Not long ago, we wrote about Minfin’s new proposals concerning rules of amortization (http://www.gaap-ifrs.com/news/gaap_ifrs/2066). The authority was surprisingly quick about all formal procedures of its project’s approval by the State Duma and the Federal Council, but at what cost. It appears that the legislators rejected many of the ministry’s (most unwanted) proposals - for instance, those on accelerated amortization for property selling and use of non-linear method of amortizations without any alternatives.
The Ministry of Finance couldn’t wait for feedback from business society this time, which is why they decided to include its proposals on amortization in a separate legislation project – the one dealing tax preferences for oil mining companies (mineral extraction tax) and amendments to three other sections of the Internal Revenue Code. The project has been approved already, in its first reading. But for the second reading of the project, it is expected to increase in volume – from current 6 to 48 pages in total. Those new pages comprise amortization rules, already approved by the Federal Council. The only thing left is the president’s approval, and if Mr. Medvedev signs the document, the new rules will be in force starting from 1 January 2009.
Not all rules found support. For instance, the Minfin’s proposal to compensate sums of accelerated amortization and amortization premium in case a piece of property was sold within first 5 years of its exploitation, was rejected. The new rules for use of non-linear amortization stayed the same as the ministry initially proposed: monthly payments will be applied to an amortized group in general and not to each separate item within the group. In order to determine monthly amortization amount, one should multiply a group’s consolidated balance (which is a residual value of all items within the group) by the rate of depreciation. However, there won’t be huge tax savings like the Minfin promised, because rates for amortized groups appeared to be much lower than before. For instance, for the fourth depreciation group*, the rate was almost halved (current 3.8% vs. former 7%). The first depreciation group** became an exception: the rate was actually increased to 14.3% from 10%. Even a slight increase of the rate leads to noticeable tax savings.
The ones who will be grateful are the accountants who will suffer fewer difficulties comparing tax and financial accountancy. The Ministry of Finance proposed non-linear method to be applied to all tangible and intangible assets, but this proposal was denied. As before, companies are able to choose linear method which leads to identical results in financial and tax accounting. Companies may voluntarily choose non-linear method starting from the very beginning of the new accounting period, employing it even for previously purchased equipment. The opposite is also possible - however, section 259 of the Internal Revenue Code allows doing that (from non-linear to linear) only once in five years. The method chosen is to be applied to all fixed assets, with the exception of property, plant, equipment and intangible assets of the 8-10th depreciation groups***. For those assets, only linear method of amortization may be applied.
Based on materials from “Accountancy, Taxes and Law”
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