Moscow govt objects to amending taxation for debt digital financial assets

MOSCOW. Jan 16 (Interfax) - The Moscow government has refused to back draft amendments to the Tax Code which would take into account periodic payouts on debt digital financial assets (DFAs) as expenditure in calculating income tax for organizations, the Moscow government wrote in a letter to the Finance Ministry in mid-November, a source familiar with the discussions told Interfax.

The main reason for this objection was the absence of a financial or economic rationale, making it impossible to assess lost revenues from the Moscow budget and present a justified stance on the proposed changes. "Nonetheless, the proposed initiatives could be reviewed once more if a financial and economic rationale is provided," the letter reads.

In a review of the draft bill forwarded to the Finance Ministry, the St. Petersburg government said that income tax from organizations was one of the main sources of regional budget revenues. As the draft bill is developed further, "it seems appropriate" to conduct an assessment of the impact of the proposed changes on the revenues of Russia's consolidated regional subjects, the St. Petersburg government said.

The current income tax rate is 25%, 8% of which goes to the federal budget and 17% to regional budgets.

At the moment, all transactions involving DFAs must be accounted for in a separate tax base. The issuer cannot include debt servicing costs in the same tax base as income from its core activities, which lowers the economic feasibility of raising debt by issuing DFAs compared with regular loan agreements, the Central Bank of Russia has said.

Deputy Finance Minister Alexei Sazanov said in late December that the Finance Ministry was planning to discuss the taxation of debt DFAs with the regions. "The changes affect profit tax and some of the budget revenues from them concern regional budgets, so we need the opinions of constituent members of the Russian Federation," he said.

Russian President Vladimir Putin signed a law on December 15 which introduces a separate legal concept of debt DFA and sets requirements for their issuance. The law defines debt DFA as assets certifying only monetary claims, a sum paid on their acquisition, and any accrued periodical payouts. Obligations for such assets can only be fulfilled with money and their issue is only possible after the buyer pays the established price.