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Anti-Offshore Bill Introduced to Duma

23.10.2014 12:17 / RBC

Authors of Tax Code drafts propose a new tax regimen for profits generated by foreign companies controlled by Russians.

“The key aim of the bill is establishing an effective mechanism banning the use of low tax offshore jurisdictions to create unjustified preferences and tax benefits”, reads the bill memo on the State Duma website.

Draft authors propose to introduce ‘controlled foreign company’ to the Tax Code, to define a non-resident company or structure that is controlled by a Russian tax resident.

The controlling party, according to the bill, is the 25%-plus owner (until 2017 года – 50%-plus) of the company, as well as Russians who along with their spouses and children own over 10% in a company that Russian tax residents own more than a half of. Similar rules apply to companies part-owning foreign companies.

If the bill passes, the controlling persons will be under obligation to report their participation in controlled companies capital to the tax authorities, as well as declare and show proof of retained profit generated by these companies.

“Foreign company profit is part of the tax base of the controller according to his share in the controlled foreign company”, reads the draft. Still, the profit must be over RUB 10 mn to form part of the base for corporate profit tax or individual’s income tax.

Failure to present financial reports of the controlled foreign company to the tax authorities along with the tax declaration is punishable by a RUB 100k fine. Non-payment or incomplete payment of the tax resulting from omission of the controlled foreign company profit from the tax base is punishable by a fine of 20% off the unpaid tax amount or a minimum of RUB 100k.

Non-declaration of a controlled foreign company is punishable by a RUB 100k fine per each company.

The bill also introduces the notion of tax residence for companies. Companies de facto managed from Russia will also be Russia’s tax residents, along with companies registered according to Russian law. Besides, foreign companies will be offered an option to willingly become Russian tax residents, which means ‘controlled foreign company’ status is no longer applicable.

Evgenii Kalyukov

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