If Russia`s payment to the holder of foreign rights is subject to withholding tax, the most appropriate method is to increase the amount of licence fees agreed in the contract on the amount of withholding tax. It should be kept in mind that under the double taxation agreements, the licensee would be able to compensate for the withholding tax paid by the taker in Russia against the payment of the corresponding income tax or income tax in the licensee`s state. Therefore, it is necessary to define in the contract the obligation of the licensee to obtain from the Russian tax authorities a corresponding certificate concerning the amount of tax withheld and to make it available to the licensee in the contract. To address this issue, the supply contract should include a provision for the inclusion in the price of products of licence fees for the use of trademarks. The licensing agreement should indicate methods of using the mark other than importing goods (for example. B, the use of trademarks on documents relating to the marketing of goods, proposals for the sale of goods, advertisements, billboards, advertising and the internet, including domain names). This aspect of the double taxation agreement must be taken into account by the parties to a licensing agreement, or risk creating serious uncertainty in the relationship. There will be no problems if the Double Taxation Convention provides for the full payment of tax in the country of the licensee (as in the treaties between Russia and the United States, the United Kingdom, Germany, France and Switzerland). However, Russian double taxation agreements with a large number of countries (including China, India, Japan, Spain and South Korea) provide for the possibility of imposing a 5%-15% royalty tax in the country of the licensee. In most of these countries, including Russia, the collection of this tax is done by withholding tax. Therefore, in this case, the licensee should withhold the tax at the corresponding rate and transfer it to the tax authorities of his own country.
As a result, the amount received by the licensee is less than the amount specified in the contract. Therefore, if the parties do not address this issue in the treaty, it could lead to conflict. Russian tax law also provides for VAT exemption for the transfer of exclusive rights to inventions, utility models, industrial models, computer programmes, databases, integrated circuit topographies and trade secrets, as well as rights of use on the basis of a licensing agreement. This list excludes trademark rights and other means of individualization of legal entities as well as rights to copyrighted works (with works other than those mentioned above). Therefore, the transfer of rights to the means of individualisation and the rights to copyrighted objects are subject to VAT. Among the methods of using the mark in the civil code is the importation of goods into Russia. Therefore, where a trademark licensing agreement indicates the importation of products into Russia as a method of using the trademark, the royalties payable under the licensing agreement are recognized as having a connection to the imported goods. In this case, regardless of the provisions of the delivery contract, the Russian customs authorities have reason to demand the inclusion of royalties in the customs value of imported goods. Thus, royalties paid under the price of imported goods are charged for the importation and sale of goods imported into Russia. Royalties for other types of brand use are paid under the licensing agreement. This solution allows the parties to exclude royalties from the licensing agreement for the customs value of imported goods.