- Eugene Isaev
- November 25, 2013
Russian Law Now Enables Electronic Document Flow
ELECTRONIC ACCOUNTING IN RUSSIA
RUSSIAN LAW NOW ENABLES ELECTRONIC (DIGITAL) SIGNATURES, E-INVOICING AND FULL ELECTRONIC DOCUMENT FLOW
It has now become a real possibility in Russia to operate a fully automated electronic document flow system both between contracting parties and in relation to state authorities. The law enables electronic execution of contracts, digital signature, e-invoices and all features of electronic accounting including electronic VAT invoices and other electronic source documents for tax compliance purposes.
This information letter will give an overview of the relevant laws and their application in practice.
Specialized service provider
Electronic documents can generally be exchanged through the intermediary of a specialized service provider who acts as an electronic courier in order to enable electronic document exchange. The special service providers are referred to as electronic document exchange operators (“Operators”) and they usually also functions as Certification Centers. Operators do not only furnish the technical possibility for electronic document exchange, but also ensure legal compliance. The provider records the dates when electronic documents are issued or received, ensures the safety of the document transfer, and also acts as an independent third party in case of disputes and legal proceedings. Among such Operators are the following companies: Taxcom, Diadoc (Kontur), Sbis++, Corus, Kaluga-Astral.
Participation in electronic document exchange requires the receipt of a personalized electronic signature at the Certification Center depending on the level of required legal surety. The authorized Operators are included in a so-called Network of Trusted Electronic Document Circulation Providers. Certification Centers can be both accredited and non-accredited with an authorized federal body.
The activity of functioning as an Operator and Certification Center requires licenses from Ministry of Communications and the Federal Security Service.
For the purpose of electronic exchange of VAT invoice the Federal Tax Service practices a system of authorizing the Operators that can participate in this.
Nowadays only users served by one provider due to the technical compatibility of systems may exchange documents. The issue of roaming organization among different providers is now at the stage of technical development and is only a matter of time. That is why it is advisable to inform contractors which provider you intend to use.
The use of electronic signatures is regulated by the Law on Electronic Signature on 1 July 2012 1.
There are two types of officially sanctioned electronic signatures, a so-called simple signature and a reinforced signature. The latter is further divided into two types: unqualifiedand qualified signatures. In essence of these two only the latter, that is, reinforced qualified signature is actually used.
The simple signature is not very relevant for actual electronic document exchange, rather it is usually used only as a means of identifying users for communicating with state and municipal organs through official web portals. A simple signature is received in connection with registration at the relevant portal. It is not intended for the purpose of concluding legal agreements or legally valid signing of documents as this kind of signature is not a part of a system that guarantees that changes to a document cannot be done after signature. This type of signature is used in connection services consisting of releasing reference information.
A reinforced qualified signature is used together with a qualification certificate (certificate of verification of the electronic signature) created by an accredited Certification Center. Together with the cryptographic protection tool certified by the Federal Security Service this qualifies this kind of signature as the most protected.
The use of a reinforced qualified signature is at present envisaged in the following cases:
– Electronic VAT invoices
– Submission of tax returns, financial statements, and request of recovery of funds
– Filing of reports with the pension and social funds
– Filing of reports with the statistics authority
– Filing of various kinds of notifications and official reports with other authorities
– Conducting transactions with the customs authorities;
– Use of in online-banking systems. Banks are granted the discretion to designate the type of electronic signature to be used in a contract with a client. In practice, most banks require the use of a reinforced qualified electronic signature;
– Exchange of electronic documents between an employer and a remote employee (Labor Code, art. 312.1 ).
An electronic document bearing a reinforced qualified electronic signature is considered equivalent to a paper document bearing a handwritten signature (excepting the cases when law requires one to produce a document in hard copy, for example, when issuing a promissory note). But the reverse is true for electronic documents with simple and reinforced unqualified signatures: a document bearing such signatures may be considered equivalent to a paper document with a handwritten signature only in those cases when the law or legal regulations explicitly stipulate so, or when such is established in an agreement between the parties (art. 10 and 11 of the Electronic Signature Law). Therefore, only a qualified electronic signature is recognized as equivalent to a paper document in all cases where it is permitted to create an electronic document.
Electronic primary source documents
Each operation has to be supported by an appropriate source document or a set of documents. The Russian Tax Code mandates that for tax compliance purposes the transactions will have to be supported by source documents compiled in accordance with the Accounting Law.
According to the profit tax laws the deductibility of expenses is subject to proof that they are economically justifiable and properly documented.
Following amendments to the Law on Accounting2 (effective from 2013) considerable flexibility was introduced in regards to the requirements on the form of accounting primary source. It is now up to the company to establish its own templates for source documents by decision of the chief executive officer (general director). There also emerged the possibility to compile accounting source documents in electronic form (Law on Accounting, art. 9.5).
According to the new accounting law, the source documents must contain at least these mandatory requirements:
a) Title of the document:
b) Date on which the document is drawn up;
c) Name of the entity;
d) Nature of the business operation;
e) Volume and monetary indicators of business transactions;
f) Name and title of signatories
Concerning expenses that have been incurred in another country, the source documents have to be drawn up in accordance with ordinary business practices applicable in the relevant foreign jurisdiction.
Notwithstanding the fact that the new law no longer requires the use of the official state-sponsored template documents, taxpayers are well advised to use discretion in considering to what extent they can skip their application. Some of the old template documents will remain in force by virtue of other regulations (e.g. documents for cash records). The tax authority may also insist that some of the old forms be still used: this is the case, for example, when the Ministry of Finance claims that the old template for a waybill confirming deduction of transport costs must still be used. The Ministry of Labor in turn insists, clearly without legal backing, that the old template for confirmation of business trips must still be used. It is thus clear that businesses will for a transitional period still be harassed with formal requests stemming from bureaucrats that do not want to honor the new law. According to statements by high-ranking officials, decisions are expected in year 2014 to remove the remaining vestiges of this bureaucracy.
Recent court practice (referring to the time of the old accounting law) has supported a tendency of judging the accuracy of source documents not strictly in reference to the official template source documents and instead considering the extent of documentary support on more substantial criteria. The Supreme Commercial Court has determined that the taxpayer may refer to any documentary evidence in support of confirmation of the conditions of deductibility, and that all the evidence must be considered as a whole (Supreme Commercial Court Determination No. VAS-5445/09 of 17.06.2009; see also, for example, Resolution of the Federal Commercial Court of the Central District dated February 18, 2010 in Case No. А35-5033/08-С21). According to the profit tax laws, the deductibility of expenses is subject to proof that they are economically justifiable and properly documented.
Although the new accounting law contains the welcomed reform of abolishing the mandatory templates for source documents, there is now a risk that the tax authority will try to fulfill the vacuum by imposing on the taxpayers the forms developed by itself. Such a practice is, however, understandable in respect to the common source documents that require digital exchange and digital processing, which would not be possible without standardization. The Federal Tax Service has already issued two orders establishing the electronic formats for the common and necessary primary documents3 namely, the electronic form of a waybill (TORG – 12) and Act of Acceptance (for works and services; in Russian referred to as “akt”).
The Federal Tax Service have issued directives which enabled the issuance and exchange of electronic VAT invoices effective of May 20124. These directives have been complemented with instructions from the Ministry of Finance5.
The Federal Tax Service has announced the issuance of a template for a combined VAT invoice, act of acceptance and waybill 6. It is expected that the combined electronic format would be available in 2014.
In its letters, the Ministry of Finance has confirmed that to submit at the request of the tax authorities documents not compiled according to the established formats, one must submit them in printed form on which a note is inscribed, stating that the document was signed using an electronic signature7.
Tax returns and reports to social security funds
Taxpayers presently have the right to choose whether to file tax returns electronically or on paper. However, organizations whose average number of employees for the preceding calendar year exceeds 100 people and the largest taxpayers regardless of the number of employees must file tax returns only in soft copy (Tax Code art. 80(3)).
As for reports to the social security funds, this obligation is set for organizations whose average number of employees exceeds 50 people. From 2014 all taxpayers will be obliged to file returns for the value added tax (VAT) solely in electronic form.
Storage of accounting and tax records
No time periods have been established separately for the storage of electronic documents, therefore electronic documents should be kept as long as paper documents. According to the Tax Code accounting records as well as taxation documents including tax receipts must be stored for 4 years (art. 23(1)8). However, the storage period specified in the Accounting Law (art. 29) is 5 years unless the laws on national archive set a longer period. When claiming deductions for losses relating to prior periods, the corresponding accounting records will have to be available for all those periods to which the loss carried forward refers.
Despite the storage period stipulated by the law, in order to avoid any potential risks, taxpayers are advised to store documents until all issues and processes related to these documents have been resolved and completed, even if this period exceeds that determined by the law (Decree of the Federal Commercial Court of the East Siberian District dated 4 July 2012 in case No. А33-5433/2011).
Filing electronic documents with a court
Documents bearing an electronic signature may be filed with a court as written evidence. Pursuant to the Arbitration Procedure Code8 documents received by electronic or other means, including via Internet, as well as documents bearing an electronic signature or any other analogue of а handwritten signature (for example, a facsimile), as a rule, can be used as written evidence (see, for example, by Decree of the Federal Commercial Court of the Volgo-Vyatsky District, case No. А43-5226/2010 of August 11, 2010).
1 Federal Law No. 63-FZ of 6 April 2011 On Electronic Signature
2 Federal Law of 06.12.2011 No. 402-FZ “On accounting”
3 Order of Federal Tax Service No. ММВ-7-6/172@ of 21 March 2012
4 Order of Federal Tax Service No. MMВ-7-6/138@ of 5 March 2012
5 Order of Ministry of Finance No. 50n dated 25 April 2011
6 Letter of Federal Tax Service of 21.10.2013 N ММВ-20-3/96@ “On the absence of tax risks when taxpayers apply the initial document drafted on the basis of the tax invoice”
7 Letter of the Ministry of Finance dated 26 August 2011 No. 03-03-06/521, Letter of the Ministry of Finance dated 15 September 2011 No. 03-02-09/96, Letter of the Ministry of Finance of the Russian Federation dated 11 January 2012 No. 03-02-07/1-1
8 Art. 75.3 of Arbitration Procedural Code of Russia of 24.07.2002 No. 95-FZ