Member Article

From 1st July 2021, the brand-new national product traceability system in Russia will become mandatory in addition to the already existing Chestny ZNAK. The new system provides for reporting of data on turnover of the selected consumer products directly to the local tax authorities. The system will significantly affect the businesses of the concerned local companies and counterparties of the foreign suppliers.

Development of the NPTS

Russia, as a member-state of the Eurasian Economic Union (Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan, “EAEU”), continues to adopt new traceability requirements according to the Treaty, on the mechanism of traceability of products imported into the customs territory of the Eurasian Economic Union (Nur-Sultan, 2019). Russia implemented, in its national legislation, the relevant international obligations and introduced the mandatory regime of the NPTS, under Federal Law No. 371-FZ dated 9th November 2020.

The NPTS has been working in Russia since 1st July 2019 on a voluntary experimental basis, according to Resolution of the Government of the Russian Federation No. 807, dated 25st June 2019 (“Resolution”). The voluntary regime will last until 30th June 2021. The Russian authorities have considered the experiment to be successful and have therefore made reporting, using the NPTS, mandatory.

Starting from 1st July 2021, taxpayers should report, to the Federal Tax Service of the Russian Federation (“FTS”), information on trade operations, of the products subject to the traceability rules, within the NPTS framework.

Products subject to the NPTS

Although there is no established list of the traceable products that will be applied after 1st July 2021, we recommend referring to the Resolution, which listed the products included in the experiment. Moreover, the Russian Government has drafted a bill with the updated list of such products that we expect to be adopted in the coming days.1 Currently, the bill includes the following products that would be mandatorily traceable:

1. Monitors and projectors, not incorporating televisionreception apparatus; reception apparatus for television, whether or not incorporating radiobroadcast receivers, or sound or video recording, or reproducing apparatus.

The code of the EAEU Foreign Economic Activity Commodity Nomenclature (“EAEU FEACN”): 8528

2. Works trucks, self-propelled, (not fitted with lifting nor handling equipment), for factories, warehouses, seaports, airports for short-distance transport of goods, tractors used on railway station platforms.

The code of the EAEU Foreign Economic Activity Commodity Nomenclature (“EAEU FEACN”): 8709 (except for code of the EAEU FEACN 8709 90 000 0)

3. Baby carriages

The code of the EAEU Foreign Economic Activity Commodity Nomenclature (“EAEU FEACN”): 8715 00 100 0

4. Car baby seats; with metal frames, upholstered or not.

The code of the EAEU Foreign Economic Activity Commodity Nomenclature (“EAEU FEACN”): 9401 71 000 1, 9401 79 000 1

5. Car baby seats; with plastic frames, upholstered or not.

The code of the EAEU Foreign Economic Activity Commodity Nomenclature (“EAEU FEACN”): 9401 80 000 1

It is likely that in the future the Russian Government will expand this list with more products.

Operation principles of the NPTS

The main purposes of the NPTS, provided by the Resolution, are combating counterfeit import and turnover of the concerned products and increasing the collection of customs and tax fees. The FTS will be able to control transactions of traceable products, from the moment they are imported into Russia, until they will be removed from turnover in Russia (e.g., sold to consumers).

Russian legal entities and individual entrepreneurs should ensure assignment of a registration number for each batch of imported products (“RNBP”), inform the FTS about the import of traceable products into Russia, as well as submit reports on their turnover in the local market. Based on this information, the NPTS database will be formed containing information about concerned products and their turnover.

The parties (except for the consumers) to the transactions, involving the products subject to the NPTS, should use the electronic documents’ workflow, set up under Russian requirements, and exchange commercial invoices only via such workflow regarding these products. If the FTS, during desk audit, reveals inconsistencies in the tax declaration of a taxpayer, it may request the commercial invoices and other source documents.

The NPTS and Chestny Znak track & trace system

It should be stressed that the NPTS and Chestny Znak track & trace systems are two independent traceability structures with different operational principles and operators. These systems are not related, nor interchangeable.

The NPTS does not require the fixture of special digital labels on the concerned products, as is the case with the Chestny Znak system. Besides, the NPTS provides for traceability of the batch of the products, and the RNBP will be used for each unit of the batch, while in the Chestny Znak system, each unit should have a unique identification code. Therefore, we understand that compliance with the NPTS rules will be less costly for businesses, since it does not require significant restructuring of the trade operations and retraining of the employees. However, still, every affected taxpayer should ensure the accurate work of the electronic documents’ workflow.

The NPTS will primarily affect organizations importing traceable products into the Russian Federation (including foreign importers in terms of relationships with counterparties). The system will also monitor the actions of participants in trade within the Russian Federation: those who resell, utilize, confiscate, transfer, and export traceable products from the country. Consequently, the national product traceability system will affect, among others, foreign organizations that have subsidiaries in the Russian Federation, or otherwise interact with trade in the Russian Federation. In any case, we recommend starting preparations for mandatory traceability of products in the Russian Federation as soon as possible.

If any of your colleagues would also like to receive our newsletters, please let us know by sending us his/her email address in response to this message. If you would like to learn more about our Commercial Practice, please let us know in reply to this email. We will be glad to provide you with our materials.