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PRICE WATERHOUSE NEGOTIATES TEMPORARY PAYMENT PROCEDURES WITH RUSSIAN TAX AUTHORITIES FOR EXPATRIATE TAXES

 MOSCOW, Russia, Nov. 25 ~PRNewswire~ -- As the time approached earlier this month for expatriates working in Russia to pay their 1992 Russian personal income taxes, the question on their minds was, "How do I get that many roubles?" Most expatriates were required to pay 75 percent of their estimated 1992 Russian tax liability by Nov. 15, 1992, according to assessments received from the Russian Tax Inspectorate last month.
 Expatriates in Russia receiving tax assessments suffer "rouble shock," according to Byron Ratliff, Price Waterhouse tax partner in Moscow. "Many expatriate tax assessments here are well into millions of roubles. Since expatriates cannot pay personal taxes in hard currency under Russian law, a problem is created in raising the roubles necessary to pay the tax assessment," Ratliff explained.
 In addition, foreign companies have generally been unable to assist expatriate employees in paying their personal income taxes since, under Russian law, a company can be subject to a penalty for paying the taxes of its employees.
 In an effort to resolve the tax payment dilemma, Price Waterhouse contacted the Moscow City Tax Inspectorate to work out a solution. After discussions with Vladimir A. Voronkov, Chief of Taxation of Foreign Legal Persons and Individuals, a temporary procedure was agreed. According to Natalia Milchakova, Price Waterhouse director of Russian tax services, "the temporary procedure uses an employer bank account to facilitate the payment process.
 "The employer pays the tax in roubles on the expatriate's behalf by converting hard currency into roubles at the bank and wiring the funds to the Russian Revenue. The employee reimburses his~her employer in hard currency or treats the payment as a reduction of future salary," Milchakova said.
 The temporary tax payment process includes the following steps:
 1 A Power of Attorney form must be prepared by the employee authorizing the employer to make the tax payment;
 2 A separate payment order is prepared for each employee, specifying the name of the employee on whose behalf the tax is being paid;
 3 A copy of the payment order is provided to the Moscow City Tax Inspectorate;
 4 The employer provides the Moscow City Tax Inspectorate with a list of employees on whose behalf the taxes are being paid.
 The Tax Inspectorate has indicated the payment must be reimbursed by the employee because Russian tax law does not permit an employer to pay the tax liability of an employee. If the employer does pay an employee's tax liability, the employer may be subject to a penalty equal to the amount of the tax paid. In addition, the employee must include in taxable income the amount of tax paid by the employer. Thus, the temporary payment mechanism provided by the Moscow City Tax Inspectorate avoids this problem.
 The tax situation in Russia for expatriates has changed drastically over the past year. In 1991, the top marginal tax rate in Russia on employment earnings was 30 percent. Hard currency earnings were converted into roubles for purposes of calculating the tax at the commercial exchange rate according to procedures established by the Russian Tax Inspectorate, yet tax payments could be made in roubles purchased at banks at the tourist exchange rate. The use of different exchange rates resulted in an effective tax rate of around one percent in dollar-equivalent terms.
 For 1992, a top marginal rate of 60 percent was originally decreed. At the same time, the official and commercial exchange rates were abolished in favor of a single market exchange rate determined by the Central Bank of Russia. The much higher effective tax rate for 1992 was having a negative effect on foreign investment. Therefore, in part because the foreign community was vocal about its objections to the much higher effective tax rate and because of the corresponding negative effect on foreign investment, the top marginal rate was lowered to 40 percent. Although this rate is high compared with that of the United States, the fact the government responded to expatriate community concerns was seen as a positive sign.
 "While the temporary payment procedure may not be a perfect solution," said Price Waterhouse's Ratliff, "it provides expatriates with a means to acquire the roubles needed and is certainly safer than carting a load of roubles across Moscow with bodyguards.
 "The Tax Inspectorate is working on a process whereby expatriates may be able to pay in a hard currency equivalent their final 1992 tax liability to be assessed from the return due by April, 1, 1993," said Ratliff.
 Inquiries regarding the Russian temporary personal income tax payment procedure may be directed to Byron Ratliff of Price Waterhouse, Bolshoi Strochenovsky per 22~25, Moscow 113054, Russia. Phone: 7-095-230-6185; or Fax: 7-095-230-6186, or Telex: 413862 PW MOS.
 -0- 11~25~92
 ~CONTACT: Philip Caudill of Price Waterhouse, Houston, 713-750-6067~


CO: Price Waterhouse ST: Texas IN: FIN SU:

AH-PS -- NY035 -- 1546 11~25~92 13:49 EST
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Publication:PR Newswire
Date:Nov 25, 1992
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