The Federation Council approved a law amending the Tax Code of the Russian Federation (Tax Code) regarding the taxation of profits of the controlled foreign companies and income of foreign organizations (“Law on Deoffshorization”).
This bill introduces a concept of “controlled foreign company” and “controlled entity” to the tax code.
According to the bill a controlled foreign company is deemed a foreign organization that is not a resident of the Russian Federation, and which is controlled by organizations or individuals who are residents of the Russian Federation.
The controlling entity is a legal entity or individual who holds a share of direct or indirect participation in the organization as follows: in 2015 – more than 50%, in 2016 – 25%.
For Russian residents who jointly possess more than 50 percent of the controlled foreign company an individual threshold amounts to 10 percent.
The bill also specifies specific cases when a foreign entity is not recognized as controlled entity, for example:
- It is a public company;
- It is a non-profit company, which does not distribute its profits;
- It is established under the laws of a member-state of the Eurasian Economic Union;
- It is permanently located in a state that ensures exchange of information with the Russian Federation for tax purposes;
However, taxpayers who hold interest in such organizations will need to submit documents to tax authorities to prove compliance with these conditions.
After entry of the bill into force taxpayers will be required to provide to tax authorities a Notice of interest in foreign organizations and a Notice of controlled foreign companies.
Profits of a controlled foreign company will be taken into account in determining a tax base of an organization and individuals who are recognized as controlling persons. A share and a period of such interest will be taken into consideration for this purpose as well.
Together with tax returns in respect of taxes determined with consideration of profits of a controlled entity, the taxpayers will need to submit:
- Financial statements of a controlled company;
- Auditor’s report, if an audit of such financial statements is required.
Profits of the controlled foreign company will be taken into account when calculating the taxable base of the controlling persons, but only the profits exceed the approved minimum amounts:
- In 2015 – 50 million rubles;
- In 2016 – 30 million rubles;
- After 2017 – 10 million rubles.
The bill introduces a tax liability for controlling persons for non-compliance with new requirements.
As a result, for failure to submit the documents concerning the controlled entity the controlling entity will be charged a penalty in the amount of 100,000 Rubles.
For failure to submit a notice of interest in international organizations or for submission of false information, the controlling entity will be charged a penalty amounting to 50,000 Rubles for each company.
For failure to submit a notice of controlled foreign companies or for submission of false information the controlling entities will be charged 100,000 Rubles for each company.
A penalty amounting to 20%, but not less than 100,000 Rubles will be charged on taxes remaining fully or partially unpaid.
The expected date of publication of this law is on or before 1st of December, 2014, which means that the law can enter into force on 1st of January, 2015.
Lawmakers predict that a ban on non-transparent offshore schemes will help the state Russian budget raise more than 20 billion Rubles.