MORE DETAILS UNVEILED ON RUSSIAN FEE SYSTEM

Russia has described more fully the system of taxes, royalties, and other fees covering development and export of oil and gas.

Debevoise & Plimpton, New York consulting firm, said the recent series of instructions and rulings could prompt federal, regional, or local governments to impose significant added costs on producers of Russian resources.

"These taxes, along with other levies on resource use and generally applicable taxes such as the enterprise profit tax, have been changed frequently and are expected to evolve further," Debevoise & Plimpton pointed out.

The company advises international clients about joint ventures, privatizations, and other investments in Russia and eastern and central Europe, including trade, banking, financial services, and telecommunications projects.

The series of fees and taxes developers of Russian natural resources must pay to federal, regional, or local governments is set out in the federation's Underground Resources Law approved in May 1992. Payments include royalties or use fees, assessments for renewing raw materials, excise tax, and a fee covering costs of issuing licenses.

"Except for the license fee, all of the levies have been elaborated by recent regulations and instructions issued by the government," Debevoise & Plimpton said.

EXCISE TAX

The most recent clarifications show that Russia's excise tax apparently applies to crude oil and condensate but not to other minerals.

Government Decree 847, dated Nov. 1, 1992, set specific rates of excise tax for individual oil producing enterprises identified in the decree. Some Russian enterprises were exempted, as were certain enterprises with foreign investment registered with the Russian government before Jan. 1, 1992.

Decree 847 established maximum permitted profitability levels-generally 20% more than production costs-on oil refiners and condensate processors. Debevoise & Plimpton understands the decree to say excise tax will be imposed on profits of such enterprises above the specified level, but that interpretation is not spelled out.

Previously, Instruction 95/14, dated Oct. 12, 1992, had set an 18% excise tax rate for all enterprises producing oil with the levy based on the selling price of oil, excluding value added tax.

ROYALTY OR USE FEE

Rules spelling out payments to be made for use of underground and underwater resources were promulgated in Government Decree 828 dated Oct. 28, 1992.

Debevoise & Plimpton said the decree extended the 8% temporary use fee rate set by an earlier decree until it is superseded by rates set for individual projects.

Under Decree 828, individual rates are to include an initial one time payment, followed by periodic payments equal to a percentage of the value of minerals extracted, excluding value added tax.

The percentage is to vary up to a maximum of 16% on the basis of factors such as the type, volume and quality of mineral extracted, mining and technical conditions, and project profitability. Royalties for oil, gas, and condensate are permitted to range from 6% to 16%.

EXPORT DUTY

Russia's State Customs Committee in Letter 01-17/5467, dated Sept. 24, 1992, said a 30% surcharge in addition to general export duty base rates no longer will be imposed on enterprises 30% or more foreign owned that are selling and exporting their own products.

Russian officials previously had justified the surcharge on foreign owned companies because those enterprises were exempt from rules requiring mandatory conversion to rubles of a portion of their hard currency revenues, Debevoise & Plimpton said.

However, authorities in June 1992 weakened that rationale when they extended currency conversion requirements to all enterprises, and the surcharge on foreign companies later was dropped.

Export duty base rates in July 1992 were reduced to 21 European currency units (ECUs)/ton of oil and condensate and 18 ECUs/1,000 cu m of gas.

Proceeds from payments for renewal of raw materials are to be used by the federal government to develop new mineral resource sites.

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