Complex issues of VAT on export of intellectual property
Author: Oksana L. Kurochkina,
Barrister
Planning and carrying out export operations, which are the subject of intellectual property or intellectual property, cause serious difficulties for Russian companies seeking to enter the international market. One of these complex issues, of course, is the taxation of such operations, and above all – the problem of VAT.
First, let’s define the basic concepts necessary to understand the topic.
Article 1225 of the Civil Code of the Russian Federation (hereinafter – the Civil Code) provides a list of species protected results of intellectual activity and means of individualization. To those legislators, among others, include programs for electronic computers; invention; utility models; industrial designs; integrated circuits; secrets (know-how); trademarks and service marks.
Tax legislation in paragraph 3 of Article 257 of the Tax Code of the Russian Federation (hereinafter – the Tax Code) recognizes intangible assets acquired and (or) the taxpayer by the results of intellectual activity and other intellectual property (exclusive rights to them) used in the production of goods (works, the provision of services) or for administrative needs of the organization for a long time (over 12 months).
Order of the Ministry of Finance of the Russian Federation of December 27, 2007 № 153n approved the Regulation on accounting of intangible assets (AR 14/2007), which shows the following signs of intangible assets (RID):
1) the object has no material form (structure);
2) the object can be separated from other assets (or identified);
3) the object is able to bring economic benefits, if the company has a formal right to receive income, as well as the possibility to control others receive this income;
4) assets should be designed for use in production or management purposes;
5) the assets you plan to use for more than 12 months (or normal operating cycle, if longer than 12 months);
6) objects can be resold, but with the proviso that the implementation is scheduled no earlier than one year (or not earlier than one operating cycle, if it is more than a year).
Complex objects, including some of the results of intellectual activity to which the company has both exclusive and non-exclusive right, can also be taken into account in intangible assets. Article 1240 of the Civil Code specifies that the complex intellectual property can be a combination of exclusive and non-exclusive rights), such as movies, multimedia products, integrated technologies.
Value Added Tax (hereinafter – VAT) – a multi-stage indirect tax levied on all stages of production and sale of goods, works and services.
Taxpayers of this tax are organizations, individual entrepreneurs, persons recognized as VAT taxpayers in connection with the movement of goods across the customs border of the Customs Union, determined in accordance with the customs legislation of the Customs Union and the Russian Federation legislation on customs (Article 143 of the Tax Code).
The procedure for VAT in accordance with paragraph 1 of Article 146 of the Tax Code Procedure for determining the place of supply of goods (works, services) for the purposes of levying VAT transactions set out in article 148 of the Tax Code.
If we denote the basic criteria set by the legislator, then under the provisions of regulations implementing the place of work (services), depending on the species can be determined:
– The place of business of the person who these works (services) performed (provided);
– The location of the property in respect of which works (services) performed (provided);
– At the place of execution (rendering) works (services);
– The location of the buyer of works (services);
– The location of the point of origin (destination).
In accordance with paragraph 4 of Article 148 of the Tax Code document confirming the execution of works (services) are: 1) a contract entered into with a foreign or Russian parties; 2) documents confirming the execution of works (services).
Since, as mentioned above, the provisions of paragraph 4 of Article 148 of the Tax Code as a document confirming the place of work (services), determine the contract signed with foreign or Russian persons, and documents confirming the execution of works (services), the first all necessary to examine the provisions of the agreement, according to which the services were rendered, and set the will of the parties, as well as being incurred legal relations.
On the territory of the Russian Federation, in accordance with Nos. 26 para. 2, Art. 149 of the Tax Code of the tax value added tax exempt transaction for the transfer of exclusive rights for inventions, utility models, industrial designs, programs for electronic computers, databases, integrated circuits, trade secrets (know-how), as well as the right to the use of intellectual property under a license agreement.
Thus, the operations are not taxable value added tax, are including:
– Transfer of rights to use the results of intellectual activity on the basis of license (sublicense) agreements drawn up in the manner prescribed by the Civil Code, namely the transfer of the rights on the basis of both exclusive and simple (non-exclusive) license;
– Transfer of rights to use computer programs and databases on the basis of the license (sublicense) agreements, regardless of the state registration of exclusive rights to such programs and databases.
These transactions are exempt from taxation regardless of mode of transmission of computer programs and databases. Therefore, if the transfer of those rights provided tangible media, which express the results of intellectual activity, as well as documentation, technical protection measures and other accessories in the packaging container necessary for the effective use of intellectual property, the transfer of such material carriers and accessories shall be exempt from taxation the value added tax, provided that their value is taken into account in the value of the rights granted under the license (sublicense) agreements. In this case, the amount of value added tax brought by suppliers, including physical media, documentation, technical protection measures and other supplies used in operations for the transfer of rights to use the results of intellectual activities which are not subject to taxation, according to the claims. 1 pt. 2, Art. 170 of the Tax Code included in the cost of the relevant goods (works, services) and not deductible.
In accordance with the provisions of para. 1, Art. 164 of the Tax Code on the tax rate of 0 percent taxation of goods made in the implementation of the customs regime of exports.
According to item. N. 2, 3 tbsp. 38 of the Tax Code, the goods shall be deemed to any realized or intended for the implementation of the property, ie, such objects of civil rights (with the exception of property rights), which are assigned to the property in accordance with the Civil Code of the Russian Federation.
By virtue of Art. 128 of the Civil Code of the Russian Federation to the objects of civil rights include things, including money and securities, and other property, including property rights, work, services, information, results of intellectual activity, including exclusive rights to them (intellectual property) and intangible good.
It is important to note that the transfer of rights to use the results of intellectual activity under contracts of sale tax exemption does not apply.
In addition, subject to tax value added tax work on the creation of intellectual activity performed under contracts that are not accompanied by the transfer of rights to use the results of intellectual activity.
Analysis of the above rules shows that the Tax Code, there is quite a controversial interpretation of the transfer of property rights to intellectual property as the object of taxation on value added tax. This is due to the fact that in Sec. 21 of the Tax Code turnover of property rights to intellectual property for tax purposes equal to the sale of services.
Despite the fact that the sale (transfer) of property rights (including intellectual property) explicitly mentioned in Art. 146 of the Tax Code of the Russian Federation as an independent object of taxation, Art. 148 of the Tax Code, which establishes the criteria for determining the place of supply of works (services), equates the turnover of these rights to the sale of services.
The letter from the Russian Ministry of Finance 01.04.2008 N 03-07-15 / 44 <5> with reference to Art. 148 of the Tax Code also expressly states that the purpose of the application of value-added tax the transfer of rights to use the results of intellectual activity relates to services.
P. 1 tbsp. 39 of the Tax Code defines the implementation of the services as the provision of services by one person to another person for a fee or free of charge. Thus, in accordance with para. 5, Art. 38 of the Tax Code for tax purposes, the service activity the results of which have no material expressions are implemented and used in the course of this activity.
At the same time, during the transfer of property rights to intellectual property, any creative work parties are not made and no consumption of material goods also does not occur. The actual outcome of the transaction is the transfer of property for a consideration of the right to use intellectual property from one owner to another.
In addition, a specific property services is the lack of the possibility of its return. However, in transactions for the transfer of rights to intellectual property when, for example, under a license agreement on the transfer of non-exclusive property rights to intellectual property is a transfer of those rights to another holder, restitution is quite acceptable.
Experience shows that, depending on various conditions of the contracts of the contents of which are quite difficult to determine what is sold – “a copy of the program” (product, disk) or “one unit of the complex property rights to the software product”, as well as determining which services were rendered courts differently assess the situation with VAT disputes tax authorities and taxpayers. A brief look at some things and try to answer some of the most frequently asked questions.
Whether to apply 0% VAT rate if the implementation of the Russian non-resident company to export goods, it is part of the technical (design) documentation?
To answer this question it is important to determine how the parties will qualify the transfer of technical documentation – as the transfer of intellectual property or as part of the goods.
Thus, if the conditions of contracts, it follows that it is the result comes intellectual property (eg, project documentation developed by supplier), rather than paper (electronic) media containing this information, the courts, based on the provisions of paragraph. N. 2, 3 tbsp. 38 of the Tax Code and Art. 128 of the Civil Code, may come to the conclusion that intellectual property is not recognized as a commodity, hence their export sales position n. 1, Art. 164 of the Tax Code does not apply (Resolution of the Federal District of the Moscow 12.08.2009 N KA-A40 / 4071-09, FAS Ural district from 09.02.2006, 08.02.2006 N F09-189 / 06-C2).
However, there is another judicial practice, the courts take into account that the documentation as a result of intellectual activity is not developed and has not been taken on record as an intangible asset; purchase Russian seller from third parties; in the contracts there were no conditions on the transfer of rights to intellectual property. In such cases, the courts have recognized the use of tax rate of 0 per cent VAT justified (Resolution FAS Northwestern District from 25.09.2009 in the case N A56-22914 / 2008 Resolution of the Federal District of West Siberian 28.01.2004 N F04 / 409-1695 / A03-2003, Resolution of the Federal District of the Moscow 12.12.2008 N KA-A40 / 11449-08).
Whether subject to VAT in the normal manner at a tax rate of 18% implementation of engineering services rendered to foreign customers?
To answer this question, courts assess the legal nature of the services rendered by determining what specific activities performed by the taxpayer, fulfilling a contract with a foreign counterparty (Resolution FAS NWD on 12.10.2010 in the case N A56-92435 / 2009, Resolution of the Federal Volga District from 12.10.2011 to case N A65-26719 / 2010 and on 26.05.2011 in the case N A65-22208 / 2010). Thus, in the case of engineering services of a foreign company does not operate and located in the territory of the Russian Federation, the object of taxation for VAT on the sale of those services does not arise.
The above examples show the ambiguity of the existing jurisprudence on this issue, which demonstrates the importance for companies planning to implement the transaction results of intellectual activities with foreign partners, the preliminary analysis of the contract and supporting documentation for the correct determination of the object of taxation on value added tax.