RS In our opinion Forgotten accounting or should companies pay for environmental damage?

Forgotten accounting or should companies pay for environmental damage?

March 2013

Although Russian legislators constantly try to unify payments to budget, at the end of the second decade since the tax reform started it is still impossible to use the Tax Code only. There is still a number of payments, which are not specified in the Russian Tax Code but have to be transferred to the budget and be accounted for. One of such payments is a payment for adverse impact on the environment. Its validity was confirmed by the Constitutional Court and non-payers are substantially fined

Some legal background

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When it comes to payment for adverse impact on the environment (or how accountants often call it – “trash payments”) we have to put aside the familiar Tax Code – it says nothing about such payments. To calculate the “trash payment” correctly we have to study other regulation documents, namely: two Federal Laws – No. 7FZ “On Environment Protection” dated January 10, 2002 and No. 89FZ – “On Production and Consumption Waste” dated June 24, 1998. And to find out the penalty for the ones who fail to pay or to make respective statements, we have to consult the Administrative Offences Code of the Russian Federation, too.

Since we talk about responsibility, it should be noted that payments for adverse impact on the environment are supervised not by tax administration but by a specialised authority - Federal Service for Supervision of Natural Resource Usage (or Rosprirodnadzor). It is Rosprirodnadzor that prepares accounting forms and procedures, they also control accounting filing and payment terms. Still, there is a certain peculiarity to be noted. Rosprirodnadzor was assigned the authority to control such payments only in the middle of 2010. Before this, these functions were attributed to another Federal service – Rostechnadzor. And the latter still issues documents, which specify procedure for statements.

Who is responsible?

So, who should account for “trash”?

Formal answer to this question can be found in “Procedure for Calculation of Payment for Adverse Impact on the Environment” approved by Rostechnadzor’s Decree No. 204. According to this document, the payment calculation is made by companies engaged in the following types of adverse impact: release of pollutants into the air, discharge of pollutants into surface or underground water bodies, disposal of industrial and consumer waste.

As we can see, the legislation specifies three impact types, which have to be accounted for – these are release, discharge and disposal. Let us see what it means for companies in their everyday life. We are going to consider three common situations.

The first situation is rent of office or other premises. In this case, all garbage and other waste are usually discarded by the tenant into trash containers of the landlord. This condition is often specified in lease contracts. Moreover, landlord’s obligations sometimes include collection of such waste from leased premises – then waste collection is often assigned to a cleaning company hired by the landlord.

What does it mean in relation to “waste payments”? It means that the tenant itself does not dispose of any waste! Consequently, the tenant is not held responsible for making payments or accounting to Rosprirodnadzor. Legal grounds of such situation are simple: according to the law, payment for waste disposal shall be made by its owner. And in the above case the waste, according to the applicable contract, is placed in containers, which are not owned by the tenant. So, the tenant bears no responsibility for making payment for such waste (Rostechnadzor Letter No. 04-09/169 dated February 12, 2007).

Now let us consider another situation – the case when a company owns the office or other premises where it is situated or leases these premises. In this case garbage and other consumer waste are placed in specialised containers. Then the waste is removed by a specialised organisation based on a waste removal and disposal contract. In this case the party responsible for accounting and payments for adverse impact on the environment is directly defined by terms of the contract with such waste disposal organisation.

Hence, if under such contract the waste disposal organisation grants the use of such container to the premises’ owner and then takes it and transports it to a junkyard, landfill or other site, which does not belong to the premises’ owner, then the waste is considered to be discharged not by the premises’ owner but by such specialised organisation. Thus, the owner does not have to make payments or account for such waste to Rosprirodnadzor. Such is the opinion of Supreme Arbitration Court (e.g. Ruling of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 14561/08 dated March 17, 2009, No. 4433/10 dated July 20, 2010 and No. 1752/11 dated July 12, 2011).

It is advisable to include in the contract a condition, which directly specifies that ownership right for the waste is assigned to the specialised organisation; this will provide an extra guarantee and protect the premises owner from disputes on who legally owns the waste in the containers of the specialised organisation (Rostechnadzor Letter No. 04-09/455 dated April 27, 2007).

The last but not the least, a very common situation when a company uses vehicles in the course of its business. This is, finally, the case when the company is responsible to make payments and account for adverse impact on the environment. It does not matter in this respect, whether the company uses its own transport or rents (leases) it. In all mentioned cases calculation of “trash payments” is required.

It is worth mentioning that calculation of such payments requires knowledge in mathematics and nature science. The case is that to make such payment calculation one has first to define the amount of fuel consumed by a vehicle and then multiply this amount by the rate and special coefficient specified in the budget law. It seems easy enough, but there is a certain issue: calculation of consumed fuel is made in tonnes, not in liters! So liters have to be converted into tonnes. And now we are up for another surprise – you have to know the density of gasoline to make the conversion and this value is not constant, it depends on ambient temperature – it is lower in summer and higher in winter. Thus, the density of gasoline can vary within 740-775 kg per tonne. Consequently, the number of liters per tonne is defined by dividing the gasoline’s density by 1 million and raising the fraction to -1 power. For instance, one tonne of gasoline with density 740 contains 1,351 liters and one tonne of gasoline with density 775 – 1,290 liters.

The payment rate for adverse impact on the environment was approved as early as in 2005 by Decree of the Government of the Russian Federation No. 410 dated July 1, 2005 and depends on the type of fuel consumed by vehicle. The rate for gasoline, for example, is 1.3 rubles per tonne and for diesel fuel it is 2.5 rubles. Moreover, these rates are annually adjusted by a special coefficient. For instance, in 2012 it made 2.05 (Federal Law dated November 30, 2011 No. 371-FZ) and in 2013 it makes 2.2 (Federal Law dated December 3, 2012 No. 216-FZ).

Hence, companies using vehicles are responsible not only for calculation and making payments but also for filing the respective statement to Rosprirodnadzor. Quarterly, not later than on 20th day of the month following the ended accounting quarter they have to file their calculation made according to the procedure approved by Decree of Federal Service for Ecological, Technological and Atomic Supervision No. 204 dated April 5, 2007 (see Letter of Rostechnadzor No. 04-09/1037 dated August 2, 2007).

Legal Liability

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To conclude our review of the “trash payment” situation for ordinary office companies, we shall say a few words about legal liability. Similar to the tax liability, the “trash payment” liability is specified both for failure to pay (or timely pay) and for failure to provide (or timely provide) accounting.

But the penalty amount here is quite substantial, unlike tax penalties. Thus, failure to provide or timely provide accounting to Rosprirodnadzor is fined under Article 8.1 of the Administrative Offences Code of the Russian Federation and this fine for legal entities is 20 000-100 000 rubles!

Penalty for failure to make ‘trash payments” is also quite high: 50 000 -100 000 rubles (according to Article 8.41 of the Administrative Offences Code of the Russian Federation).

Alexey Kraynev, lawyer RS