E-Commerce Taxation in Russia: Problems and Approaches

Liudmila V. Polezharova, Aleksandra M. Krasnobaeva


The purpose of this article is to describe a mechanism for taxing e-commerce profits of multinational corporations (MNCs). Our research hypothesis is that the new economic reality, where digital transactions are on the rise, requires new mechanisms for taxation of MNCs’ profits. Our research methodology relies on a systemic approach aimed at embracing the complexity and dynamics of the above phenomena. We analyze the feasibility and possible outcomes of the introduction of the indirect digital services tax in Russia, in particular its potential impact on the tax burden distribution and economic growth. Special attention in the article is given to the definition and criteria of virtual permanent establishment. We propose a definition that emphasizes the non-physical nature of permanent establishments in e-commerce and does not include any subjective criteria. Since the Russian tax system is not sufficiently synchronized with the global digital trends, especially regarding taxation of e-commerce profits of tech giants, which means that the introduction of a digital services tax in Russia may be premature due to its possible negative influence on the tax burden redistribution, competition, business profitability, employment, personal income and innovation. Russia will be able to participate in the process of allocation of MNCs’ profits if the mechanism of direct taxation is developed and the institution of virtual permanent establishment is introduced into the national tax legislation. These measures will enable the Russian state to realize its taxing rights in relation to MNC’s profits and benefit from the international trends in profit-allocation. Our critical analysis of the OECD’s unified approach has shown its weaknesses and led us to the conclusion that a simple and more transparent taxation mechanism is necessary based on the formulary apportionment of MNCs’ total revenues rather than residual profits among the relevant jurisdictions. In our view, Russia should move ahead with the unilateral measures for taxation of MNCs in accordance with the mechanism described above. Unlike the majority of research, we propose to use only objective value indicators, which cannot be distorted by subjective interpretations, and exclude the risk degree indicator from the set of allocation keys. It also makes sense to use a formula for allocation of profit among the countries rather than corporate structures, as it will enable tax authorities to take into account the impact of federal and regional tax preferences to investors.

For citation

Polezharova L.V., Krasnobaeva A.M. E-Commerce Taxation in Russia: Problems and Approaches. Journal of Tax Reform. 2020;6(2):104–123. DOI: 10.15826/jtr.2020.6.2.077.


Article info

Received June 3, 2020; Revised July 9, 2020; Accepted August 8, 2020


tax risks, virtual permanent establishment, significant presence, digital services tax


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DOI: https://doi.org/10.15826/jtr.2020.6.2.077

Copyright (c) 2020 Liudmila V. Polezharova, Aleksandra M. Krasnobaeva

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