Starting from 2018 the sales of scrap metal become subject to VAT in Russia.
Initially sales of scrap metal were VATable transactions. But some ten years ago they were exempted. The reason was the wide spread occurrence of fraudulent VAT recovery by numerous dummy companies engaged in scrap metal trading. The government preferred to refuse from levying VAT on scrap metal rather than to lose huge amounts of money through VAT refunding mechanism.
So the current abolition of exemption is just the return to former order. However, quite new phenomenon is that contrary to the ordinary course of taxation the responsibility for VAT levied on the sales of scrap metal is entrusted not on a seller who formally remains to be a VAT taxpayer but on a buyer who shall act in the capacity of so called “tax agent”.
The involvement of tax agents in VAT collection is not a novelty by itself. Tax agents are engaged, for example, when a foreign company that has no actual presence in Russia provides services considered to be rendered in a country of client (legal, accounting, consulting etc.). In this case a Russian client shall calculate and withhold VAT from a foreign service provider’s revenue. VAT paid by a tax agent is refundable for the latter.
However, previously such an order of VAT collection was applied only when VAT taxpayer’s duties could not be imposed on a seller (formal VAT taxpayer). Now for the first time the responsibility to pay VAT is entrusted on a buyer instead of a seller in spite of the fact that the latter is a Russian entity not prevented from performing its VAT taxpayer’s duties on its own.
It may be expected that should the experiment with scrap metal be recognized successful, the practice of VAT payment by buyers will be implemented more widely.