Russian Parliament to Consider Tax Preferences for Gazprom

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By Natalia Suvorova

Russia’s parliament will consider draft legislation enabling the companies that invest in the Amur gas processing plant—a project of Gazprom, the world’s largest gas producer—to join a consolidated group of taxpayers, a designation that comes with preferential tax treatment.

The Russian parliament accepted draft legislation that would reopen the consolidated group of taxpayers (CGT) mechanism—which has been under a moratorium for new companies to join—to include the Gazprom subsidiaries investing in the plant after Oct. 1, 2017.

Gazprom had requested that the companies participating in the project be allowed to join CGTs or form one.

The draft legislation, accepted for parliament’s consideration Sept. 20, would allow a consolidated group of Gazprom’s subsidiaries in the Amur region to save 15 to 30 percent in tax payments, said Anna Kokoreva, deputy director of the analytical department at Alpari Group, a broker company.

The CGT mechanism, which has been effective in Russia since 2012, allows legal entities to pay corporate income tax on the basis of a joint agreement. The companies that are part of the CGT are excluded from the intercompany price control, combining profits and losses. Then the tax is distributed between the constituent regions where the companies are located. However, in 2015 the Russian government responded to complaints from regional governments by establishing a moratorium on the creation of new CGTs and for companies joining the existing CGTs.

The bill suggests amending Article 3 of the federal law No. 325-FZ from Nov. 28, 2015, which blocked companies from joining CGTs through the end of 2017. The bill proposes to provide an exception for groups of companies, whose participants own at least 50 percent of Russia’s unified gas supply system, and whose capital investment into the Amur region isn’t less than 100 billion rubles ($1.7 billion) for the period from 2015 to 2025.

Largest of Its Kind

On Aug. 3, Gazprom CEO Alexey Miller announced the beginning of construction of the Amur gas processing plant (GPP), which is supposed to process 42 billion cubic meters (1.5 trillion cubic feet) of natural gas per year and transfer it to China via the Power of Siberia gas pipeline. The plant is projected to become the largest of its kind in Russia and one of the largest in the world.

The Amur GPP in the Russia’s Far East is located in the Svobodnenskaya Advanced Development Territory, which provides for corporate income tax preferences for its resident companies. Besides these preferences, Gazprom, as an ADT participant, required permission to join the CGT for additional preferences. It would allow the company to cooperate more effectively with Sibur, a gas processing and petrochemicals company, to supply ethane from the Amur GPP, Miller said.

“If this issue that the resident of the advanced development territory can also be a CGT participant were considered and resolved, that would undoubtedly be a serious support,” Miller said at a meeting with President Vladimir Putin in the Amur region on Aug. 3. If allowed to access the CGT, Gazprom “would completely abandon all preferences for income tax,” Miller said.

No Effect on Foreign Companies

The development won’t directly affect foreign companies since they aren’t owners of the unified gas supply system unlike Gazprom subsidiaries, Kokoreva told Bloomberg BNA Sept. 29.

The bill will “contribute to the economic growth and development of the Amur region through the creation of new jobs and new production facilities, as well as provide additional income from corporate income tax to the regional budget,” an explanatory note accompanying the measure said.

If adopted, the bill will come into effect on the day of its official publication.

To contact the reporter on this story: Natalia Suvorova in Moscow at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

The draft law “On amending Art. 3 of the federal law No. 325-FZ from Nov. 28, 2015,” in Russian, is available at: http://asozd2c.duma.gov.ru/addwork/scans.nsf/ID/E375733D723BF87B432581A100307093/$FILE/268974-7.PDF?OpenElement

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