Taxation of international e-trade: Russian particularities

Tax rates on e-commerce in Russia should remain moderate, given the small size of its digital trade operations (so the rise in tax revenues from higher rates would be small) and substantial growth prospects (so future tax revenues from a developed sector could be quite large). The Russian Federation’s (Russia’s) taxation of e-commerce activities presents two important challenges. First, consumer goods purchased directly from foreign online sellers enjoy significant tax advantages compared to imports purchased in Russian retail outlets, undermining the profitability of Russian importers and reducing tax revenues. Second, the value-added tax (VAT) levied on foreign exporters of electronic services creates uncertainty because the legal definition of electronic services is unclear and impedes the operations of multinational companies in Russia because VAT is taxed on intra-firm imports of services. Russian authorities are establishing effective automated systems for collecting taxes and customs duties on cross-border e-commerce, calculating VAT compensation to exporters and accounting for receipts from online stores. These systems will help to prevent abuse of the tax system, as well as reduce the cost of compliance by firms.