Federal Law No. 41-FZ “On Precious Metals and Precious Stones” was adopted in March 1998 and it has undergone 25 amendments since that time. The last amendment to Law No. 41-FZ was made through Federal Law No. 607-FZ dated December 29, 2022. Thus, the average ‘lifetime’ of each version of Law No. 41-FZ lasted a little longer than 11 months. It is all the more surprising that the latest amendment to Law No. 41-FZ introduced numerous changes to it, and they were put into force only a year and two months later - from March 1, 2014.
In the first reading of the bill in the State Duma (on September 20, 2022), all amendments were scheduled to come into force no later than March 1, 2023. However, in the version approved at its second reading (three months later), 2023 was replaced by 2024. How many unforeseen things can happen during this time!
We offer an analysis of the key changes in the regulation documents relating to the PMPS sector that are included in the new version of the law and are the most important for market participants.
New law No. 1 - Investment precious metals
At the end of last year, Rough&Polished noted the main problem in the development of the Russian investment market in precious metals - it was a limited liquidity of VAT-free refined precious metals bars due to legal restrictions on their resale that should be exclusively to banks. And now, a decision was made to expand the market of participants in the circulation of VAT-free refined precious metal bars by allowing buying-in centres to buy the bars back, which is basically good.
It should be noted that the refined precious metal bars sold without VAT will be now referred to as investment precious metals according to Law No. 41-FZ that comes into force from March 2024: “investment precious metals, i.e., refined gold, silver, platinum and palladium in bars that are purchased by private persons for personal use and are not intended for use for production purposes, and also comply with the provisions of the national standards of the Russian Federation applied in accordance with Federal Law No. 162-FZ of June 29, 2015 “On Standardization in the Russian Federation”, and with the requirements for investment precious metals established by the Government of the Russian Federation in agreement with the Central Bank of the Russian Federation”.
It is strange to see the phrase “which are purchased by private persons for personal use and are not intended for use for production purposes” in the law. And what might the ‘personal use’ of precious metal bars be? Is it when anyone gives the investment metal to a jeweller to make a piece of jewellery for the metal owner’s use - does this mean a ‘personal use’? It seems so. And on the other hand, is manufacturing a jewellery item by a jeweller to a customer’s order be regarded as the production of a jewellery item or not? It is not clear when you read this law.
Is it possible to take an investment bar abroad or not? Or can it be ‘used’ within the Russian Federation only?
The law allowed selling investment metal to another private person from March 1, 2024. Actually, the way of selling is not clear - for example, is it possible to sell on Avito or not? This permission is, certainly, very good for the development of the precious metal investment market. But will it be possible to sell an investment metal to a legal entity or an individual entrepreneur directly or not? Or is it possible through a buying-up centre or bank only?
The law gives no answer to these questions. However, if you proceed from the rule “everything that is not prohibited is allowed”, the above ways of using the investment metal for citizens should be possible, while observing, of course, the norms of the Civil Code of the Russian Federation and the Customs Code of the RF. However, de facto, a completely different rule works in the Russian PMPS market, that is “only what is allowed in the law and/or by-laws is allowed.” That is, if there is no legally established permission for doing anything, it is prohibited.
There was no direct ban on buying-up refined precious metal bars from the population in the previous version of Law No. 41-FZ, but there was no permission, either. So, in law No. 41-FZ, it was necessary to stipulate the permission for buying-up centres to deal with the citizens’ investment bars. It should be mentioned that this will be allowed in a year and two months only... But it is not allowed to do in 2023!
It was interesting to know how it was supposed to control the ‘personal use’ of investment bars because private persons do not register their property in the SIIS PMPS (State Integrated Information System in the Sphere of Control over the Circulation of Precious Metals and Precious Stones)... Moreover, the situation when a person who is not only a ‘ordinary’ private person, but also a jeweller - an individual entrepreneur - acquires a VAT-free investment metal bar. Can an individual entrepreneur, in principle, use his personal property for production purposes? Sure, he can. The property of an individual entrepreneur and a private person is not differentiated (see case law on this issue in the “Consultant”). At the same time, in letter No. 03-07-05/117715 dated December 1, 2022, the Russian Ministry of Finance clarified that investment bars could be sold to such persons acting in ‘two faces’ (a legal entity and an individual entrepreneur) without restrictions. And this means that a private person who is a jeweller (an individual entrepreneur) has the right to use the investment metal purchased without the VAT as a refined precious metal for his production purposes. However, this use will be considered ‘for purposes other than intended’. If someone, for example, wants to batter down a nail using a microscope (which is clearly the case of using a microscope ‘for purposes other than intended’), will the person be punished for this?
So, what do we face? Ill-fated clauses 2 and 3 of Federal Law 47-FZ prohibiting the use of special tax regimes in the jewellery sector were supposedly introduced to prevent the ‘shift’ of VAT-free precious metals from the investment segment to the production sector, but in fact, this ‘shift’ turned out to be perfectly legal? Or will any punishment will be introduced for an ‘inappropriate’ use of investment bars (i.e., for purposes other than intended)?
And yet, if investors have the right to sell VAT-free refined precious metal bars to other private persons or take them to buying-up centres from March 1, 2024 only, what rights do the owners of these bars have for their ‘personal use’ today, throughout 2023 and two months of 2024? Or do the private persons who have bought refined precious metal bars without the VAT (that are not yet called ‘investment metal’) have no right to use them at all before March 1, 2024? Is it possible to store them, at least?
New law No. 2 - Jewellery artists
At the turn of 2020 and 2021, the standardization groups set up at the relevant department of the Russian Ministry of Finance began the discussion about introducing a term a ‘jewellery artist’. The attitude towards this idea in the jewellery community was ambiguous.
For example, the ‘Jewellers’ Guild of Russia’ Association did not support the granting of a special status by the state to certain individual jewellers as they believed that this idea bore the risks of corruption; and it thought that the distinguishing of a certain part of jewellers among the entire jewellery community would automatically infringe on the interests of other members of the same community. The distinguishing of certain jewellery artists among the general group of jewellers, as it was intended, was supposed to affect not the creative but the economic side of their activities (i.e., on the tax burden) due to extending certain preferences to them.
So, at that stage of ‘improving’ the regulation documents in the jewellery sphere, the idea of distinguishing the jewellery artists was abandoned. At the same time, since the mid-2020s, as part of the ‘regulatory guillotine’, the task group on precious metals and precious stones discussed a large package of amendments to Law No. 41-FZ, in which the ‘jewellery artist’ term was not mentioned (subsequently, this bill heavily amended became Federal Law No. 607-FZ of December 29, 2022). There was no term a ‘jewellery artist’ in the bill version presented for its first reading at the State Duma meeting on September 20, 2022.
All of a sudden for the jewellery community, the term a ‘jewellery artist’ appeared in the draft amendments to law No. 41-FZ only at the second reading, on December 20, 2022, just 9 days before the signing of adopted law No. 607-FZ related to the amendments to law No. 41-FZ. This issue was not discussed by the jewellery community.
So, what a ‘jewellery artist’ is in the wording of Law No. 41-FZ that will come into force on March 1, 2024? The term is defined in the law as follows: “a ‘jewellery artist’ is a private person who carries out independent creative activities on a professional basis, makes jewellery and other items from precious metals and (or) precious stones and has been granted the jewellery artist status according to the procedure established by paragraph 6 of this Federal Law’s Article 10.”
So, this is a jeweller who has been granted such a special status. And here’s how a jeweller can be awarded it:
“6. Recognition of a private person as a jewellery artist is carried out by a committee of the state institution subordinate to the authorized federal executive body at the request of private person according to the procedure established by the Government of the Russian Federation.
A private person applying for the jewellery artist status must meet the following requirements:
continue the traditions and develop new areas of jewellery craftsmanship;
have a history of participating in competitions, exhibitions, reviews, and other cultural events held in the jewellery industry;
have at least three pieces of jewellery that have been assayed and stamped with the state hallmark and are made by a private person using a technique that includes manual labour at the stages of manufacturing and artistic processing of items; that feature a high professional, artistic and technical level of performance and are the implementation of an original author’s idea and artistic conception.
The decision of the committee may be challenged by a private person in a judicial proceeding in accordance with the legislation of the Russian Federation.”
In plain language, the procedure is as follows: a jeweller having a history of participating in competitions and exhibitions (and, probably, won them) should submit an application to the State Commission of the Gokhran (State Precious Metals and Gems Repository of Russia) for assigning the status. And the jeweller waits for the highest decision.
It is logical that in the Internet chats on jewellery, the questions like “who has to pay for a jewellery artist status and how much?” immediately appeared. Okay, let’s suppose that such an impeccable procedure for awarding the jewellery artist status to jewellers can be developed and approved that it will be possible to exclude corruption. Let’s assume that by-laws can establish such a procedure for setting up a State Commission that it will include many experts respected in the community. But the members of the State Commission will be approved by state officials!
What is the real meaning of this new law? Is it aimed at choosing the best jewellers and giving them the right to use this status instead of the general personal income tax (PIT) of 13% only? Is it intended for assigning a state award to these jewellers? Or is it intended just to note their serving the interests of Motherland on a moral level? The adopted law doesn’t give an answer.
But such a measure clearly results in strengthening the state influence on the PMPS sector. With the permission of the officials, only ‘right’ jewellers will have ‘right’ conditions for their activities in Russia. Our industry legislation has become a very ‘perfect’ but completely a non-market one! One can forget about the market competition because an authorized official (not the market) will now determine who is worthy this status and who is not. It is not surprising that this norm was not presented for discussion at the ‘regulatory guillotine’ task group meeting.
By the way, one can also ask a question: what does the case with ‘jewellery artists’ have to do with the Federal Law “On Precious Metals and Precious Stones”? According to common sense, none. This is not an issue related to precious metals and precious stones, it is related to the taxation of economic activity. Federal Law No. 422-FZ dated November 27, 2018 “On Conducting an Experiment to Establish a Special Taxation Scheme - ‘Self-Employment Tax’” has now been extended to the entire Russian Federation. If there is a desire to give jewellers the right to apply a special taxation scheme (self-employment tax), it would be logical to introduce appropriate amendments to this particular law. Although, it does not provide for any state commissions that allow or do not allow the use of this taxation scheme...
Interim results
It should be assumed that the market will receive answers to all the above and other questions (or most of them) within the period established before the rules of the ‘law of intent’ come into force; this can be done through resolutions, decrees, rules, etc. In other words, everything is as it always were in the field of the PMPS in the country, the law is a ‘blank column’ that the Government and the Ministry of Finance of Russia have yet to fill in...
It is not clear, what prevented to adopt Law No. 607-FZ that was intended to amend Law No. 41-FZ in a reduced volume of norms that come into force immediately, and to adopt an updated version of the law (having direct force, if possible) after the completion of detailing all the norms? Or was it very important for the regulator right now to ‘stake out a claim’ for anything for the future?
Vladimir Zboykov for Rough&Polished
