Our progress / Hot Topics

Taxation of financial transactions

Back to Media

Stock Market Loss to Ease Corporate Tax Burden

13.05.2013 21:14 / vedomosti.ru

Minfin is ready to allow companies to cut their tax burden by subtracting stock market trade losses from pre-tax profit.

This proposal is part of the Tax Policy 2014-2016 draft by Minfin, introduced to the Government on 30 April.

The Ministry offers companies an option of including losses from securities trading in primary business results, ultimately lowering their profit tax.

Today, this is not possible. Companies have several “tax baskets”, says PwC Director Vladimir Burov: gross operating profit and loss, as well as securities and derivatives profit and loss (OTC and stock exchange). This split was due to the fact that OTC securities trading prices appeared unconvincing to Minfin — they could be ‘rigged’, enabling companies to show less taxable profit, explains Burov.

There is only one exception to the rule so far: exchange traded derivatives losses may be summed up.

If Tax code amendments are passed, companies will manage free cash more effectively — they will be more motivated to spend money in the stock market, hopes NAUFOR Head Alexey Timofeev.

“This is a common approach outside Russia — not having to split operating and non-operating income for tax purposes, comments a market participant. “This measure is long overdue, and we still trumpet each miniscule improvement like this as a step towards the International Financial Center”.

Amendments will especially benefit insurance companies with major investments in securities, says Burov. A positive development, remarks Ingosstrakh Vice President Ilya Solomatin, adding that his company normally invests in low-risk securities, and therefore minimizes stock market losses.

Minfin is willing to take this further by changing the rules for securities trade price checks. Today, the price must remain between the stock exchange minimum and maximum. The price for non-tradeables must stay within 20% of the estimated price. Otherwise, companies could face tax claims. These rigid rules prevent companies from lowering taxable profits when trading with affiliates, explains Burov. As a result, all market participants are forced to substantiate the price every time. This an unnecessary burden, agrees Minfin, promising simpler rules in the new Tax Policy: the complex approach will be limited to trades that inspectors suspect to be transfers (such as trades with affiliates or offshore residents).

Margarita Papchenkova

Taxation of financial transactionsProject Group №3