A draft law on adopting a new control system has been put be-fore the State Duma

Pepeliaev Group advises that it is planned to introduce a national tracking system starting from 1 January 2021: a draft law to this effect [1]has been put before the State Duma.

The new system will apply to goods imported into the Russian Federation. The list of goods will be approved by a special Resolution of the Russian Government. For instance, an experiment is currently being conducted[2] with the following categories of goods:

• refrigerating and freezing equipment;
• auto-loaders, other loaders and tow cars, bulldozers, land levellers, excavators;
• washing machines;
• textile processing equipment;
• monitors, projectors, television receivers;
• baby strollers and child safety seats;
• electronic integrated circuits.

Specifics of documentary traceability

Just like the labelling system, the tracking system has been designed to control the flow of goods. Yet, there are a few significant distinctions. For instance, the fundamental principle behind the tracking system is not the labelling of goods, but the keeping of records of batches. The new system will be administered by the Federal Tax Service. The documents compiled within the tracking system may become the subject of examination during a desk audit of VAT returns.

Specifics of record keeping with respect to batches of goods

A batch will be identified by the batch registration number (BRN). This number is formed as follows:

• with respect to the goods that are subject to tracing and are imported from non-EAEU states, the BRN is formed by the importer itself out of the details of the declaration for goods;
• with respect to goods imported from the EAEU, as well as goods previously imported from foreign states and stored in Russia, the tax authorities form the BRN within one day from when they receive the relevant notice from the taxpayer;
• with respect to goods confiscated once imported into Russia and goods detained by customs authority, the BRN is formed by the customs authority.

Sources of formation of the tracking system

The tracking system will be based on the following principal documents:

• at the stage of import - the import notice for the goods. Taxpayers will also have to send notices on leftovers of goods within 30 days from the date on which the name of a product is included in the list of traceable goods;
• the domestic turnover of traceable goods will be reflected in the VAT return or, for taxpayers that do not pay VAT, in a special report;
• goods are taken out of the system when the ownership title to them is discontinued on grounds unrelated to sales (including in connection with the goods being transferred into the production process), after the goods are sold to consumers or after they have been exported out of Russia. The relevant information must be reflected in the report on transactions with goods that are subject to tracking.

Taxpayers’ obligations in connection with the traceability requirement being introduced for documents

The system suggests that an electronic document management system must be adopted by all participants of the system. The BRN will have to be stated in electronic VAT invoices. Taxpayers purchasing traceable goods will be obligated to check that the BRN for a batch of goods subject to tracking is correctly stated in the VAT invoice and/or shipping document and that it is correctly specified in the documents containing traceability details. The Federal Tax Service has already developed the check-up service.

To ensure compliance with the new requirements it was initially planned to introduce a fine from 5% to 10% of the value of the corresponding goods. Yet, the business community managed to insist on less stringent measures of liability: the version of the draft law put before the State Duma provides for fixed fines of RUB 200 to RUB 1,000 for each non-submitted document.

What to think about? What to do?

First of all, requirements need to be developed for implementing additional software or improving the configuration of current systems. It would also be prudent to introduce a document management system of legal significance.

It cannot be ruled out that there will be delays and system failures at first. If the company imports goods from the EAEU or has leftovers of goods that are subject to tracking, this should be borne in mind when contracts with business partners are concluded.

Help from your adviser

Pepeliaev Group’s lawyers will readily provide the legal support required in connection with the new regulations being applied and companies’ business processes being adjusted.