Russian scrap metal reforms

Buyer now responsible for VAT

3 January 2018

In 2018 the sale of scrap metal became subject to VAT in Russia.

Ten years have passed since scrap metal was VAT exempted. The reason given was the widespread occurrence of fraudulent VAT recovery by numerous dummy companies engaged in scrap metal trading. The government preferred to avoid levying VAT on scrap metal rather than to lose huge amounts of money through VAT refunding mechanism.

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So the current abolition of exemption is just the return to a former order. However, contrary to the ordinary course of taxation, the responsibility for VAT levied on the sales of scrap metal is entrusted not to the seller but to a buyer, who acts in the capacity of a so-called “tax agent”.

The involvement of tax agents in VAT collection is not a novelty. Tax agents are engaged, for example, when foreign companies without a legal presence in Russia provide services considered to be rendered in a country of the client (legal, accounting, consulting etc.). In this case a Russian client calculates and withholds VAT from a foreign service provider’s revenue. VAT paid by a tax agent is refundable for the latter.

However, previously such orders of VAT collection were applied only when VAT duties could not be imposed on a seller (formal VAT taxpayer). Now, for the first time, the responsibility to pay VAT is entrusted on the buyer, despite of the fact that the latter is a Russian entity not prevented from performing its VAT taxpayer’s duties on its own.

It may be expected that should the experiment with scrap metal be recognized successful, the practice of VAT payment by buyers will be implemented more widely.

Author: Vitaly Sinitsyn, HLB Russia, Energy Consulting

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