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Tax Alert - Russian CFC Rules

 

TAX ALERT

The Russian Ministry of Finance has proceed to publish a bill targeting regulation related to the CFCs or the Controlled Foreign Companies, tax matters of entities and the tax consequences of disposition of immovable property. The bill aims to regulate this area of the law for which in the past has been the center of attention of local media as a means to crack down on money laundering and illicit transactions.

 

What follows is an informal translation of the text of the bill as published by the Ministry of Finance:

 

 

 

 

Project

3/18/2014

Federal law

To amend the first and second part of the tax code of the Russian Federation (concerning the taxation of controlled foreign companies and increase the efficiency of tax administration for foreign organizations)

 

 

Article 1

The first part of the tax code of the Russian Federation the following changes:

1) section II complete chapter 34 to read as follows:

Chapter 34.Controlled foreign companies

Article 2513. Controlled foreign company and controlling persons

1. for the purposes of this code, the controlled foreign company, unless otherwise provided for in paragraph 2 of this article, recognized foreign organization that meets during any period commencing or ending in the calendar year, at the same time all of the following conditions:

1) organization is not considered a tax resident of the Russian Federation in accordance with the present code or by an international treaty (Agreement) in the field of taxation;

2) organization is a resident of the State (territory) in the Ministry of Finance of the Russian Federation approved the list of the States and territories providing preferential taxation of profits (incomes);

3) supervisory officials of the Organization are the Organization and (or) individuals, recognized tax residents of the Russian Federation in accordance with the present code or by an international treaty (Agreement) in the field of taxation;

4) rally organizations not listed and (or) were not admitted to trading on one or more stock exchanges on the list approved by the Central Bank of the Russian Federation on agreement with the Ministry of Finance of the Russian Federation in accordance with subparagraph 1 of paragraph 21 article 310 of the criminal code.

2. for the purposes of this code, the controlled foreign company also recognized the structure (in particular, the Fund, partnership, Association, another form of collective investment), established in accordance with the legislation of the foreign State (territory) in the Ministry of Finance of the Russian Federation approved the list of the States and territories providing preferential taxation of profits (incomes) without formation of the legal person, in accordance with its personal law shall have the right to engage in entrepreneurial activitythe income (profits) for the benefit of their stakeholders (shareholders, clients, beneficiaries and other persons), controlling persons of organizations and/or individuals, recognized tax residents of the Russian Federation in accordance with the present code or by an international treaty (Agreement) in the field of taxation.

3. for the purposes of this code, the controlling entity of the Organization (including the structure, established in accordance with the legislation of the foreign State, referred to in paragraph 2 of this article) is a person who, alone or jointly with other persons controlled by the Organization (structure, established in accordance with the legislation of the foreign State specified in paragraph 2 of this article).

Exercise control over the Organization for the purpose of this Code is to provide or to have a determining influence on the decisions taken by the Organization in respect of a distribution received by the profit (income) after tax because of direct or indirect participation in such an organization, participation in the contract (Agreement), the subject of which is the management of the Organization, or other features of the relations between the individual and the Organization, and (or) other persons.

Control over the structure, established in accordance with the legislation of the foreign State specified in paragraph 2 of this article, for the purpose of this Code is to provide or to have a determining influence on the decision taken by the person exercising asset management structure regarding the distribution of profits (income) after tax between parties (beneficiaries, shareholders, trustees or other persons) by virtue of the legislation of the foreign State or of a treaty.

The controlling officer of the Organization, in particular, recognizes an individual, whose direct or indirect involvement in organizing jointly with your spouse and/or minor children, as well as other persons (taking into account the characteristics of the relationship of this person and other persons), representing more than 10 per cent.

3. a person has the right to recognize a controlling person of the Organization (structure, established in accordance with the legislation of the foreign State specified in paragraph 2 of this article).

Article 2514. Notification of participation of foreign organizations

1. taxpayers recognized tax residents of the Russian Federation are required to submit to the tax authority a notice about his participation in a foreign organization in accordance with the procedure laid down in this article (hereinafter referred to as notice of participation of foreign organizations).

2. notification of the participation of foreign organizations appear to be taxpayers, recognized tax residents of the Russian Federation, in respect of:

foreign organizations that are tax residents of the State (territory) in the Ministry of Finance of the Russian Federation approved the list of the States and territories providing preferential tax, as well as foreign organizations, for which no data on State (territory) on their tax residency, if the share of direct or indirect participation of the taxpayer in these organizations is not less than 1 per cent, as well as for foreign organizationsfor which the taxpayer is the controlling person.

structures (in particular, funds, partnerships, associations, other forms of collective investment), established in accordance with the legislation of the foreign State (territory) in the Ministry of Finance of the Russian Federation approved the list of the States and territories providing preferential tax treatment, without formation of the legal person, in accordance with its personal law shall have the right to carry out business activities for profit (profit) for the benefit of their stakeholders (shareholders, clients, beneficiaries and other persons)If the taxpayer is a person having the actual right to income (profit) of this structure in the case of distribution, or is the controlling entity of this structure.

3. notification of participation in a foreign organization is submitted not later than 20 days from the date of the cause of such a notification in accordance with paragraph 2 of this article.

If in a calendar year taxpayer's share of the foreign organization has not changed or the grounds for the notice originated before the beginning of the calendar year, notification of participation in a foreign organization is submitted no later than 1 March of the year following the end of the calendar year.

4. taxpayers are notified on the participation of foreign organizations in the tax authority at the place of their location (place of residence). Taxpayers, classified in accordance witharticle 83 of this code, the largest, are notified about the participation of foreign organizations in the tax authority at the place of their recognition as the largest taxpayers.

Notification of foreign organizations shall be submitted to the tax authority the taxpayers-organizations, according to the established forms (formats) in electronic form.

Taxpayers-individuals shall have the right to submit the notice on paper.

Form (formats) of controlled foreign companies, as well as how to fill out the form and procedure for the submission of notifications of controlled foreign companies in electronic form shall be approved by the federal executive body responsible for control and supervision in the field of taxes and charges, in agreement with the Ministry of Finance of the Russian Federation.

5. the information contained in the notification on the participation of foreign organizations, must contain the following information:

1) period for which presented information on the participation of foreign organizations, or the date of the reason for the notification;

2) the name of the foreign organization (structure) in respect of which a notification has been submitted;

3) the registration number (s) assigned to a foreign organization in the State (territory) of its registration (incorporation), code (s) of a foreign organization in the State (territory) of its registration (incorporation) (or their equivalent), if any;

4) the date of the financial statements of a foreign organization under the personal law of the company;

5) the date of the audit opinion on the financial statements of a foreign entity (in the case of compulsory audit in accordance with the law of that organization);

6) share of the taxpayer in a foreign organization, disclosure of the taxpayer in a foreign organization with indirect involvement;

7) a description of the grounds for recognition of the taxpayer's controlling entity controlled foreign company, in the case of the notification of such persons.

6. in the case of incomplete information, inaccuracies or errors in filling out the notice on the participation of foreign organizations, the taxpayer has the right to submit a revised notification.

Article 2515. The profits of controlled foreign corporation

1. profits of controlled foreign company for the purposes of this Code recognizes this company's profit, calculated in accordance with Chapter 25 of part two of this code shall be reduced by the amount of dividends paid by the profits.

2. amount of profit each controlled foreign company should be documented financial reporting such a controlled foreign company during the relevant period (s) and other documents.

3. for the purposes of this code, the profits of controlled foreign company, expressed in foreign currency shall be converted to LCY using the official exchange rate of foreign currency to the Russian ruble, the Central Bank of the Russian Federation, on the last day of the calendar year.

Article 2516. The accounting treatment of revenue controlled by a foreign company in the taxation

1. the profits of controlled foreign company is taken into account in determining the tax base for taxation for taxpayers, by oversee recognized this controlled foreign company in accordance with chapters of part two of this code, taking into account the characteristics laid down in this article.

2. the profits of controlled foreign company is taken into account in determining the tax base of the taxpayer's controlling person in the proportion corresponding to the share of that person's participation in the foreign-controlled companies, as well as the period during which the taxpayer is the controlling entity of the controlled foreign company, if the duration of such period is less than the tax period.

If it is not possible to determine a taxpayer's participating interest is controlling person in the controlled foreign company profits of the controlled foreign company is taken into account in determining the tax base of the taxpayer in full.

3. in the case if the taxpayer is a controlling person indirectly controlled foreign company and such participation takes place through organizations that are the controlling persons of the controlled foreign company and recognized tax residents of the Russian Federation, the profits of the controlled foreign company, considered in determining a taxpayer's tax base is reduced by the amount of profit recorded in the taxation of other controlling persons, through which the indirect participation of such persons in supervisory-controlled foreign companythe proportion in proportion to participation such as supervisory entity in the Organization through which the indirect participation of the controlled foreign company.

Provision of information on the profits of controlled foreign companies registered in determining the tax base for taxpayers-controlling persons, through which the indirect participation of the controlled foreign company, for the purpose of this paragraph is carried out in accordance with the agreement between the taxpayer and the person in control of the foreign-controlled companies and organization, through which it is indirectly involved in the controlled foreign company.

5. the taxpayer is a controlling person is tax deductible in determining the tax base on which the profit is controlled by a foreign company, the person with the following documents:

1) financial statements of foreign-controlled companies;

2), the auditor's report on financial statements of controlled foreign company, specified in item 1 of this paragraph, if, in accordance with the personal law of the controlled foreign company established mandatory audit of the financial statements.

6. documents (copies), referred to in paragraph 5 of this article, drawn up in a foreign language, should be legalized in the established order and translated into Russian language.

If you cannot view the audit opinion on the financial statements at the same time as the tax declaration in accordance with paragraph 5 of this article, the audit report is submitted not later than one month from the date of notification, as reflected in the foreign-controlled companies, as the date of the audit opinion on the financial statements.

7. when dividends controlled foreign company, the actual recipient is a person, recognized a tax resident of the Russian Federation, through retained earnings of previous years tax base for the income tax, which takes into account such person received dividends shall be reduced in proportion to the participation of such a person controlled by a foreign company in the amount of profit a foreign-controlled company earlier counted when determining the tax base for the income tax of that person. ";

2) item 5 of article 31 Add new paragraph 4 to read as follows:

"the taxpayer is a foreign organization (with the exception of the international organizations, diplomatic mission), not acting on the territory of the Russian Federation through a separate subdivision, to the tax authority the address for sending the documents referred to in this paragraph, as contained in the unified State Register of taxpayers;";

3 paragraph 2 of article 88) complement the second paragraph to read as follows:

"If the tax return (calculation) is not provided by the taxpayer to the tax authority within the prescribed time-limit, authorized officials of the tax authority has the right to kameral′nuû a tax audit on the basis of existing documents (information) on the taxpayer, as well as data on other similar tax payers within three months from the date of expiry of the deadline for submission of the tax return (calculation), established by the legislation on taxes and fees."

4) in paragraph 5 of article 100:

a) first paragraph, after the words "(his representative)" add the words ", except where otherwise provided for by this paragraph"

b) add a new paragraph to read as follows:

"The Act of a tax audit is a foreign organization (with the exception of the international organizations, diplomatic mission), not acting on the territory of the Russian Federation through a separate subdivision, by certified mail to the address contained in the unified State Register of taxpayers. The date of service of this Act, is considered to be the sixth day of the date of sending of a registered letter. ";

5) the first paragraph of article 122, paragraph 1 shall be amended as follows:

"1. the non-payment or incomplete payment of amounts of tax (collection) as a result of the reduction of the tax base, an incorrect calculation of the tax (collection) or other illegal actions (inactivity), if such Act does not contain evidence of tax offences referred to in articles3 and 129 1295 of this code;

6) article 126:

(a) the first paragraph of paragraph 1) shall be amended as follows:

' 1. failure to submit on time tax payer (payer collection, tax agent) to the tax authorities the documents and (or) any other information stipulated by this code and other legislative acts on taxes and fees, if such Act does not contain evidence of tax offences provided for inarticles 119,1294and 1296 of this code, as well as paragraph 11 of this section, ";

b) 1 shall be amended with paragraph1 to read as follows:

«11. Failure to submit information to the tax authority, under paragraph 3 of article 2516 of this code by the refusal of the supervisory entity to submit documents, as well as a failure to provide such documents or documents with the notoriously unreliable information,

results in recovery of fines from supervisory entity of 100000 rubles;

9) supplemented by articles5 and 129 1296 ., to read:

«Article 1295. Non-payment or incomplete payment of amounts of tax as a result of the non-inclusion in the tax base of foreign-controlled company profit share

Non-payment or incomplete payment of the monitoring by a person who is a taxpayer-physical person or the amounts of tax as a result of the non-inclusion in the tax base of foreign-controlled companies, profits

results in recovery of a fine of 20% of the profits of controlled foreign company to be included in the tax base for personal income tax for the controlling persons of taxpayers-individuals, the tax base for income tax of organizations for control of taxpayers-organizations, but not less than 100000 rubles.

Article 1296. Wrongful failure to submit notification on controlled foreign companies, the submission of incorrect information in a notification on controlled foreign companies

Wrongful failure to file within the prescribed period the controlling entity in the tax authority notices on controlled foreign companies for a calendar year, or controlling person in the tax authority notices on controlled foreign companies containing inaccurate information results in recovery of a fine of $ 100000 for each controlled foreign company, the details of which were not represented.

Article 2.

Made to Chapter 23 part two of the tax code of the Russian Federation the following changes:

1 article 208, paragraph 3) to supplement subparagraph 81 read as follows:

«81) sums of profits of controlled foreign company-for individuals recognized in accordance with the present code by the controlling company; ";

2 para 3 of article 210) complement the entry reading:

"The determination of the tax base in accordance with this paragraph shall be reduced by the amount of tax deductions, provided for in articles 218 to 221 of the present Code, the proceeds of the supervisory entity in the form of profits the foreign-controlled company.";

3) Article 223 shall be amended with paragraph 5 to read as follows:

"5. For income in the form of foreign-controlled company profits amount date actual income is the last day of the tax period for income tax of organizations for which revenue is determined by the controlled foreign company".

Article 3.

Made to chapter 25 of part two of the tax code of the Russian Federation the following changes:

1) article 246 supplement paragraphs 5-6 as follows:

"5. for the purposes of this chapter to the Russian organizations are foreign organizations that are tax residents of the Russian Federation.

6. Organizations-tax residents of the Russian Federation for the purposes of this Code, the following organizations are recognized:

1) Russian organizations;

2) foreign organization recognized tax residents of the Russian Federation in accordance with an international treaty (Agreement) in the field of taxation;

3) foreign organization, a place of actual management which is the Russian Federation.

The place of actual management of a foreign organization is recognized by the Russian Federation, if any the following conditions:

meetings of the Board of Directors (the governing body of the Organization) are carried out on the territory of the Russian Federation;

guideline for the management of the Organization are generally accessed by the Russian Federation;

main (top) officials of the Organization carry out its activities in the Russian Federation;

accounting organization in the Russian Federation;

the files are stored in the Russian Federation.

Unless otherwise provided by an international agreement (the agreement) of the Russian Federation, foreign organization is entitled to plead a tax resident of the Russian Federation. "

2 250) article 24 shall be amended with paragraph read as follows:

«24) as a foreign company controlled by profit-for organizations recognized in accordance with the present code by controlling this foreign company. ";

3 article 4 para. 271) to supplement paragraph 12 to read as follows:

«12) date of receipt of income in the form of profit-controlled foreign company is 31 December of the calendar year for which is determined by the amount of profit a foreign-controlled company. ";

4 para 1 of article 273), after the words "MFIs", add the words "organizations recognized in accordance with the present code by controlling entities controlled by foreign companies.

5) Article 274 shall be amended with paragraph 21 read as follows:

«21. the tax base is determined by controlling the profits of foreign companies controlled by them, shall be reduced by the amount of the costs of other activities, as well as losses from other activities of such persons. ";

6) second paragraph of article 278, paragraph 11 shall be supplemented with the words "as well as the revenues of the consolidated Group of taxpayers who are controlling entities controlled by foreign companies, in the form of profits by foreign companies controlled by them;

7 para 1 of article 283), after the word "2681," add the words "274";

8) in article 284:

a) seventh paragraph of paragraph 1 shall be amended as follows:

The provisions of this paragraph shall not apply:

taxpayers referred to in paragraph 1 of article 2752 of this code, in the calculation of the tax base for activities associated with the production of hydrocarbons at the new offshore field of hydrocarbons;

in the calculation of the tax base of taxpayers-controlling individuals on profits of foreign companies controlled by them. ";

b) 1 shall be amended with paragraph6 to read as follows:

«16. To the tax base determined by the taxpayers-controlling individuals on income support in the form of profits by foreign companies under their control, the tax rate is set at 20 per cent;

9) in paragraph 2 of article 2841 the words "paragraphs 3 and 4" should be replaced by "paragraphs 16, 3 and 4.

10) subparagraph 5 of paragraph 1 of article 309 shall be amended as follows:

«5) income from the sale of stocks (shares) of more than 50 per cent of organizations whose assets directly or indirectly consists of immovable property situated in the territory of the Russian Federation, as well as financial instruments derived from stocks (shares), excluding shares traded on recognized in the organized securities market in accordance with paragraph 9 of article 280 of the code. The income from sales on foreign markets (foreign trade organizers) of securities or their derivatives financial instruments traded on these exchanges do not recognize income from sources in the Russian Federation ";

Article 4

Made to chapter 261 of part two of the tax code of the Russian Federation the following changes:

Article 346) 11:

a) in paragraph 3 the words "paragraphs 3 and 4 of article 284 of the code" should be replaced by "paragraphs 16, 3 and 4 of article 284 of the code;

b) paragraph 4 after the words "tax agents" add the words ", as well as the responsibilities of the controlling persons of controlled foreign companies";

2) in the sixth indent of paragraph 1 of article 3465 the words "paragraphs 3 and 4 of article 284 of the code" should be replaced by "paragraphs 16, 3 and 4 of article 284 of the code".

Article 5

Made to chapter 262 part two of the tax code of the Russian Federation the following changes:

1) in article 34611:

a) in paragraph 2, the words "paragraphs 3 and 4 of article 284 of the code" should be replaced by "paragraphs 16, 3 and 4 of article 284 of the code;

b) paragraph 5, after the words "tax agents" add the words ", as well as the responsibilities of controlling persons controlled by foreign companies.

2) in subparagraph 2 of paragraph 11 of article 34615 words "paragraphs 3 and 4 of article 284 of the code" should be replaced by "paragraphs 16, 3 and 4 of article 284 of the code".

Article 6

This federal law shall enter into force not earlier than one month after the date of publication of this federal law and not before 1 St of the next tax period for income tax on the income of natural persons




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