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Foreign Taxes Paid on Sale of Services Do Not Decrease Profit Tax Base


In the Letter # 03-03-06/1/182 from April 9, 2012, the Ministry of Finance offers explanation on the issue of recognizing as expenses taxes paid by a Russian company in a foreign country.

The Ministry reminds us that a taxpayer – a Russian company – in calculating profit tax due to be paid in a foreign country, has a right to take into account expenses related to activity (including taxes paid) of their permanent representation based in this country, as well as corresponding expenses in Russia.

In calculating profit tax to be paid in Russia, the company may take into account expenses incurred abroad, however, it only applies to taxes paid in accordance with Russian legislation.

For example, the amount of profit tax paid in a foreign country is taken into account as a deduction for the amount due to be paid in Russia.

Deduction of property tax paid by Russian company in a foreign country is calculated based on special provisions of the Article #386.1 of the Tax Code of the Russian Federation.

Therefore, for purposes of determining the tax base for profit tax in accordance to procedures established by Russian legislation, taxes paid in relation to sale of services in a foreign country are not taken into account and do not decrease the tax base.

Translated by Alinga Consulting Group.

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