
The Federation Council of Russia has approved a bill amending Federal Law No. 38-FZ of 13 March 2006 “Concerning Advertising” (“the Bill”). The Bill introduces a charge for internet advertising. The new rules are expected to come into force from 1 April 2025.
The Bill was originally intended to regulate the advertising of credit and loan services and made it obligatory for consumers to be informed of the need to read all the terms of provision of those financial services[1][2]. In the final stages of the review of the Bill by the State Duma, however, amendments were made which introduced a new type of mandatory payment possessing all the characteristics of a tax or levy as set out in Article 17 of the Tax Code.
The charge will be paid to the federal budget. The stated purpose of introducing it is to help fund:
- the provision of state support measures to rights owners of computer programs or databases included in the unified register of Russian computer programs and databases, and
- support for the development and functioning of information resources included in a list to be established by the Government of Russia.
Key elements of the payment
The Bill introduces a new Article 18.2 in Federal Law No. 38-FZ of 13 March 2006 “Concerning Advertising” (“the Advertising Law”) with the heading “Mandatory Charge for the Dissemination of Advertising in the “Internet” Information and Telecommunications Network”.
Article 18.2 establishes the following key elements of the new payment:
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Payers: advertisers and advertising system operators which disseminate internet advertising targeted at advertising consumers in Russia
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Taxable object: income from the sale of internet advertising services
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Period: quarter
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Rate: 3 per cent
Withholding mechanism
The Bill prescribes a mechanism for the calculation and payment of the payment which is similar to the tax withholding mechanism where advertising is disseminated by foreign persons, i.e., a foreign entity, foreign national or stateless person. In this case the Russian advertiser that has concluded a contract with foreign persons for the dissemination on the internet of advertising aimed at consumers in Russia “shall act as the person responsible for the calculation and withholding from funds payable to the foreign person with whom the contract has been concluded of funds payable to the federal budget as a mandatory charge”.
Notably, not only Russian legal entities and individual entrepreneurs but also ordinary Russian citizens are designated as Russian advertisers with responsibility to withhold the payment. This is a significant departure from the tax withholding rules for profits tax and VAT, where under no circumstances are withholding responsibilities placed on ordinary individuals.
Obligation of intermediaries to pay the charge
The Bill also places an obligation to calculate and pay the charge on the following intermediaries:
- persons who perform activities aimed at the dissemination of internet advertising on behalf of and at the expense of an advertiser and/or an advertising distributor,
- persons who provide internet advertising services in the interests of an advertiser and/or an advertising distributor.
The base for the calculation of the mandatory charge for such persons is defined as income received during a quarter from the performance of activities aimed at the dissemination of internet advertising on behalf of and at the expense of an advertiser and/or an advertising distributor or from the provision of internet advertising services in the interests of such advertiser and/or advertising distributor.
Reliefs
The Bill provides an exemption from the charge for advertising disseminated in the following media resources:
- on websites owned by broadcasters of television channels and/or radio channels and by news agencies,
- on websites registered as network publications whose editorial offices and/or founders were established by state or municipal bodies and organizations, or in whose charter (pooled) capital a share is owned by the Russian Federation or a Russian region or municipality, or which have received budgetary appropriations from the federal budget, a regional budget or a local budget for the functioning of mass media (including in the form of subsidies), etc.
- on Russia-wide mandatory and publicly available television channels and television channels that have been granted the right to carry out over-the-air digital terrestrial broadcasting using frequencies available in multiplexes throughout the territory of Russia.
Uncertainties and contentious issues
Calculation of the payment
The Bill establishes that the mandatory charge is to be calculated by Roskomnadzor (the federal agency for the supervision of communications and mass media) on the basis of information provided to it in accordance with Article 18.1 of the Advertising Law. That article requires advertisers, advertising distributors and advertising system operators that have disseminated internet advertising targeted at consumers in Russia to provide, or arrange the provision of, information on such advertising to Roskomnadzor. However, it is not entirely clear from the Bill whether that calculation will be made by Roskomnadzor in the same way as the tax authorities currently calculate land, property and transport tax for individuals, or whether payers will be responsible for calculating the charge themselves. The latter option is indicated by the fact that the information required to be provided by advertisers, advertising distributors and advertising system operators to Roskomnadzor[4] does not include income from the dissemination of advertising, which is the base for the calculation of the charge. In other words, Roskomnadzor would not have the basic information required to calculate the charge.
Definition of income
The Bill does not make clear what is meant by income for the purposes of calculating the mandatory charge, i.e., whether it means revenue or profit (revenue minus expenses) from the dissemination of advertising. If income is taken to mean revenue, this could lead to income from internet advertising being taxed twice – both as part of the income of advertising distributors and advertising system operators and as part of the income of intermediaries engaged by them[5].
Timing of income recognition
The Bill does not specify when advertising income should be considered to have been received for the purposes of assessing the mandatory charge – at the point when services have been provided and the advertising distributor becomes entitled to seek payment from the customer (accrual basis) or at the point when they have been both provided and paid for (cash basis).
Regulation by an act of the Government of Russia
The Bill delegates the establishment of certain essential elements of the payment to the Government of Russia, establishing that “special considerations relating to the calculation and payment of the mandatory charge and the procedure for monitoring the full and timely payment of the mandatory charge shall be established by the Government of the Russian Federation”. This probably means that a subordinate act issued by the Government of Russia would clarify the missing elements of the payment:
- the basis for the calculation of the charge (revenue or profit),
- the timing of income recognition,
- the deadline for payment,
- etc.
Other outstanding matters which would evidently by addressed in the Government act include issues around the calculation of penalties for the late payment of the advertising charge and the fine (or other sanctions) for non-payment.
Classification of other information as advertising
One contentious issue is the inclusion of a provision to the effect that “the Government of the Russian Federation shall determine the criteria by which information disseminated in certain internet information resources is classified as advertising”. This appears to allow for the possibility that information that is not classified as advertising under the Advertising Law may be classified as such on the basis of a government act for the purposes of the payment of the mandatory charge.
Implications for payers of the charge
The new internet advertising charge has the basic characteristics of a tax or levy which are laid down in Article 17 of the Tax Code, allowing it to be viewed as essentially a reincarnation of the old advertising tax under Law No. 2118-1 of 27.12.1991 “Concerning the Fundamental Principles of the Taxation System in the Russian Federation”[6]. It is notable that this development follows the reintroduction of the resort levy (tourist tax) which was likewise the subject of an old law. However, the advertising charge has been reintroduced not in the form of a tax but in the form of a new parafiscal charge payable to the federal budget rather than regional budgets. The amendments increase the fiscal burden for distributors of internet advertising on top of the existing restrictions on the tax deductibility of internet advertising expenses[7].
Many issues relating to the new payment are not fully addressed by the Bill and need to clarified and probably discussed with Roskomnadzor and the Russian government to fill in the gaps and uncertainties.
B1’s team of experts is on hand to help you assess the ways in which the new rules might affect your situation and develop a strongly argued tax position. In particular, we can:
- carry out a review of the impact that the above changes to the law might have on the activities of your company / group and help you prepare for them;
- assess your eligibility for tax reliefs and help you to make use of them in accordance with the law and related practice;
- assist in seeking clarification of legal rules from the tax authorities and other regulators.
AUTHORS
- Natalia Khobrakova, B1 Partner, Tax, Law and Business Support
- Viktor Arkhipov, B1 Manager, Tax, Law and Business Support
Show references
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[4] Approved by Directive No. 1362-r of the Government of Russia of 30.05.2022 “Concerning Approval of the Scope of Information on Advertising Disseminated in the “Internet” Information and Telecommunications Network That is Required to be Recorded, Stored and Processed by Roskomnadzor”
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[6] The new advertising charge differs in that, firstly, it applies only to internet advertising, and secondly, it is payable by persons that disseminate advertising in relation to income from the dissemination of advertising, whereas the advertising tax was paid by advertisers in respect of expenses which they incurred for the purchase of advertising
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