“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.

The new Act, due for enactment on 1 January 2015, amends the Tax Code to include ‘controlled foreign company’, a registered or non-registered entity which is not a Russian tax resident, but is controlled by one.

Controllers are under obligation to report to tax authorities their participation in controlled companies, declare and substantiate undistributed profits of these companies. Minimum profit to be declared will be RUB 50mn in 2015, down to RUB 30mn in 2016, and RUB 10mn after 2017.

The controlling party, according to the Act, is the 50%-plus owner 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.

Starting in 2016, 25% will also be considered a controlling share. This norm is the most important second reading amendment in the Anti-Offshore Act – initially it was proposed to lower the bar from 50% to 25% by 2017.

“This boils down to: where you want to work? A year is quite enough to decide”, deputy Denis Voronenkov, one of the authors of the amendment, told RBC earlier.

The business and the government have prepared amendments to the Act, but they were turned down.

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 starting in 2017. 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, plus the existing tax evasion criminal penalty.

Evgenii Kalyukov

Taxation of financial transactions, Project Group №2, Project Group №3