On taxes and other obligatory payments to the budget (Tax Code)

Article 195. General principles of separate tax accounting for corporate income tax

1. For the purposes of this article, the following definitions apply:

1) total income and expenses - income and expenses in a reporting taxable period, including those related to general fixed assets, that are connected both with the performance of an activity on an allocated category and other activities and are subject to distribution between them;

2) general fixed assets - fixed assets related both to the performance of an activity on an allocated category and other activities and, due to specific nature of their use, having no direct causal link to a specified allocated category or other activities;

3) indirect income and expenses - income and expenses in a reporting taxable period, including those related to fixed assets, that have a direct causal link to several allocated categories and are subject to distribution only among such categories;

4) implied fixed assets - fixed assets that, due to specific nature of their use, have a direct causal link to several allocated categories;

5) direct income and expenses - income and expenses in a reporting taxable period, including those related to fixed assets, having a direct causal link to a specified allocated category or other activities.

2. For the purposes of separate tax accounting, all income and expenses of a taxpayer are divided into direct, indirect and total ones.

A taxpayer (tax agent) classifies incomes and expenses as direct, indirect and total on his/her own on the basis of the nature of his/her activity.

Direct income and expenses shall be attributed in full only tothatallocated category or other activities, to which they have a direct causal link.

Total income and expenses are subject to distribution among an allocated category and other activities and pro rata relate to income and expenses of the allocated category and other activities, to which they have a direct causal link.

Indirect income and expenses are subject to distribution only among allocated categories and pro rata relate to income and expenses of that category, to which they have a direct causal link.

Total and indirect income and expenses are distributed in accordance with the methods established by paragraph 4 of this article and with regard to the provisions of paragraph 3 of this article.

3. As to general and implied fixed assets, expenses incurred by a taxpayer on these fixed assets, including depreciation and subsequent expenses, are subject to distribution among an allocated category and other activities.

As to total and indirect expenses for remuneration, total amount of deductions of such remuneration, determined in accordance with Article 246 of this Code, is subject to distribution.

If an exchange rate difference cannot be attributed toa taxpayer’s allocated category and other activities by a direct causal link, the final (balanced) financial result for a taxable period shall be subject to distribution in the form of excess amount of a positive exchange rate difference over the amount of a negative exchange rate difference or excess amount of a negative exchange rate difference over the amount of a positive exchange rate difference.

Taxes to be allocated to deductibles as general or indirect expenses are subject to distribution in accordance with the methods established in paragraph 4 of this article, without the distribution of their relevant taxable and (or) tax-related items.

4. A taxpayer (tax agent) distributes total and indirect income and expenses for each allocated category and other activities on his/her/its own taking into consideration specific nature of an activity and using one or several methods of separate tax accounting, which is customary for tax accounting policy, including that:

1) by the ratio of direct income, attributable to each allocated category and other activities, in the total amount of direct income received by the taxpayer (tax agent) in a taxable period;

2) by the ratio of direct expenses, attributable to each allocated category and other activities, in the total amount of direct expenses incurred by the taxpayer (tax agent) in a taxable period;

3) by the ratio of expenses incurred on one of the following items - direct production expenses, payroll or the value of fixed assets, attributable to each allocated category and other activities, in the total amount of expenses for this item incurred by the taxpayer (tax agent) in a taxable period;

4) by the ratio of the average number of employees engaged in an activity on an allocated category and other activities, to the total average number of employees of the taxpayer (tax agent);

5) other methods.

The taxpayer (tax agent) can apply various methods of distribution, which he/she/it chooses independently, to different types of total and indirect income and expenses.

For more accurate distribution of total and (or) indirect income and expenses, the taxpayer (tax agent) determines the value of the ratio, obtained as a result of applying one of the above methods, in percentage points up to one-hundredth (0.01%).

If a tax accounting policy has no method for distributing total income and expenses, tax authorities shall distribute such income and expenses in the course of a tax audit using a method provided for in subparagraph 1) of part one of this paragraph.

5. When calculating corporate income tax on a taxpayer’s activity as a whole, expenses incurred on any allocated category, which the taxpayer may compensate for using only income received from the activity on such an allocated category in subsequent taxable periods, shall be ignored as provided for by Article 300 of this Code.