On 29 November 2024, Federal Law No. 416-FZ “On Amendments to Part Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation” (hereinafter referred to as the “Law”) was officially published. The Law amends the Article 270 of the Tax Code of the Russian Federation (hereinafter referred to as the “Tax Code”) which determines the list of expenses that cannot be deducted for profits tax purposes.
The substance of the amendments
According to the new wording of paragraph 44 of Article 270 of the Tax Code, advertisers’ expenses for the distribution of advertising on the Internet will not be deductible for profits tax purposes in the following cases:
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Condition |
Substance |
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1. Information about the advertisement was not submitted to Roskomnadzor (hereinafter referred to as “RKN”) in accordance with the procedure established by Article 18.1 of Federal Law No. 38-FZ “On Advertising” for inclusion in the unified register of Internet advertising |
The aim of this condition is to impose a new type of sanction for non-compliance with the legal requirement for advertising labeling and reporting information about it to the RKN |
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2. The advertising is distributed on information sources, access to which is restricted in accordance with the legislation of the Russian Federation
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At the moment, advertising is not prohibited on such information resources as Facebook* and Instagram*, if payment is not made through the Meta advertising cabinet. The adoption of the Law will not take into account advertising expenses on the above information sources for the purposes of reducing the tax base for profits tax. This also refers to the bill currently considered in the State Duma, which suggests a prohibition of advertising on the information resources of undesirable organizations, and on websites and platforms whose work is prohibited on the territory of the Russian Federation |
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3. The advertising is distributed on the information source of a foreign entity that is operating on the Internet on the territory of the Russian Federation and which has not complied with the requirements, prohibitions and restrictions stipulated by the legislation of the Russian Federation
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At the moment the wording is quite broad and includes both violations by such persons of the requirements of Federal Law No. 236-FZ “On the Activities of Foreign Persons in the Information and Telecommunications Network “Internet” on the Territory of the Russian Federation” and other laws. As a result, it is not clear how the Federal Tax Service will determine the facts of such violations |
Entering into force of the amendments
The amendments will come into force on 1 January 2025 – from the first day of the next tax period.
From this date, taxpayers will not be able to reduce the tax base for profits tax on advertising expenses incurred by them, if they fall within the above conditions. As a result, the amendments will indirectly affect taxpayers’ compliance with the requirements of advertising legislation.
However, the changes are in contradiction to the current law enforcement practice1. The courts formed a position that expenses (including advertising expenses) incurred in violation of industry legislation are included in expenses for profit tax purposes. The courts agree that advertising costs incurred in violation of industry legislation may reduce the tax base for profits tax, if they are economically reasonable and duly documented in accordance with paragraph 1 of Article 252 of the Tax Code.
1 Resolution of the Moscow District Arbitration Court of 25 February 2015 No. F05-621/15 in case No. A40-76469/2014, Resolution of FAS Povolzhsky District of 13 February 2014 in case No. A55-13867/2013