Application of fixed asset accelerate depreciation rate
Objectives of accelerated depreciation rate:
Legal optimization of income tax is one of the most important
tax planning tools for any company. However, the tax planning tools shall be
selected very carefully to avoid any potential claims from the tax authorities.
In accordance with Section 7 of Clause 259 of the Russian Tax Code, in case of depreciation of the fixed assets used in severe and/or frequently changing environment a taxpayer may apply specific coefficient to the basic depreciation rate but this coefficient shall not exceed 2. The amounts of additionally accrued depreciation are included in expenditures related to productions and sales (Clause 253 of the Russian Tax Code) and decrease taxable income of a company.
Therefore, the accelerated depreciation of fixed assets is an absolutely legal tax planning tool that allows lawful decreasing of the income tax paid to the tax authorities.
Experience of application of such approaches in large industrial companies shows that up to 80% of the total value of large industrial company’s fixed assets may be recognized as operating in severe and/or frequently changing environment. This is particularly true for power, gas, chemical, petrochemical, iron and steel and machine fabrication plants.
Also it is necessary to consider that the economic benefit from these efforts is not one-time-only but is accumulating every year. A company may refund (offset) overpaid income tax for the last three years and use this tax privilege in the future.
We have hands-on experience in implementation of the projects
connected with confirmation of the right of large industrial companies to apply
the accelerated depreciation rate to fixed assets operating in severe and/or frequently
The implemented projects show not only high efficiency of such efforts but also rather weak capabilities of tax authorities to go against such tax privilege, as well as the sustainable court practice confirming the rights of taxpayers.
- Explanation of the way of application of accelerated depreciation rate for accounting purposes.
- Justification of application of the specific coefficient in tax authorities and in the court.
- Support in exercising of taxpayer’s right to apply a multiplying coefficient and determination of its amount within the limits provided by the law and identification of the fixed assets to which this coefficient is applied.
- Support in avoidance of the claims from supervisory authorities regarding wrongful application of specific coefficients to depreciation rates.
- Support in exercising of right to accelerated depreciation of fixed assets.