Article 253. Outlays Involved in Production and Sale

1. The outlays involved in production and sale shall incorporate:

1) the outlays connected with the manufacture (output), storage and delivery of commodities, with the performance of works and rendering services, with the acquisition and (or) sale of commodities (works, services and rights of property);

2) the outlays on maintenance and operation, repairs and technical servicing of the fixed assets and of the other property, as well as for maintaining them in good condition (in a fit-for-operation state);

3) the outlays on the development of natural resources;

4) the outlays on scientific research and on research and development works;

5) the outlays on obligatory and voluntary insurance;

6) the other outlays involved in production and (or) sale.

2. The outlays connected with the production and (or) with sale are subdivided into:

1) material outlays;

2) outlays on the remuneration of labour;

3) sums of imposed depreciation charges;

4) other outlays;

3. The specifics in determining the outlays of banks, insurance institutions, non-state pension funds, professional securities marketmakers, consumer cooperation organizations and foreign organizations shall be established subject to the provisions of Articles 291, 292, 294, 296, 297, 299, 300, 307, 308, 309 and 310 of the present Code.

Article 254. Material Outlays

1. To the material outlays are referred, in particular, the following expenditures of the taxpayer:

1) for the acquisition of raw materials and (or) of other materials utilised in the manufacture of commodities (in the performance of works or in rendering services) and (or) forming their base or comprising a necessary component in the manufacture of commodities (in the performance of works or in rendering services);

2) for the acquisition of materials utilised:

- for packing and other kinds of preparing the manufactured and (or) the sold commodities (including pre-sale preparation);

- for other production and economic needs (such as staging tests, exerting control, the maintenance and operation of the fixed assets and other similar items;

3) for the acquisition implements, appliances, instruments, apparatuses, laboratory equipment, overalls and other property which are not depreciable property. The cost of such property shall be fully included into the composition of material expenses as it is put into operation;

4) for acquisition of completing parts subject to mounting and (or) semi-products subject to additional processing by a taxpayer;

5) for the acquisition of fuel, water and all kinds of power expended for technological needs, for working out (including by the taxpayer himself for its own production needs) all kinds of energy and for heating the buildings, as well as the outlays on the transformation and transmission of power;

6) for the acquisition of the works and services of production nature performed by the outside organisations or individual businessmen, as well as for carrying out these works (for rendering services) by the taxpayer's internal structural subdivisions.

To the works (services) of the production nature shall be referred the performance of the individual operations involved in the output (manufacture) of products, in performing works and rendering services in processing raw materials (materials), the exertion of control over the observation of the started technological processes, the technical servicing of the fixed assets and other similar works.

To the works (services) of the production nature shall also be referred the transportation services rendered by the outside organisations (individual businessmen included) and (or) by the structural subdivisions of the taxpayer himself for shipping cargoes inside the organisation, in particular the shifting of raw materials (materials), of implements, parts, ingots and other kinds of cargoes from the basic (central) store-house to the workshops (departments) and the delivery of finished products in accordance with the terms of the contracts (agreements);

7) those involved in the maintenance and utilisation of the nature protection fixed assets and other property (including outlays on the maintenance and running of the purification installations, of ash-catchers, filters and other nature-protection objects, outlays on burying ecologically dangerous waste, those on buying the services of outside organisations involved in the acceptance, storage and destruction of ecologically hazardous waste, in the purification of the discharged waters, payments for the ultimately admissible ejections (dumping) of pollutant substances into the natural environment and the other similar expenses.

2. The cost of the commodity-material values included in the material outlays shall be defined proceeding from the prices of their acquisition (not taking into account taxes, which shall be subject to deduction from, or to the inclusion in, the outlays in conformity with the present Code), including the commission fees paid to intermediary organisations, the import customs duties and collections, the outlays on transportation as well as other expenditures connected with the acquisition of commodity-material values.

3. If the cost of the returnable containers accepted from the deliverer with the commodity-material values is included in the price of these values, from the total sum of the outlays on the acquisition thereof shall be excluded the cost of the returnable containers at the price of their probable use or sale. The cost of the non-returnable containers and packing, accepted from the deliverer with the commodity-material values, shall be included in the sum of the outlays on their acquisition.

The containers shall be referred to as either returnable or Non-returnable in accordance with the terms of the agreement (contract) on the acquisition of the commodity-material values in question.

4. Where a taxpayer uses as raw materials, spare parts, completing parts, semi-products and other materials outlays products of his own making, as well as where a taxpayer includes in the composition of material outlays results of his own works and services, said products and results of his own works or services shall be evaluated reasoning from the evaluation of finished products (works, services) in compliance with Article 319 of this Code.

5. The amount of material outlays of the current month shall be decreased by the cost of the stock of inventory holdings transferred for production but not used in production as on the end of the month. Valuation of such inventory holdings should correspond to valuation thereof, when writing them off.

6. The sum of the material outlays shall be reduced by the cost of returnable waste. For the purposes of the present Chapter, seen as returnable waste shall be the residuals of the raw materials (materials), semi-products, heat-carriers and other kinds of material resources which have accumulated in the course of the manufacture of the commodities (of the performance of works or of rendering services) and which have partially lost the consumer properties of the original resources (their chemical or physical properties) and by force of this are utilised with higher outlays (with a lower output of products), or which are not utilised for their direct purpose.

Not referred to returnable waste shall be the residuals of the commodity-material values, which are handed over in accordance with the technological process to the other subdivisions as fully valuable raw materials (materials) for the output of the other kind of commodities (works, services), as well as the by-products (associated products) obtained as a result of carrying out the technological process.

Returnable waste shall be evaluated in this order:

1) at the reduced price of the original material resource (at the price of the probable utilisation), if these wastes may be used for the basic or auxiliary production but with higher outlays (with a lower output of the finished products);

2) at the price of sale, if these products are sold on the side.

7. For the purposes of taxation, to the material outlays shall be equated:

1) the outlays on the reclamation of the lands and on the other nature-protection measures, unless otherwise established by Article 261 of this Code;

2) the losses from the shortages and (or) spoilage during the storage and the transportation of the commodity-material values within the limit of the norms of natural losses, approved in the order established by the Government of the Russian Federation;

3) the technological losses during production and transportation;

4) the outlays involved in the preparatory mining works in the extraction of minerals, for the operational stripping works in quarries and for cutting works in the underground ore extraction mines within the boundaries of the mining plot, allotted to the ore-mining enterprises.

8. When determining the amount of material expenditures in writing off the raw and other materials utilised in the output (manufacture) of commodities (in the performance of works or in rendering services), in conformity with the accounting policy accepted by the given organisation for the purposes of taxation, one of the following methods for the evaluation of the said raw and other materials shall be applied:

- the method of evaluation in accordance with the prime cost of a unit of the stocks;

- the method of evaluation in accordance with average cost;

- the method of evaluation in accordance with the cost of the acquisitions which are the first chronologically (FIFO);

- the method of evaluation in accordance with the cost of the acquisitions which are the last chronologically (LIFO).