Section 4. General Rules of the Fulfillment of the Obligation to Pay

Taxes and Fees

Chapter 7. Objects of Taxation

Article 38. Object of Taxation

1. Operations in the sale of goods (works, services), property, revenue, profit, value of realized [sold] goods (works, services), or another object having a cost, quantitative or physical characteristic which existence is linked to the emergence of a tax liability of the taxpayer according to the legislation on taxes and fees may be objects of taxation.

Each tax has an independent object of taxation defined in compliance with part II of this Code and with account of the provisions of this Article.

2. Under the property in this Code shall be understood types of objects of civil rights (except for property rights) referred to as property according to the Civil Code of the Russian Federation.

3. For the purpose of this Code goods shall be any property sold or to be sold. Any other property as defined by the Customs Code of the Russian Federation shall be also referred to goods in order to regulate the relations connected with collection of customs duties.

4. Works for taxation shall be any activity which results have tangible expression and may be realized to meet the needs of an organisation and/or natural persons.

5. Services for taxation shall be any activity which results do not have tangible expression, are realized and consumed in the process of performance of such activity.

Article 39. Realization [Sale] of Goods, Works (Services)

1. Realization [sale] of goods, works (services) by an organisation or an individual entrepreneur shall be respectively construed as the transfer of title to goods, transfer of results of completed works from one person to another, repayable provision of services by one person for another (including an exchange of goods, works, or services) for a compensation, or, in cases provided for in this Code, the transfer of the right of ownership of goods, of the results of performed works by one persons for another person, the rendering of services by one person to another person shall be free of charge.

2. The place and the date of actual realization of goods (works, services) shall be determined as per the special parts of this Code.

3. The following shall be not deemed as realization of goods (works, services):

1) performance of transactions in connection with circulation of Russian or foreign currency (unless the purpose of such transactions is numismatics);

2) transfer of fixed assets, intangible assets and (or) other assets by an organisation to its successor (successors) when such organisation is reorganized;

3) transfer of fixed assets, intangible assets and/or other property to non-profit organisations for the performance of the main statutory activity unrelated to business activity;

4) the transfer if assets, if such transfer is of an investment character (in particular, contributions to the authorized (pooled) capital of economic companies and partnerships, contributions under a contract of society in participation (a contract of joint work), shares in cooperatives' income funds);

5) transfer of assets within the limits of the original contribution to a participant of an economic entity or partnership (its successor or inheritor) when such participant leaves (withdraws) the company or the partnership as well as in distribution of assets of a liquidated economic entity or a partnership between its participants;

6) transfer of assets within the limits of the original contribution to a participant of a simple partnership agreement (joint activity agreement) or its successor when his share of assets is singled out from the assets in common ownership of the agreement participants or when such assets are divided;

7) transfer of residential premises in state or municipal houses when they are privatized;

8) withdrawal of property by way of its confiscation, inheritance of property as well as giving to other persons' ownership abandoned things and things or animals with no identified owner, findings and hidden treasures, as per the provisions of the Civil Code of the Russian Federation;

9) other transactions in cases provided for by this Code.

Article 40. Principles of Determining the Price of Goods (Works, Services)

1. Unless otherwise provided by the present Article, for the purposes of taxation the prices of goods, work services shall be those stated by parties to transactions. Until proven otherwise, it shall be assumed that these prices correspond to the level of market prices.

2. Tax authorities during the exercise of control over the calculation of taxes shall be entitled to verify the correctness of the prices used in transactions only in the following cases:

1) between related persons;

2) commodity swap (barter) transactions;

3) at the time of completing foreign trade transactions;

4) in case of the derivation of prices upwards or downwards for more than 20 per cent of the level of prices applicable by a taxpayer to identical (homogeneous) goods (works, services) within a short period of time.

3. In cases provided for by Item 2 of this Article, when the prices of goods, works or services applied by the parties to a transaction deviate upwards or downwards for more than 20 per cent from the market price of identical (homogenous) goods (works or services), the tax body shall have the right to pass a motivated decision on the additional charge of the tax and penalty, calculated in way as if the results of this transaction would have been assessed on the basis of the application of market prices for relevant goods, works or services.

The market price shall be determined with an eye to the provisions provided for by Items 4-11 of this Article. Premium prices or concessions shall be taken into account, which are usual upon the conclusion of transactions between the non-mutually dependent persons. In particular, it is necessary to take into account the discounts caused by:

seasonal or other swings of consumer demand for goods (works, services);

the loss of the quality or other consumer properties of goods;

the expiry (or the approach of the date of expiry) of the serviceable life or sale of goods;

the marketing policy, especially at the time of the sales promotion to markets of new unique goods, and also at the time of the sales promotion to new markets of goods (works, services);

the sale of experimental models and samples of goods for the purpose of the familiarization of customers with them.

4. The market price of goods (works, services) shall be understood as the price resulting from the interaction between supply and demand on the market of identical (or, in the absence of such, similar) goods (works, services) in comparable economic (business) conditions.

5. The market of goods (works, service) shall be understood as the sphere of circulation of these goods (works, services) determined based on the ability of the buyer (seller) to realistically purchase (sell) the goods (work, services) in the territory which is the closest with respect to the buyer (to the seller) inside or outside the Russian Federation, without running any significant additional costs.

6. Identical goods shall be understood as goods whose characteristic basic features are the same.

Features to be taken in to account when determining whether goods are identical, shall include, without being limited to, their physical characteristics, quality, market reputation, the country of origin and the producer. Insignificant differences in the appearance of goods may not be taken into consideration for the purposes of determining whether goods are identical.

7. Similar goods shall be understood as goods that short of being identical have similar characteristics and consist of similar components, which allows them to perform the same functions and (or) be commercially interchangeable.

Features to be taken into account when determining whether goods are similar shall include, without being limited to, their quality, availability of a trademark, market reputation, country of origin.

8. When determining the market price of goods(works, services), taken into account shall be transactions between unrelated persons. Transaction between related persons can be taken into account in those cases when the relation that exists between these persons did not affect the outcome of such transactions.

9. While determining market prices of goods, works or services, it is necessary to take into account information about deals made at the time of sale of these goods, works or services in identical (homogenous) goods, works or services in comparable conditions. It is necessary to take into account such terms of deals as the quantity (volume) of supplied goods (e.g. the size of a lot of goods), the time for the execution of obligations, the terms of payments, usually applicable in deals of this kind, and also other reasonable conditions, which may influence prices.

The terms of deals on the market of identical (and in their absence homogenous) goods, works, or services shall be recognized as comparable, if the difference between such terms either does not influence substantially the price of such goods, works or services or may be taken into account with the aid of adjustments.

10. In the absence of transactions in identical (homogenous) goods, works, services on the corresponding market of such goods, works or services or in the absence on this market of the supply of such goods, works or services, and also when it is impossible to determine appropriate prices because of the absence or the inaccessibility of information sources for the determination of a market price, use shall be made of the method of the price of subsequent sale, under which the market price of goods, works, services sold by the seller is assessed as a difference of the price for which such goods, works or services were sold by the buyer of these goods, works or services in case of their subsequent sale (resale) and the expenses which are usual in similar cases borne by this buyer during the resale (with disregard for the price for which goods, works or services were acquired by the said buyer from the seller) and during the promotion to the market of the goods, works or services acquired from the buyer, and also during the receipt of the profit by the buyer that is usual in the given sphere of activity.

When it is impossible to use the method of the price of subsequent sale (in particular, in the absence of information about the price of goods, works or services later sold by the buyer) use shall be made of the cost method, under which the market price of the goods, works or services sold by the seller is determined as a sum of the effected costs and the profit which is usual for the given sphere of activity. In this case it is necessary to take into account the direct and indirect expenses on the production (acquisition), which are usual in similar cases, and (or) the sale of goods, works or services, the usual expenses on transportation, storage, insurance and other such expenses";

11. The information used for determining and recognizing the market price of goods (works, services) shall include official sources of information on market prices of goods (works, services), exchange quotations.

12. When hearing a case, the court shall be entitled to take into account any circumstances that have a bearing upon the determination of results of a transaction, without being limited to those listed under Items 4-11 of this Article.

13. When goods (works or services) are sold at state-controlled prices (tariffs), fixed in accordance with the legislation of the Russian Federation, the said prices (tariffs) shall be accepted for taxation purposes.

14. In determining the market prices of securities and financial instruments of time deals, the provisions of Items 3 and 10 of this Article shall be applied in the manner which takes into account the special provisions of Chapter Tax on Profit (Income) of Organizations of this Code.

Article 41. Principles of Determining Income

Pursuant to the present Code, income shall be understood and economic gain in the form of money or in kind, that shall be taken into account, if it can be estimated and to the extent that this gain can be estimated, and [income] determined in accordance with Chapters "Personal Income Tax", "Enterprise (Organization) Income Tax", and "Tax on Capital Gains" of the present Code.

Article 42. Income from Sources Inside and Outside the Russian Federation

1. Income of a taxpayer can be classified as either income form sources inside the Russian Federation, or income from sources outside the Russian Federation pursuant to Chapters "Tax on Organizations' Profits (Incomes)","Personal Income Tax", "Tax on Capital Gains" of this Code.

2. If the provisions of the present Code do not allow to unequivocally classify the income received by a taxpayer as either income from sources inside the Russian Federation, or income from sources outside the Russian Federation, this determination shall be made by the Ministry of Finance of the Russian Federation. The share of the income that can be attributed to sources inside the Russian Federation and shares that can be attributed to sources in other countries shall be determined in a similar way.

Article 43. Dividends and Interest

1. Any income received by a shareholder (participant) from an organisation through allocation of its after-tax profits (including income in the form of interest on preference shares) to shares (stakes), owned by such shareholder (participant) shall constitute a dividend in proportion to the shares of shareholders (participants) in the authorized (pooled) capital of the organisation.

The dividends also include any incomes received from the sources beyond the confines of the Russian Federation and referring to dividends in accordance with the legislation of foreign States.

2. The following shall not constitute a dividend:

1) payments received by a shareholder (participant) of an organisation in cash or in kind which do not exceed the contributing of this shareholder (participant) to the authorized (pooled) capital of the organisation in the event of a liquidation of the said organisation;

2) payments to shareholders (participant) of an organisation in the form of transfer of shares of that organisation into their property;

3) payments to a non-profit organisation for the conduct of its main statutory activity (unrelated to business), made by economic companies whose authorized capital consists in full the contributions of this non-profit organisation.

3. Interest shall be construed as any income announced (established) in advance, including income in the form of a discount, received on debt obligations of any kinds (irrespective of their form). Interest shall include, among other things, income on cash deposits and debt obligations.