One of the key requirements for a Russian taxpayer claiming input VAT for offset is to obtain from a seller, and have in place, a duly executed VAT invoice, a document with the set of specific attributes envisaged by the VAT chapter of the Tax Code. Historically, this document should have been issued in hard copy form only.
The provisions allowing the issuance of VAT invoices in electronic format were added to article 169 of the Tax Code in the second half of 2010. However, in practice the application of these provisions was not feasible because of the absence of required subordinate Acts.
On June 3 2011 Order No 50n of the Ministry of Finance of April 23 2011 “Concerning Establishment of the Procedure for the Issuance and Receipt of VAT Invoices in Electronic Format through Telecommunication Channels Using a Digital Signature” (the order) was officially published and came into force.
The order is a subordinate Act regulating the exchange of VAT invoices in electronic format through telecommunication channels. In particular, the procedure provides for:
· VAT invoices may be issued in electronic format by mutual agreement of the parties provided that those parties have compatible technical equipment and resources for the acceptance of and processing of those VAT invoices.
· VAT invoices issued in electronic format should be transferred through special companies (operators of electronic document exchange). The exchange of VAT invoices in electronic format may be performed through either one or several operators of electronic document exchange.
· VAT invoices in electronic format should be signed by the digital signature of a person authorised by a counterparty of electronic document exchange.
· Participants in electronic document exchange should receive a signature key certificate from one of the companies which are authorised certificatory centres of the Federal Tax Service.
· The issuance and receipt of VAT invoices in electronic format is allowed provided that information cryptographic protection facilities compatible with the facilities used by the Federal Tax Services are applied.
· VAT invoices in electronic format may be issued in encrypted or unencrypted form.
· Electronic exchange should be made with respect to each VAT invoice separately.
· The procedure provides for a set of accessory electronic documents (confirmation of issuance, notification of receipt and other), determines the date of issuance and the date of receipt of VAT invoices in electronic format and prescribes the procedure for adjustment of VAT invoices issued in electronic format.
· Participants in electronic document exchange should ensure storage of all documents signed by the digital signature jointly with the signature key certificate.
The order does not provide everything needed for the implementation and application of the electronic exchange of VAT invoices in practice and further development of the regulatory framework is required. In particular, the Russian government should establish new forms of VAT invoice, purchase and sales ledgers, a journal of received and issued VAT invoices, and a procedure of their completion.
Notably, the transitional rules state (point 4 of article 10 of Federal Law No. 229-FZ of 27 July 2010) that taxpayers should follow the current procedure until such documents are adopted.
The most crucial from the purpose of implementation of electronic VAT invoice exchange is that the Federal Tax Service has not yet prescribed the electronic formats of a VAT invoice, purchase and sales ledgers, and journal of received and issued VAT invoices.
These documents are still being prepared and only when they are adopted will the issuance of VAT invoices in electronic format be feasible and legitimate.
It is noteworthy that implementation of electronic document exchange (in particular, VAT invoice exchange) may significantly affect taxpayers’ costs related to workflow management. So, it is essential for companies deciding to switch to electronic document exchange to evaluate the costs and benefits effect of such a decision. Furthermore, companies should also analyse the conditions of the IT-systems they apply as well as their general process structure to estimate their level of readiness to apply electronic document exchange.