A draft of Federal Law No. 953192-6 regarding the СFC provisions was submitted to the lower chamber of the parliament on 14^th December 2015. The CFC provisions were first provided by the Tax Code and Federal Law No. 376-FZ of 24 November 2014. The draft law amending the provisions is expected to be passed by the lower chamber of the parliament and approved by the upper chamber. After being signed by the president, it will enter into force on the date of its official publication, except for certain provisions, which will enter into force on later dates. The main changes are in the following areas:

Adjustment of CFC’s profit calculation:

The draft law establishes that the profit/loss of a CFC may be determined based on either its financial statements or according to the rules provided by Chapter 25 of the Tax Code. However, the first option is accessible only if one of the given criteria is fulfilled:

• the CFC resides in a state with which Russia has signed an international agreement on tax matters, except for states which do not ensure exchange of tax information with Russia; or
• an audit report of the financial statements is made and the audit report does not include a negative conclusion.

Dividend taxation:

A dividend payment from profits that were earlier taxed in Russia under the CFC rules is exempt from taxation in Russia.

Extension of term for liquidation of CFCs:

The Tax Code gives several tax benefits in the case of repatriation of assets in Russia. To receive the benefits the owners of repatriated assets should liquidate their CFC before 1^st January 2017. The draft law extends the term of liquidation until 1^st January 2018 if the decision on the liquidation of a CFC is made before 1^st January 2017. Under the current version of the Tax Code, only major shareholders, who control a CFC, may enjoy tax benefits in the case of liquidation of the CFC.

Amendment to the definition of “beneficial owner”

According to the CFC provisions a beneficial owner may be a person (a legal entity or a foreign structure that is not a legal entity) who, because of direct control over and/or participation in an entity (a foreign structure that is not a legal entity) or because of other circumstances, is entitled to independently use and/or dispose of the income received by such entity.

Adjustment of meaning of control over a CFC

Under the draft law, a Russian taxpayer that participates indirectly in a CFC (through a Russian public company) should not be deemed a controlling person.

Declaration of beneficial owner:

Under the draft law a foreign company that is the recipient of Russian-sourced income and has a residence tax certificate should provide to a Russian tax agent a confirmation that the recipient is the beneficial owner of the income.