The amendments to the Tax Code on CFC, has focused on the following matters:
- Controlled foreign companies
- Beneficial ownership
- Tax residence determination by the company’s management place
- Taxation of real estate transactions
- Criminal liability for the use of offshore companies
It should be also noted, that these amendments should be considered within the context of the international developments.
- Controlled foreign companies
The amendments to the Tax Code on controlled foreign companies (CFC) and other anti-offshore measures are one of the most fundamental game-changers over the few decades in respect of taxation of the international structures and the fight against tax evasion in Russia.
- Beneficial ownership
The law defines the concept of beneficial owner of income. Russian beneficial owner test shall be applied only in cases when such test is established by the relevant international double tax treaty. The key test evaluates the effective right to use and (or) dispose the income. The functions and risks incurred by beneficial owner are also taken into account. In the context of international double tax treaty application the withholding agent “has a right” to request a confirmation of the status of a beneficial owner. This, in practice, is likely to result in the duty of such withholding agent to collect proof on status of income’s recipient as a beneficial owner thereof.
- Tax residence determination by the company’s place of management
Introduction of this measure has been discussed during a long time. Its implementation will also be an effective way of recognizing the offshore and other non-residential companies as Russian taxpayers in case if actual management of such companies shall be made from Russia.
- Taxation of real estate transactions
The changes of Article 309 of the Tax Code of Russia concern the companies whose income from share/equity sales shall be taxable. In particular, the above-mentioned will apply not only to the Russian companies the assets of which for more than 50% consist of Russian real estate, but to any companies the assets of which directly or indirectly for more than 50 % consist of Russian real estate.
- Criminal liability for the use of offshore companies
The draft law 599584-6, adopted by the Russian Parliament in the first reading on November 21, 2014, provides for an introduction of special criminal liability for tax and customs duties evasion by the company through the “concealment or distortion of information” on controlled foreign companies and transfer pricing. The proposed changes stipulate a fine ranging from 200 to 500 thousand roubles, a fine in the amount of income received by the convicted person for a period up to three years, as well as imprisonment of up to six years with deprivation of the right to occupy certain positions or to engage in certain activities for a term up to three years.
The penalties for tax evasion in particularly large amounts will be applied to situations of tax evasion in cases of underpayment of 10% of taxes and duties or 6 million roubles. 6 million roubles at the current exchange rate of euro/ruble at about 65 is less than 100 thousand Euros.
Roustam Vakhitov
Partner
International Tax Associates B.V.
E-mail: vakhitov@intertaxlaw.nl
