Digital tax for foreign companies will bring over $ 100 million to the Russian budget

PwC conducted a study commissioned by the Ministry of Digital Devolpment, Communications and Mass Media, two sources in one of the IT companies told Forbes and the source familiar with the results of the study confirmed that. The ministry asked several large IT companies to check the calculations of the Ministry of Digital Devolpment regarding the support of the Russian Internet market, and these companies hired PwC as an independent consultant. The study will help develop additional support measures for the entire IT market. The source familiar with the results of the study said that it was conducted to compare the competitive conditions for IT companies in different jurisdictions.

PwC analysts have calculated possible fees from foreign IT companies in Russia based on an estimate of budget revenues from a similar digital tax in France. There, since 2019, international IT companies are required to pay 3% of the revenue received in France if their total turnover is at least €750 million, of which at least € 25 million is made in the country. The study indicates that $415 million in digital taxes were collected in France in a year (which year, it is not specified).

For calculations on the Russian market, the researchers used correction factors - they took into account the number of Internet users (in Russia there are almost twice as many as in France) and the number of Russian IT companies. The document states that, according to “Yandex's informal assessment,” Russian companies account for about 60% of the Internet market (in money and users).

In addition, the authors of the study took into account the specifics of the Russian market: the average user check on Facebook (we are talking about paid functions) in France is 5.6 times higher than in Russia, GDP per capita in France is 4.6 times higher, and CRM on YouTube (cost per thousand displays of an ad banner) in France is almost three times higher.

Earlier, the government decided on the size of the new tax for digital companies, which is expected to be 3%, Forbes reported, citing an official from the Ministry of Digital Development. The new tax will cover international IT companies and marketplaces, which will pay 3% of the income received in Russia.

For example, Facebook will have to pay 3% of the amount that it earns on payments by Russians or on monetizing their anonymized data, the official said. The state will direct these funds to incentives for domestic digital companies, since "they can no longer be financed from the state budget," he noted.

At the same time, the representative of the Deputy Prime Minister Dmitry Chernyshenko said that now the government is considering two options: introducing the tax unilaterally or joining the global taxation system, which is being developed by the Organization for Economic Cooperation and Development (OECD).

Tax maneuvers of IT companies

PwC analysts also compared the effective tax rate (average for 2018-2020) for Russian and international IT companies - general, as well as outside the United States. This is an indicator that reflects the real tax burden of companies in different countries.

According to PwC, the effective tax rate for Yandex is 30% (general and outside the US). For Alphabet (parent company of Google) - 14% general and 10% outside the US, Facebook - 16% general and 8% outside the US, Apple - 16% general and 14% outside the US.

The effective tax rate of Russian IT companies is often higher than that of global players, for example, due to the impossibility in different companies of the same group to reduce the total profit with the help of the losses of some businesses and pay tax from it, says source at one of the IT companies to Forbes. “In addition, in Russia it is impossible to attribute the options issued to employees to expenses. At the same time, option programmes are a common motivation tool for most IT companies”, he added.

The lower effective tax rate of foreign IT companies in comparison with Russian ones may indicate that foreign tax authorities are tolerant of using more favorable tax jurisdictions and the use of tax incentives, says Gennady Timonichev, head of tax planning at PKF MEF.

According to him, the planned amount of revenues is, in fact, a drop in the ocean, which will not cover the difference in effective rates, but the redistribution of taxes from foreign IT companies in favor of domestic can worsen the business climate. “Against the background of the fundamental coordination of the multilateral initiative of the OECD, unilateral measures to introduce a digital tax look less relevant,” concluded Timonichev.

A ministry spokesman told Forbes that the agency is “familiar with the study,” declining to comment further. Representatives of Yandex, Mail.ru Group and PwC declined to comment as well.