Facebook to pay ‘Google Tax’ in Russia

April 17, 2017 Kira Kalinina, RBTH
The introduction of the tax is an attempt by the Russian government to create equal conditions for all companies working on the Russian market, and a bid to replenish the state budget.
Facebook
Facebook has registered with Russia's Federal Tax Service and will begin paying VAT on the sale of virtual goods in Russia. Source: Reuters

The Vedomosti newspaper reports that Facebook has registered with Russia's Federal Tax Service and will begin paying VAT on the sale of virtual goods in Russia.

This is the so-called "Google Tax," the law which was adopted in the summer of 2016 applying to all foreign companies registered abroad and selling their goods and services on Russian territory. Now foreign companies will have to pay an 18 percent tax on all their sales within the country.

Among other technological and Internet companies that are registered with Russia's Federal Tax Service are Apple Distribution International, Google Commerce Ltd, Microsoft Ireland, Netflix International B.V., Wargaming Group Ltd, Bloomberg, The Financial Times, and others. Most of them work in the information field, sell software, computer games and content, and offer online platforms and services.

"By introducing this tax the government is trying to create equal conditions for all companies working on the Russian market. It’s also concerned about replenishing the state budget," says David Kapianidze, director of fiscal practices at BMS Law Firm.

Following Europe's example

Earlier, the European Commission was also displeased with the fact that large companies such as Microsoft, Apple, and Google register and pay tax in countries with low VAT rates. For example, Skype and iTunes were registered in Luxemburg, Amazon and Airbnb in Ireland, notes Arik Shabanov, managing partner at Prime legal LLC.

However, on Jan. 1, 2015 the EU unified a law on VAT and adopted a norm on the payment of the tax in the place where the service is used, not where it is produced. "After the unification of the law on VAT on the entire territory of the European Union, registration in countries with the most advantageous fiscal climate became senseless," explains Shabanov.

Spain, Germany, and France also introduced the so-called "Google law," although it works according to another principle, adds Kapianidze. "In these countries the aggregator of news is forced to pay publications whose content it presents in the search for news content. Essentially, Internet companies give local mass media money from their incomes."

The law introduced in Russia certainly needs to be refined because it still does not provide practical instruments that help regulate work with foreign companies, believes Shabanov. "The EU's experience will again help to resolve this problem. There companies receive a special taxpayer number." Moreover, it’s still not very clear who exactly must pay VAT. "In some cases this obligation may concern large platforms, in others, companies that have rights to electronic content," Shabanov sums up.

Read more: Can Russian authorities slow down Facebook and Google?

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