New measures to help the gaming industry from the Russian government are written in the interests of Mail.Ru Group

The package of measures that should help the Russian gaming industry raises questions for two reasons. First, there is no original document in the public domain. The available formulations are complex and contradictory. Secondly, if you dig into them, then the main and obvious beneficiary in them looks like Mail.Ru Group.

But about everything in order.

Yesterday it became known that the Ministry of Digital Development proposes to introduce 88 measures. Among them:

• 1) start of intergovernmental negotiations to facilitate access of Russian game developers to the Chinese market;
• 2) introduction of VAT deduction when licensing software (software) by foreign users, if the software is included in the register of domestic;
• 3) creation of a Russian app store for games (for games under a foreign license, the threshold for payments to copyright holders is planned to be increased from 30% to 70%).

The first measure does not raise any questions. If the Russian authorities can persuade the Chinese “brother” to give domestic games priority over Western titles in issuing ISBN, it can really help domestic teams.

However, the wording of the two remaining initiatives raises questions.

We have asked law firms to comment on these points. Both speakers gave an answer, but warned that according to the available publication it is difficult to understand what is meant. Moreover, one of our interlocutors noted that there is definitely some confusion in the information provided. Without the original document with the proposed measures, it is only possible to make assumptions about what the Ministry of Finance actually offers.

Measure “Introduction of VAT deduction for software licensing by foreign users”

Now the measure has a strange wording. There are several versions of how it can be understood.

According to one of them, the ministry proposes to zero VAT on the sale of digital content and digital software by any foreign company to Russian users. However, this zeroing has a condition: a foreign company must license its program in Russia and enter it into the register of the domestic one. At least, this is how Alina Davletshina, senior associate at VERSUS.legal, sees the measure. She also says that it is unlikely that many people will be able to use this benefit:

“The fact is that one of the conditions for inclusion in the register of Russian software is its availability throughout Russia, and therefore on the territory of Crimea. And with these conditions, due to the sanctions regime, Russian applications may be at risk of violating the rules of the App Store, Google Play, Steam and other stores that comply with the sanctions regime. Before that, Apple, for example, already had precedents for blocking Russian mobile applications operating in Crimea. And if we discard licensing through American marketplaces, how many applications will be able to take advantage of this benefit? Unless those who join the Russian app store – the Ministry of Finance also offers to launch it.”

I do not agree with this version Roman Lukyanov, Managing Partner of Semenov&Pevzner:

“A foreign company cannot get into the register of Russian software. This generally contradicts the goals of the Russian software registry and the teleology of tax benefits for Russian developers (the goal is incentives and protectionism).”

Lukyanov admits that a mistake was made when preparing the original material on the measures, since “operations related to software licensing are not subject to VAT taxation anyway.” Based on this, he concludes that the VAT deduction should relate not to software licensing, but to something else.

“Most likely, we are talking about the possibility of deducting incoming VAT on services (which is unknown). Based on the objectives of the presented draft measures, we are talking about services that are provided to foreign users (apparently, we are talking about SaaS IT solutions, i.e. a deduction focused on the export of IT solutions; this is not licensing from a legal point of view).”

Simply put, this may be the very measure that the developers asked for when introducing the “Google Tax” in 2016. Recall that the tax then introduced essentially double taxation for Russian gaming companies. The fact is that today domestic teams sell their games through foreign platforms (Steam, App Store, Google Play), and not directly. As a result, VAT from the same purchase is paid twice: first it is paid by the platform in Russia, and then by the developer when he receives his money to a Russian legal entity.

The proposed measure may make it possible to make a tax deduction from services (which include micropayments in games — IAP under Russian law) provided to foreign users.

Measure “Game store with a 70% payment threshold to copyright holders”

This measure, though less controversial, still has a more complex and difficult to understand formulation. Moreover, the presence of the word “store” with the phrase “increase from 30% to 70%” and the concept of “threshold of payments to copyright holders” immediately confuses here.

To understand the context, Roman Lukyanov told us, it is necessary to recall one of the mandatory requirements for applications if they want to get into the registry of Russian software. According to him, “the total amount of payments under license agreements providing for the granting of rights to the results of intellectual activity (…) in favor of foreign persons, Russian commercial organizations controlled by them (…) should be less than thirty percent of the revenue of the copyright holder (…)“.

Simply put, applications with large royalties to foreign companies or individuals cannot get into the registry.

Based on this, Lukyanov concludes that, perhaps, the Russian game store will not be able to meet these requirements. And in order to avoid this, it may be proposed (only it is not clear – for this store of offers or in general) to increase this 30% threshold to 70%.

“If such an amendment is adopted, the software copyright holders will be able to include their software in the register in order to receive tax benefits if the revenue from licenses to foreign persons amounts to 70% of the total revenue,” Roman concludes.

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All these measures, if adopted (now they are only proposals), will certainly have a positive impact on the industry. But it is important to keep in mind who exactly offers them. Starting from this, you better understand why they are the way they are.

According to Kommersant, the vice president presented the proposals for the gaming industry Mail.ru Group Vladimir Gabrielyan. And, if we in the editorial office correctly understood the interpretation of these proposals, they really primarily meet the interests of the Moscow corporation:

• game division Mail.Ru The Group is now preparing to release its game store MY.GAMES Store (isn’t it about him in the documents?);
• more than 70% of MY.GAMES’ revenue comes from foreign markets (it is directly interested in the appearance of tax deductions);
• the company’s portfolio begins to have games for Western brands (there is a question of deductions and a possible desire to get a product under a Western license into the register of domestic software).

The appearance of a gaming lobbyist is wonderful. But at the same time, I would like the wording to be clearer. We will most likely be able to understand how correctly our colleagues from Kommersant transmitted them next week. Deputy Prime Minister Dmitry Chernyshenko ordered the Ministry of Finance to submit a package of measures to the government by November 20.