Taxation problems of professional participants on securities market

Individuals and legal entities who enter into economic relations with respect to the transfer of rights to securities may become participants in the securities market.

Aspects of securities taxation are disclosed in the second part of the Tax Code of the Russian Federation. In this article we will consider the taxation of physical person’s income according to Chapter 23 of the Tax Code "Personal Income Tax". An extensive set of regulations relating to the financial market begins with article 213 "Special Considerations Relating to the Determination of the Tax Base Under Insurance Agreements" and ends with article 226.1 "Special Considerations Relating to the Calculation and Payment of Tax by Tax Agents in the Context of Securities Transactions and Transactions Involving Derivative Financial Instruments and with Respect to Payments on Securities of Russian Issuers".

Professional market participants, organizers of trade, exchange market, as well as managers of companies and clearing organizations — Central counterparties have the right to reduce the overall tax base for losses on operations with non-refundable securities and financial instruments transactions.

Along with that, taxpayers have the right to reduce the tax base for operations with non-refundable securities and financial instruments transactions for losses sustained in the formation of common tax base [3, p. 22].

However, from January 1, 2016, the said order is not applicable to transactions that are not recognized as controlled in accordance with sec. V. 1 of the Tax Code, but the actual price of these transactions is taken into account for tax purposes.

The tax base is determined by the date of securities sale and the date of receipt of the variation margin on urgent market. Many participants of securities market don’t like this point because they would like to pay tax at the time of withdrawal. However, the legislation recognizes the fact of sale or calculation of variation margin (on traders slang "variation") as the moment of calculation of the tax.

Let's make the summary table that can be used by a private investor for calculation of tax burden at the planned operations in the securities market.

Table 1

Tax rates on operations in the stock market for private investors

Type of income from operations in the securities market	Category of taxpayers	Tax rate, %
Income from operations with securities	residents	13
Dividends	residents	9
Income from securities transactions	non-residents	30
Dividends	non-residents	15
Investment tax deductions for holding securities for 3 years or more	residents	0
Individual investment accounts (type А)	residents	13
Individual investment accounts (type B) *	residents	0
Securities of Russian companies, the rights which are accounted on the deposit account of a foreign nominee holder, on the deposit account of a foreign authorized holder	residents and non-residents	30
Interest on government securities (Federal and regional), municipal securities	residents and non-residents	0

Source: made by the author

When trying to determine correctly financial results for tax purposes, we often face a number of problems. The Tax Code of the Russian Federation contains definitions of certain types of financial instruments of urgent transactions, in respect of which there is a taxation procedure. However, the list of financial instruments of urgent transactions for legal entities (Art. 301 of the Tax Code) compared to those for individuals is wider and far from exhaustive due to the variety of urgent market instruments [7].

It should be noted that nowadays the procedure of urgent transactions taxation made by individuals has a number of restrictions, in contrast to the rules established for legal entities.

Among the existing problems we can identify 2 main problems:

• 1.    Until recently, the Tax Code for physical persons established the taxation procedure only in respect of fixed-term contracts, which were based on securities. Recently, stock indexes were added to the Federal Law No. 216-FZ in article 214.1. However, Chapter 23 of the Tax Code of the Russian Federation does not provide the procedure of taxation of operations with financial instruments of urgent transactions, if the underlying assets are not securities or indexes, but other objects - foreign currency, interest rates, etc.

• 2.    According to the Tax Code of the Russian Federation on operations with financial instruments of futures transactions concluded by individuals with the aim of hedging (insurance of risks of changes in the price of the basic asset), the income (received from them) increase and losses reduce the tax base for

In practice, individuals are ready to work with many instruments of urgent transactions: on the securities exchange - with shares and indices, on the money market - with credit rates and foreign currency, on the commodity market - with contracts for oil (UR-7.06) and gold (GOLD 7,06). For physical persons is almost impossible to carry out operations with these instruments because of uncertainty of taxation order.

Thus, the list of financial instruments of urgent transactions noted in article 214.1 of the Tax Code still requires the expansion of the underlying asset of financial instruments of urgent transactions.

operations with the underlying asset. Thus, the tax base for hedging transactions is determined by the balance (addition) of income (loss).

Taxation of securities market entities has not yet been carried out on the basis of a systematic approach. There are problems in the implementation of some documents in terms of taxation of the securities market, there is no forecast and accounting of consequences of introduction, change or cancellation of certain taxes for securities market participants, there is a differentiation of taxation depending on the type of market dealers.

All this allows suggesting that because of lack of a systematic approach to the organization of taxation of securities market participants, the regulatory function of taxes in this area is little used in the practical activities of public authorities, it also has not been duly reflected in the current legislation and legal science [5].

At present, there are several ways for professional securities market participants to save on taxes:

• -    To make investments in the stock market more attractive, the state has decided to introduce tax benefits for market participants. Since January 1, 2015, investors have been able to open so-called individual investment accounts;

• -    In 2017, a bill was been considered under which coupons of a number of bonds are not subject to personal income tax (article 217, paragraph 25 of the Tax Code). Now coupons on Federal loan bonds, state and municipal, as well as sub-Federal bonds for individuals are not taxed. By purchasing these instruments, you will not pay 13% of coupon income.

In addition, the Finance Ministry has prepared draft amendments to Chapter 23 of the Tax Code of the Russian Federation of the exemption of citizens from payment of personal income tax on ruble corporate bonds. Along with this, it is proposed to levy the personal income tax at the rate of 35% if the amount of interest payment exceeds the amount of interest calculated on the basis of the nominal value of the bond and the Central Bank rate increased by 5 percentage points acting during the period for which the coupon income was paid;

• -    It is also possible to obtain a tax deduction in the presence of the taxpayer's losses on transactions with securities or financial instruments of urgent transactions. The amount of tax deductions is calculated based on the amount of losses received by the taxpayer in the previous tax periods (within 10 years counting from the tax period for which the tax base is determined). A taxpayer may take into consideration a resulting loss within 10 years following the year of its receipt. At the same time, if losses were incurred more than in one period, their transfer to future periods is made in that priority in which they are incurred [6].

Thus, the problems of taxation of securities market participants are quite relevant today.

In connection with developing nature of the Russian securities market, the legislation in terms of taxation rules in transactions with securities is constantly being improved. In the medium term, it is expected to solve some problems related to the taxation of profits in transactions with securities by organizations.

Thus, the Russian tax legislation has long set the task of improving and increasing the efficiency of tax rules for professional participants in the securities market. The world market shows how efficiently the securities markets can generate income and how effectively they can stimulate the economy of a single country. Legislative norms and changes in the Russian Federation should improve tax collection laws and at the same time satisfy interests of professional participants in the securities market in order to increase the income received in the budget of the country and stimulate economic activity in the securities market. [4, p. 317]