

In option C, the month of sale is wrongly included into the calculation of the loss
depreciation and rest of the useful life. In June the fixed asset was used, hence this
month should not be included into the loss allocation period (item 3 of article 268 of
RTC).
3,200,000+(4000000-3200000) /(10-5+(1/12))*(7/12) = 3,291,803 RR

In option D, the month of sale is wrongly included in the calculation of the loss
deductible in the period
3,200,000+(4000000-3200000) /(10-5)*(7/12) = 3,293,333 RR

A key learning point for future candidates: please ensure you are up to date with
relevant legislation, be more attentive to the details in the scenario given and read
the question carefully.

Example 2

OOO Study (Study) is a huge licensed learning provider and its provision of
educational services is value added tax (VAT) exempt. In quarter 1 (Q1) 2021 Study
bought study kits for 1,200,000 RR. Half of these kits were sold for 1,320,000 RR to
another learning provider in Q1 2021. Payments for the purchased kits and receipts
for the kits sold occurred in Q2 2021; according to the terms of the respective
contracts.
All figures are VAT inclusive at standard rate where applicable.

Examiner’s report – TX RUS December 2021 3

What is the amount of VAT in respect of the above mentioned transactions that
should be calculated and reported in the VAT return of OOO Study for Q1
2021?

A 0 RR
B 20,000 RR
C 220,000 RR
D 120,000 RR

This computational question required candidates to calculate accrual and recovery of

VAT. The recovery of VAT in the question is based on one of the main rules of VAT
recovery: related expenses should be incurred for VAT able activity otherwise (if
used for VAT exempt activity) related VAT should be included in the cost.

The correct answer is option D, where the input VAT on the study kits attributable
to exempt activities cannot be recovered (Item 4 of article 170 of RTC).
1,320,000/120%*20% sale of the half -1,200,000/2/120%*20% recovery of VAT
attributable to the half sold = 120,000 RR
The first part of the answer was given in the scenario; the amount of 1,320,000 RR
should be netted off VAT. The second part of the answer is based on the rule of
article 171, 172 of RTC that recovery of VAT in respect of an expense is allowed
only if the expense is incurred for VAT able activity. In our case only half of the study
kits were used for VAT able sale, hence only half VAT attributable to the half should
be recovered.

Option A ignored the accrual method as payments were not made (or wrong
application of principle no VAT-able sales - no VAT recovery (which is also mistaken
stance) – 0 RR.

Option B presumes the incorrect recovery of all VAT, including related to exempt
activity 1,320,000/120%*20%-1,200,000/120%*20%

In option C all purchase is wrongly deemed as non-VAT able and related VAT non-
recoverable. 1,320,000/120%*20% = 220,000 RR

A key learning point for future candidates: please ensure you are up to date with
relevant legislation, be more attentive to the details in the scenario given and read
the question carefully.

Section B

This section had a standard coverage of topics. Questions 1 to 4 were short questions
of 10 marks each for a total of 40 marks, and questions 5 and 6 were longer questions
of 15 marks each for a total of 30 marks.

Examiner’s report – TX RUS December 2021 4

Question One

This 10-mark question covered the topics of dividends taxation in part (a), tax evasion
in part (b) and the advantages of the simplified tax system in part (c).

The performance in this question was disappointing. Candidates did not score the
maximum available marks because they made the following mistakes, mostly due to
inattentiveness to details in the scenario, lack of knowledge and spending time doing
calculations which were not asked for in part (a).

The most challenging part of the question was the calculation of tax that should be
withheld from dividends payable to the Russian shareholder applying deduction of
incoming dividends (that were taxed at source, to avoid double taxation of the same
earnings – once received as dividends by OOO Mega then distributed further to its
Russian shareholders).
Correct answer to the question was the following:

Dividends distributable 12,600,000+8,600,000 21,200,000

Share of dividends of Russian shareholder 21,200,000*40% 8,480,000
Tax withheld from dividends
(21,200,000-5,400,000)*8,480,000/21,200,000*13% 821,600
Dividends from OOO Autumn were not subtracted along with dividends from OOO
Winter from total dividends distributable by OOO Mega in the formulae, because
those dividends from OOO Autumn were taxed at 0% rate at source. The rate was
applied because OOO Mega held more than 50% shares in OOO Autumn for more
than 365 days.

Share of dividends of Foreign shareholder 21,200,000*60% 12,720,000

Tax withheld from dividends 12,720,000*15% 1,908,000

Also candidates failed to gain marks for the following reasons;

• Instead of just summing up the received dividends and earnings for previous
years candidates calculated each flow of dividends and retained earnings
separately to each shareholder.
• Incorrect calculation of distributable dividends
• Omission to calculate the deduction of received dividends taxed at source from
paid dividends to Russian shareholder. At the same time candidates who
commented that the dividends received from OOO Autumn should be taxed at
0% corporate profits tax (CPT) rate stating the conditions for this gained
appropriate marks.

Part (b) appeared to be difficult for many candidates. The question represented a mix
of ethical concern and tax evasion (principal purpose test). Many candidates explained
the conditions of transfer to the simplified tax regime and its advantages despite notes
to the question prescribing not to do so. Some candidates managed to identify the split

Examiner’s report – TX RUS December 2021 5

and shift to the simplified tax system as only being a tax advantage, without further
comments on possible consequences that can come from the tax authority side. Few
candidates advised on how to perform the split without bringing to the attention of tax
authority, which highlights misunderstanding of ethical stances of ACCA (full
compliance to legislation) by those candidates.

The majority of candidates did very well in part 1(c) – this was a simple open question.
The most popular answers here were exception from VAT, CPT, option between
income and income minus expenses objects with lower rates than for CPT.

Question Two

This 10 mark question required a calculation of insurance contributions (IC) in respect

of benefits received by an employee from an employer. The performance overall was
very good.

Candidates, who included the uniform into the IC base stating that uniform is more of
personal use received appropriate half mark. Also candidates who assumed that the
excursion tickets were gifted to Irina with respective documentary support received
appropriate one mark.

However, the typical mistakes were as follows:

• Candidates forgot to mention the interest income in respect of loan given by

Irina to OOO Pharm. The income is exempt from IC as sourced from a deal
where proprietary usage/borrowing is involved (item 4 of article 420 of Russian
Tax Code (RTC)).
• Candidates included annual voluntary medical insurance of Irina into the
calculation of IC because the insurance term is less than 5 years (which is
incorrect). Exclusion of a personal insurance from IC base is allowed if term of
the insurance is more than one year (sub item 5 of item 1 of article 422 of RTC).

Question Three

This 10-mark question tested the calculation of personal income tax for business
transactions of an individual entrepreneur and for transactions in securities of an
individual. The scenario predominantly does not specify which type of broker account
is used by Vera, so candidates are free to assume either, and calculate and explain a
deduction in respect of income received from sale of the quoted participatory interest.

Calculation of financial result from sale of the participatory interest will be the same for
any kind of broker account:

Sale of participatory interests 4,800,000

Expenses related to the income above:
Cost of participatory interests (1,200,000)
Premium charged (18,000)
Discount withheld (144,000)
Loss (non-deductible as related to income

Examiner’s report – TX RUS December 2021 6

from non-quoted participatory interest) 0
Total expenses (1,362,000)
Financial result from the sale of participatory interests 3,438,000

So if a candidate assumes that the participatory interest was held on Individual

Investment Account (IIA), the calculated income (positive result) will be equal to
investment deduction (if the IIA closed in this year) because the IIA was not closed for
more than 3 years since June 2017 (item 4 of article 219.1 of RTC). If the IIA is not
closed in 2021 year the positive result from sale of the participatory interest is not
calculated for being taxed with PIT. The type of investment deduction is available
provided that Vera did not receive investment deduction in respect of contribution of
money on the IIA (up to 400,000 RR per year).

If a candidate assumes that the participatory interest was held on ordinary account the
answer will be the following:

As the participatory interest is of Russian Open Investment Funds

quoted on Russian Stock Exchange held for more than 3 years on ordinary
investment account – investment deduction can be used

Investment deduction 3,000,000*4=12,000,000 RR (3,438,000)

As a deduction cannot exceed the income, only 3,438,000 RR deducted

The formulae of the investment deduction calculation is given in Tax Tables in the
exam.

Many candidates forgot to include in their answer the loss from the non-quoted
participatory interest sale and the professional deduction applicable to the income from
the tailoring compared with the expenses deduction.

Also deduction of VAT and import duties as expenses for PIT purposes were not
demonstrated well. An individual entrepreneur is allowed to use professional deduction
in form of expenses related to his income generating activity on condition set up for
corporate profits tax (item 1 of article 221 of RTC with reference to sub item 1 of item
1 of article 264 of RTC). The expenses should be confirmed with appropriate
supporting documents. As Vera is not a VAT payer, which is stated in the scenario,
VAT paid by her should be included into deductible expenses (sub item 3 of item 2 of
article 170 of RTC). Also the professional deduction can be used in form of percentage
of income, which many candidates failed to demonstrate.

Question Four

This 10-mark question focused on value added tax (VAT) in respect of a number of
different transactions.
Part (a) embraced VAT implication in respect of fixed assets purchased and used for
VAT exempt activities.

Part (b) related to various transactions of OOO White, which became a VAT payer in
the year 2021. Many candidates forgot to include one or several transactions from the
scenario in their answer.
Examiner’s report – TX RUS December 2021 7
The answer to this computational part showed mistakes of the following nature:

• Incorrect option of historical cost (cost of purchase) or tax net book value of the
equipment sold. According to item 3 of article 154 of RTC property which cost
includes VAT (due to usage for VAT exempt activity) should be taxed with VAT
in special way. VAT base is equal to difference between sale price VAT
inclusive and accounting net book value. And VAT rate of 20/120 should be
applied (item 4 of article 164 of RTC)

• Sale of debt resulted in income equal to interest accrued under the sale
contract. According to item 1 of article 155 of RTC, sale of debt resulted from
sale of goods should be tax with VAT on difference between value of payment
for the debt and book value (initial value) of the debt. Candidates obviously
excluded the transaction from VAT calculation.

• Sale through an agent should be reported and taxed with VAT in the period
when sale (property right transfer) has taken place irrespective of when report
of VAT invoice is issued (article 146 and 167 of RTC).

• Many candidates excluded VAT recovery related to both batches justifying it by

mistakes in VAT invoices. However, VAT invoices which data do not prevent
tax authority from identification of supplier, customer, name of goods (services,
works), its value, tax rate and VAT amount, can be used for VAT recovery
purposes (item 2 of article 169 of RTC). Mistakes of both VAT invoices of the
scenario were not crucial, related goods are purchased in the period (property
right transferred) hence related VAT could be recovered.

Question Five

This 15-mark question was on the personal income tax (PIT) of Sergey, which
consisted of two parts – employment income (part a) and PIT return (part b) for the
year 2021.

Part (a) for 9 marks required a calculation of personal income tax to be withheld from
the employment income of Sergey. Part (b) for 6 marks embraced personal
transactions, not related to employment, and the PIT return.

Overall performance on this question was not as good as would be expected. The
common areas of weakness were the following:

In part (a):

• Children allowance calculation was not always correct even although the limits
and rates were provided in the Tax tables available in the exam. Maximum
income which allows children deduction should not exceed 350,000 RR. The
month when the excess has taken place is not included in the calculation.

Examiner’s report – TX RUS December 2021 8

 So Sergey exceeds the limit in March - income in January of 130,000 RR +
February of 1130,000 RR + March 130,000 RR = 390,000RR > the limit of
350,000RR,
We include two months (January and February) in the calculation.
Children not older than 18 years (two sons) and full time students not older than
24 years should be included - 1,400 RUR per two sons of 9 and 12 years and
3,000 RR per 18 an 19 sons who are full time students.

So therefore we have 2 months * (1,400 RR 9 years old son + 1,400 RR 12

years old son + 3,000 for 18 year old full time student + 3,000 for 19 year old
full time student) = 17,600 RR

• Voluntary property insurance is not a kind of personal insurance and hence is

not exempt. So this insurance should be treated as a benefit in kind and
included into PIT tax base at market value.
• Many candidates mixed up non-state pension fund contribution with additional
insurance contribution for the accumulated portion of the pension, wrongly
applying exception limit of 12,000 RR given in Tax Tables.
• Many candidates decided to apply social deduction to all insurances and
contributions into non-state pension fund. However social deduction can be
given in respect of such expenses if incurred by Sergey himself, but not paid by
his employer (sub items 3 and 4 of item 1 of article 219 of RTC).
Many candidates correctly calculated imputed interest (material gain) taxable at the
35% rate, sourced from the loan granted to Sergey.

In part (b):
• Some candidates forgot to mention the inherited country house. Instead of
property deduction of 1,000,000 RR against income from the land plot sale
many candidates incorrectly opted for a deduction of 250,000 RR as for other
property. Fixed property deduction of 1,000,000 RR is granted not only in
respect of sale of residential immovable property but also for land plots (sub
item 1 of item 2 of article 220 of RTC).

• Also many candidates had trouble with the calculation of dividend income paid
from abroad. The topic related to item B5h of the Syllabus where item 2 of article
214 of RTC was directly mentioned. According to the rule of the item any tax
payable abroad by a Russian taxpayer in respect of a dividend income can be
offset against PIT if the jurisdiction, out of which the dividends were paid, has
a Double Tax Treaty with Russian Federation. So the answer on this topic
should be the following:

Any income of an individual, who is taxpayer of PIT, should be included into his
PIT return in full amount unless the income is exempt from PIT or related PIT
was withheld by a tax agent who are Russian legal entities etc (item 4 of article
229 of Russian Tax Code). So foreign sources, which withheld WHT are not
deemed to be tax agent for Russian Taxation purposes.

So full amount of the income from the dividends should be:

Dividend income 8,000 EURO*88 Exchange Rate / (100%-15%) 828,235

Examiner’s report – TX RUS December 2021 9

 Exchange rate (88 RR per Euro) is taken at the moment of receipt of the
dividends on bank account of Sergey as per sub item 1 of item 1 of article 223
of RTC for any monetary incomes (except for certain incomes mentioned in the
article which are not considered in the scenario).

Russian Tax legislation does not specifically rule on which rate should be opted
for calculation of tax withheld abroad from the dividends. Corporate profits tax
rules (item 1.6 of article 312 of RTC) presumes the same ex-rate for both
income and foreign tax withheld abroad. So it is assumed that the same ex-rate
as for calculation of income itself should be opted because otherwise amount
of foreign tax expressed in roubles can be distorted due to currency exchange
difference. However, if a candidate opts ex-rate on date of payment of the
dividends by the source for calculation of rouble equivalent of tax paid abroad
it is not considered as a mistake.

So further answer should be the following:

Total taxable income 2,690,635

Tax at 13% 349,783
Tax withheld from dividends at source 828,235*13% (107,671)
(½ mark for deducting WHT, 1 for offsetting only amount of tax attributable to
Russian rate of 13%)
As the source country has Double Tax Treaty with Russia the WHT at 15%
paid at source can be offset against Russian Tax but in amount that cannot
exceed Russian PIT at 13% from the income. Tax withheld at source at 15%
rate of 828,235*15% = 124,235 RR exceed Russian PIT in respect of the
dividends 828,235*13% = 107,671 RR so only this amount should be offset.

Positive difference between WHT at source and Russian tax in respect of the
dividends is not refundable. In other words, if a taxpayer paid a WHT abroad
(or the tax was withheld from his income at source), the amount that should
be offset against PIT cannot exceed 13% multiplied by the income amount.
Positive difference (overpayment of the WHT) is not refunded by Russian
budget (the last paragraph of item 2 of article 214 of RTC).
Tax withheld by employer (203,112)
Tax at 13% rate to be paid 39,000

Question Six

This 15-mark question consisted of various transactions in a trading company, which

required appropriate treatment for corporate profits tax (CPT). The case consisted of
inventory costing, agency transactions, various transactions in head office and a
branch and finally calculation of CPT payable by the branch. The last one is the most
difficult part of the question, even though that the topic is embraced by items C1b,
C1c, C4c of the Syllabus.
Many candidates did not answer the question as well as was expected. Many
candidates simply forgot to include advances, agency commission, agency sale into
the calculation. Many candidates forgot to net expenses of VAT.
The common mistakes were those listed below:
Examiner’s report – TX RUS December 2021 10
 • Delivery by the branch are wrongly postponed to the next period. Income is
always recognised at the moment of sale (property rights transfer) irrespective
of when risks are transferred or documents are received (items 1 and 3 of article
271 of RTC with reference to item 1 of article 39 of RTC). The same rule is
applicable to the commission fees which should be recognised when the
commissioner report is presented to the principal (OOO Spring) –transfer of the
results of the agent’s services from the agent to OOO Spring.
• Many candidates decided to calculate bad debt provision despite conditions of
the scenario stated that OOO Spring does not routinely provision for bad debts.
The bad debt that was previously written off and now compensated should be
included into taxable income (if not exempt) for CPT purposes according to
article 249 of RTC. At the same time a bad debt of an existing customer should
not be written off for CPT purposes, because this is not a bad debt which is
impossible to recover – 3 year period allowable for claim is not passed, the
customer is not liquidated (sub item 2 of item 2 of article 265 and item 1 and 2
of article 266 of RTC)
• Many candidates decided to split the CPT tax base separating income and
expenses between head office and the branch, which is not correct. Irrespective
of performance of head office and branches according to management
accounting, the split of tax bases and allocation of regional part of CPT should
be based on special formulae prescribed in article 288 of RTC. So correct
allocation of the profit attributable to the branch is the following:

Total profit/loss: 146,394,545

Share of profit attributable to the branch (W1) 16,905,606
Tax amount payable at the place of tax registration
of the branch 16,905,606 * 17% 2,873,953

Working 1.
Residual value of Fixed Assets of the Branch on 31 December 2021
1,240,000/120*20*0.7 723,333

Total residual value (Tax) of Fixed Assets on 31 December 2021 NBV(RAS) –

write off of the branch loading machine
5,833,333-310,000 5,523,333
Share of profit attributable to the branch
(723,333/5,523,333+10000000/100000000)/2*146,394,545 16,905,606

Candidates, who used RAS residual value of fixed assets did not lose marks, marks
were awarded for correctness of the formulae and weighting of the salary.

Examiner’s report – TX RUS December 2021 11