As of 1 January 2024, significant changes have come into force regarding the taxation of income of foreign companies. These changes increase the risks associated with failure to withhold tax when paying for services provided by related foreign entities.
Nature of the issue
A company paid a related foreign organization amounts for goods and for services related to the organization of cargo transportation (freight forwarding services), which were indicated as a separate line item “Transportation and insurance costs” in invoices. The tax on the income of the foreign organization from these services was not withheld.
Legal framework
Pursuant to Subparagraph 9.4 of Paragraph 1 of Article 309 of the Tax Code of the Russian Federation, income of a foreign organization from services provided to a related party in Russia is recognized as income from Russian sources.
Under Subparagraph 4 of Paragraph 2 of Article 284 of the Tax Code, the applicable tax rate is 15%.
Article 310(1) of the Tax Code requires tax to be calculated and withheld on each payment. The deadline for payment is no later than the 28th day of the month following the month of payment (taking into account a possible shift to the nearest working day).
The issue of corporate income tax on a foreign organization’s income from international transportation and freight forwarding services in Russia provided to a related party is specifically addressed in the Letter of the Ministry of Finance of the Russian Federation dated 05.04.2024 No. 03-08-05/31464. According to the Ministry of Finance, where income from international transportation is paid through freight forwarding companies that are not carriers, such income may additionally include intermediary remuneration or the cost of other forwarding services. In this regard, it is necessary to determine the actual amount of each type of income within the total payment and to identify the corresponding tax consequences. A foreign organization’s income from international transportation, where it is impossible to separate intermediary remuneration or the cost of other forwarding services, is subject to taxation pursuant to Subparagraph 8 of Paragraph 1 of Article 309 of the Tax Code.
Risks
If tax is not withheld:
What to do now
Check whether the counterparty is a related party under Article 105.1 of the Tax Code.
If relatedness is confirmed:
When working through freight forwarders, split the payment into the carrier’s income and the intermediary’s remuneration in order to correctly determine the tax base.
Check whether treaty benefits under double taxation agreements apply (taking into account possible suspensions).
Key documents
Don’t miss the moment: review payments to foreign counterparties for 2024 — this will help avoid claims from tax authorities.
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