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Russia Introduces a Copyright Tax to Protect Authors
Since October 2010, the manufacturers and importers of copying equipment (computers, cell phones, etc) and media (CDs, memory sticks, etc) have been required to pay 1% of their sales (of the customs value of goods sold) for the purposes of financing compensation to be paid to authors. This levy is in essence a new tax. Taxand Russia analyses the principle elements of this levy.
The Russian Civil Code (Article 1245) provides that authors, performers, producers of phonograms and audiovisual works be compensated for the free copying of their phonograms and audiovisual works for private use. Based on this provision, the Russian Government issued Resolution No. 829 dated 14 October 2010, which defines the principal elements of this levy: the taxable items, taxable base, reporting period and payment deadlines, calculation and payment procedures. The Resolution also establishes methods for monitoring the collection of the new levy. More specifically, payers must be registered with a non-profit organisation authorised to collect and distribute the funds; the tax authorities are required to supply the authorised organisation with information on equipment imported; the authorised organisation is entitled to send enquiries to traders; the payers must submit reports in a required form; the authorised organisation is entitled to request payment from the payers.
Given the procedure for collection of funding for 'compensatory consideration' to be paid to authors, as established in the Russian Government Resolution, there is no room for doubt that what Russia saw in October was the introduction of a new tax.
Firstly, the Russian Constitution does not allow for any amounts to be compulsorily levied other than taxes and levies. Secondly, this charge meets all material criteria included in the definition of a tax, which is set forth in clause 1, Article 8 of the Russian Tax Code.
A.L. Kononov, a retired Russian Constitutional Court judge, notes in one of his Special Opinions that to establish the legal nature of a levy, we should focus its material features, rather than paying attention to its formal characteristics, such as its being included in the list of taxes or its being actually transferred to the budget or non-budgetary funds.
From the payer's perspective, the 'copying tax' is mandatory, it does not entitle the payer to any benefits in return, it entails the collection of money, and it is levied for the purpose of providing funds to the Russian government, which has undertaken to pay compensation to the authors because for reasons beyond its control, it cannot provide full-fledged protection of their rights because of advances in technology.
In other words, the need for this levy is due to a technical possibility of uncontrolled copying of audio and video files, which may potentially result in lost income for the authors. The European Court of Justice held in its Ruling dated 21 October 2010 (clause 46) that given the practical difficulties in identifying specific users, it is open to states to establish a 'private copying levy' for the purposes of financing fair compensation chargeable not to the private persons concerned, but to those who have the equipment, devices and media and who, in law or in practice, make that equipment available to private users or who provide copying services for them.
The Russian Constitutional Court has clarified more than once that a tax or another levy may only be introduced by explicitly defining their elements in legislation. Therefore the government resolution actually introduced a special-purpose federal tax for which the Russian Tax Code makes no provision, in contravention of clause 5 of article 3 and clause 6 of article 12 of the Russian Tax Code. The only difference of this 'copyright tax' from other taxes is that tax payments are transferred to an authorised organisation rather than to the budget accounts of the federal treasury. Such levies are known as parafiscal.
The specific feature of parafiscal levies is that they fully meet all criteria included in the definition of taxes and other levies, but rather than being remitted to treasury accounts of budgets, they are transferred to non-budgetary funds or authorised entities whose management combines the roles of the controller, treasury and manager. This is why they are called parafiscal (this name comes from para, which is the Latin for 'apart from', 'except for', 'around', and fisc, which is the name of the Roman public treasury). In other words, parafiscal levies are special-purpose taxes. France used to be the classical example of a state with a number of parafiscal levies until they were abolished from 1 January 2004 by the French law dated 1 August 2001.
This brings us to the conclusion that there is every ground to request that the Russian Supreme Court and the Russian Constitutional Court consider whether it is lawful to introduce a levy by a government resolution. If the 'copyright protection tax' receives support from the higher courts, it would be reasonable to expect that we will see the government introduce more parafiscal levies to finance its new spending in the upcoming years. Beneficiaries may include the 2018 World Cup Support Fund, the Police Services Reserve Fund and the State Corporation Modernisation.Your Taxand contact for further queries is:
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