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Russia’s Ministry of Finance in its Letter #03-03-10/32521 from August 12, 2013 coordinated the position of tax authorities on the issue of accounting for taxes paid abroad. The finance authorities have taken the taxpayers’ side. The explanation will be posted on the FTS site on the page “FTS Clarifications Mandatory for use by Tax Agencies.”

Organizations conducting business activity in foreign countries and receiving financial returns abroad unavoidably run into the question of how to take into account foreign taxes when calculating the profit tax?

In opinion of tax authorities and MinFin specialists, taxes paid by Russian companies abroad can be taken into account when calculating profit tax. According to Article 264, Paragraph 1, Subparagraph 49 of the Tax Code, "foreign" taxes can be accounted for as production and realization expenses as the list of "other expenses" is open. Moreover, accounting for foreign taxes as expenses is no expressly prohibited (Article 270 of the Tax Code).

We must note that until now MinFin specialists were strongly opposed to expensing taxes paid abroad in profit tax accounting. This position was also expressed in response to the Federal Tax Service’s queries on the issue (Letters #03-03-05/180 from December 24, 2008; #03-08-13 from April 28, 2008).

Financial experts previously explained that although taxes paid abroad can be expensed for profit tax purposes, according to Article 264, Paragraph 1, Subparagraph 1, this only applied to taxes paid in accordance with Russia’s legislation.

In the Letter 03-03-06/1/182 from April 5, 2012, MinFin directly states that foreign taxes cannot be expensed according to Article 264, Paragraph 1, Subparagraph 49. They supported their position stating that procedure for expensing taxes paid has its own statutory regulation in Article 264, Paragraph 1, Subparagraph 1, therefore Subparagraph 49 of the same article was inapplicable.

However, the tax authorities still allowed a possibility of including with expenses taxes paid abroad. Thus, in the Letter # ЕД-20-3/1087 from September 1, 2011, the tax authorities noted that if expenses, including taxes and fees paid abroad, fulfill requirements of Article 252, they can be included with other expenses in accordance with Article 264, Paragraph 1, Subparagraph 49.

It must be noted that, if the Tax Code includes certain taxes with the provisions for avoidance of double taxation by tax credit for tax paid abroad, these taxes are not included as expenses.

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