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Monitoring of the Federal Legislation dated 30.06.2006

Decision of the Government of the Russian Federation No. 398 of June 29, 2006 on the Labelling of Alcoholic Products Imported to the Customs Territory of the Russian Federation until March 31, 2006 Inclusive and Labelled with Excise Duty Stamps Issued until December 31, 2005 Inclusive

Circulation of the mentioned alcoholic items is permitted on the territory of the Russian Federation if labelled with excise duty stamps in compliance with the Decision of the Government of the Russian Federation No. 786 of December 21, 2005 and entry of information in the Joint State Automatic Information System of registration of the volume of production and circulation of ethyl alcohol, alcoholic and alcohol-containing products.

Importers of alcoholic products must take the inventory as of June 30, 2006 and draw up inventory sheets indicating the type, name, quantity of alcoholic products, series numbers of excise duty stamps used to label the given alcoholic products and the numbers of cargo customs declarations used to declare the alcoholic products.

When getting excise duty stamps in the customs bodies at the place of its state registration, the organisation shall assume obligation to use the purchased excise duty stamps until December 29, 2006 inclusive for their designated purposes. In case of a failure to fulfil the obligation, the amount of the backing is transferred to the federal budget in proportion to the number of excise duty stamps where the obligation is not fulfilled.

The Decision provides the form of the application for the issue of excise duty stamps.

The Decision is entered into force from the day of its official publication.

Letter of the Federal Tax Service No. ShT-6-03/644@ of June 27, 2006 on the Application of the 10% VAT Rate in the Sale of Medical Items and Medicines

Reports information of the explanations of the Ministry of Finance of Russia pertaining to the procedure of taxation with the value added tax of operations of sale of items of medical destination and medicines.

From January 1, 2002, taxation of medicines including medicinal substances, those made in the apothecary, in particular, and items of medical destination is arranged using the VAT rate of 10%, the codes of the above products being defined by the Government of the Russian Federation.

Since appropriate decision has not been taken until now, in taxation of the mentioned operations, one should be guided by OKP codes listed in the Letter of the State Tax Service of Russia and the Ministry of Finance of Russia Nos. VZ-4-03/31n, 03-04-07 of April 10, 1996 on the procedure for exemption of medical items from the value added tax.

Commodities listed in the All-Russia Classifier of Products OK 005-93 under the Heading 940000 "Medical Equipment" and not included in the Decision of the Government of the Russian Federation No. 19 of January 17, 2002 (not included are medical syringes, sun-protecting glasses, frames, and sight-correction lenses) are subject to the tax rate of 20% (the tax rate of 20% was used before January 1, 2004, from January 1, 2004, 18% VAT rate applies).

Letter of the Department of the Tax and Customs Tariff Policy of the Ministry of Finance of the Russian Federation No. 03-03-04/2/162 of June 1, 2006

Since the works of the communication operator to connect the optical fibre communication channel are not being communication services, they may not be taken into account in the determination of the taxable base for the profit tax from organisations as expenses of communication services, however, they are taken into account as other expenses pertaining to production and/or sale on condition that the given data transfer channel is arranged to provide for the taxpayer activities, with expenses of connection to it being confirmed with documents.

Expenses to pay for the works to lay the cable and install additional equipment are those of capital nature, therefore, their cost may be written off as expenses for the profit taxation purposes using the mechanism of amortisation. One should keep in mind that the writing off of the mentioned works as expenses is not permitted if the cable and equipment are preserved in the property of the communication operator.

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