A law or a set of regulations? SZPK coming into force
The significantly simplified law 'On protection of capital investments' has become 'concise and compact', but it may not stimulate investment activity in the expected size and with the desired result
According to the ministry of finance of the Russian Federation, more than 30 trillion rubles were accumulated on deposits of Russian entrepreneurs as of January 1, 2020. According to a survey by Rosstat, more than half of businessmen are afraid to invest due to uncertainty in the economy and high risks. The state planned to stabilize the conditions for investment in development and give confidence in the return on investment with the help of the law 'On protection and promotion of investment' (SZPK). On March 19, the document was adopted by the State Duma in the third and last reading, on March 25 — approved by the Federation Council, and on April 1 — signed by the president of Russia. What preferences and on what terms were promised to businesses in the first version of the bill, and what remains in 69-FZ — read in the material of Realnoe Vremya.
How it all started
According to Rosstat, the ratio of investment in fixed assets to GDP from 2011 to 2018 decreased by 0,1%. In March 2018, the president of Russia instructed the government and the Central Bank of the Russian Federation to develop and approve an action plan to increase the rate of investment growth.
As one of the key tools for creating the most comfortable investment environment, the Russian ministry of finance and the ministry of economic development proposed the draft bill 'On the protection and promotion of investments' in the summer of 2018. It was planned that the new document would provide investors with “predictability of the regulatory environment”, that is, the ability to fix the conditions and rules for payments, taxes, tariffs and fees at the level that was formed at the time of making the decision to invest in the project.
According to the first version of the bill, it was possible to conclude such agreement within three years from the date of entry into force of the law. It was proposed to “freeze” the conditions for a period of up to 6 years for investment projects worth 10 billion rubles (with the amount of their own investments of 3 billion over three years) and for a period of up to 12 years for a project in which the investor invests at least 30 billion rubles of their own funds. The companies that reinvest profits were offered to extend the agreement for another 6 years. If the state violated the agreements, compensation for actual losses was provided. Only projects implemented in the real sector of the economy were eligible for special conditions (hydrocarbon production, tobacco and alcohol production, financial market activities, and gambling were excluded from the applicants for preferences).
In October of 2018, Russian Finance Minister Anton Siluanov announced the draft bill in Kazan — at a meeting of leaders of regions of the Volga Federal Districts.
“We are talking about providing preferences for new investment projects in terms of investors' spending on infrastructure and counting these expenditures against future taxes. This is a good, popular measure. On the other hand, we are talking about providing stable tax regimes. If an investor invests a certain amount of money, the state and the regions guarantee the stability of the tax environment so that business plans were strictly enforced. This gives a guarantee to businesses," Siluanov said.
In the course of finalizing the draft bill in 2019, an updated version appeared. There appeared two main modes. The first is a regime that applies to business projects for all entrepreneurs, regardless of whether an agreement is concluded to protect and encourage investment or not. We are talking about the general investment regime. The second direction is the project regime, this is already the conclusion of agreements with investors who directly invest their own money in the project (project and investment regime)," Anton Siluanov explained at the parliamentary readings shortly before the first reading of the draft bill by the State Duma.
The general regime gives businesses a preference — 3 years of stable conditions for income, land and property taxes. The project regime, by establishing a “stabilization clause” for longer periods — 6, 15, 20 years, gives investors the right to recover actually incurred infrastructure costs from the funds from paying taxes on the project. Tariffs, quotas, and customs duties can be fixed for them, including for the entire term of the agreement on capital investment protection. However, borrowed funds raised for the implementation of projects are no longer recognized as own investments for the purposes of this bill, despite the fact that all loans raised for the project are paid and refundable. In addition, the bill was supplemented with a section on mutual responsibility of the state and the investor for non-compliance with the terms of the agreement.
Minus state support and other changes to SZPK
On December 10, 2019, the draft law 'On protection and promotion of investments' was adopted by the State Duma of the Russian Federation in the first reading. But with reservations. The government of the Russian Federation was recommended to submit to the State Duma information about the regulations that need to be adopted in order for the new law to really work.
In the course of the discussion of the bill, which was actively attended by business representatives and political leaders, the document that caused more controversy and objections than support was finalized. On the basis of the questions and suggestions made, the point on state support was completely excluded from it. Funds previously allocated for these purposes will be redirected to accelerate the implementation of national projects. This was stated by Russia's Deputy Finance Minister Andrey Ivanov at a special meeting in the Public Chamber in early February 2020.
On March 12, at a meeting of the Russian government chaired by Russian Prime Minister Mikhail Mishustin, the package of amendments to the draft bill was finally agreed. It was decided to simplify the procedure for concluding agreements on the protection and promotion of capital investments. As for the key preferences promised to businesses willing to invest billions of rubles in the development of the country's economy, it took 30 seconds for the Russian finance minister to list them, noting that the document has become more concise and compact:
“This is a mechanism for reimbursing investors' expenses for transport, energy, utilities, social and digital infrastructure in the amount of taxes paid. The bill offers an opportunity for investors to attract additional resources for their ongoing projects. In order to implement the Presidential Address of January 15, 2020, the project provides for stabilization of conditions. I will specify these conditions: stabilization of corporate income tax, corporate property tax, transport tax, payment terms and procedure for reimbursement of value-added tax, and new taxes and fees. At the same time, this stabilization is carried out for up to 20 years. Besides, the stabilization clause includes conditions for land use and urban development for a period of up to three years.
In fact, the bill turned into a set of basic provisions from the Investment code. The document lost the most important thing — the conditions for stabilization for the duration of the project, not to mention the introduction of some incentive measures of state support, depending on the scale of the project and its impact on the economy in the industry and in general, the focus on achieving the goals of GDP growth, import substitution, labour productivity growth and other tasks for the implementation of national projects
SZPK: adopted by State Duma, approved by Federation Council, and signed by the president
On March 18, 2020, the draft law 'On protection and promotion of capital investments' was considered and adopted by the State Duma of the Russian Federation in the second reading. The next day, March 19, in the third, final.
Anton Siluanov, speaking to deputies of the State Duma of the Russian Federation on March 19, before the final vote on the draft law on SZPK, expressed confidence that, thanks to the decisions taken, it will be possible to attract up to 30 trillion rubles to the country's economy. In order for the bill to work in full force, the government is preparing three legal acts: a government decree establishing the procedure for concluding, changing and monitoring the termination of the agreement on the protection and promotion of investment, a decree establishing the operation of the state information system 'Capital Investment', and a decree establishing the procedure for determining the amount of reimbursement to investors for the creation of infrastructure in the amount of taxes paid. On March 25, 2020, the federal bill 'On protection and promotion of capital investments in the Russian Federation' was approved by the Federation Council and signed by Russian President Vladimir Putin on April 1 with the number 69-FZ.
Concessions and public-private partnerships are excluded from the adopted version of the draft law, which will now allow the Russian economy to live and develop. In addition, it no longer mentions the “general investment regime”, but there is a set of requirements for companies that can apply for the conclusion of SZPK. The requirements for the total project volume were also removed from the document, but the requirements for the company's own capital investment volumes were left.
According to the adopted bill, large projects with an investment volume of 10 billion rubles or more can claim that export customs duties will be fixed for them, a ban on increasing the rates of payment for negative impact on the environment and for the use of water bodies will be introduced, and recycling and environmental charges will remain unchanged. Payment rates per unit of forest resources can also be fixed.
The stabilization clause, in terms of taxation, is reflected in the bill as a reference to the legislation on taxes and fees. Paragraph 4.3 of Article 5 of the Tax Code of the Russian Federation declares that the objects of taxation, the procedure for determining the tax base, the tax period, tax rates, the procedure for calculating and the procedure and (or) timing of payment in terms of income tax, property tax, transport tax and land tax are unchanged. For value added tax, this guarantee applies only to the payment period and the procedure for reimbursement. At the same time, there is a fundamental condition for the application of such guarantees, namely: maintaining separate accounting, the rules of which have not been established for investments realized as part of existing enterprises. In other words, regional taxes will be mainly involved. Despite the fact that not all federal taxes and fees are included in the “stabilization clause”, such as an excise tax. It turns out that the stability will remain mainly in terms of regional payments.
Whether the bill will work to achieve the goals for which it was created, only time will tell. It is likely that in the current version, it will not motivate new investment projects, and those projects that have been planned to be implemented in one way or another will go according to this law, slightly improving the economy. This means that it is likely that after some time the question will be raised again for discussion: why the law does not work. They will bring together industrialists, investors, committees, and legislators at the same table. And then the new version will again consider the same measures to support investment and protect capital, which have been rejected this time, but are so necessary for the development of investment projects in Russia.