The Bill on CFC was passed in Russian State Duma

22.10.2014

Group of senators introduces the Bill “On amending of Parts One and Two of Tax Code of Russian Federation (in the part of taxation of the profits of controlled foreign companies)” in State Duma of Russian Federation.

The Bill was introduced in its unchanged edition. The main requirements for the company to be considered as CFC also have not changed. As controlled foreign company will be considered the company which:

1. Is not a tax resident of Russian Federation;

And

2. Persons or entities in control of the said company are the tax residents of Russian Federation.

Taxpayers, which are tax residents of Russian Federation, shall notify tax authorities:

• About their participation in foreign companies (about incorporation of the foreign entity without legal personality);

• About controlled foreign companies, of which they shall be considered as person in control.

Notice on the participation in foreign entities shall be submitted no longer than one month since the start of participation in such company.

Notification about controlled foreign companies shall be submitted no longer than the 20^th of March of the year following the tax period in which the person in control has the profit from foreign company.

In case of the cancellation of participation in foreign entities the tax resident shall notify about it tax authorities no longer than after one month of such termination.

The profit of CFC is considered when determining the tax base for the tax period of the tax period if the profit exceeds 10 000 000 rubles.

Non-notification of tax authorities or the submission of fraudulent documents will be fined by 100 000 rubles.

Source: http://asozd2c.duma.gov.ru/addwork/scans.nsf/ID/B958597F7258458643257D79002B53E7/$FILE/630365-6.PDF?OpenElement

Expert’s opinion

There are no doubts that the law will be adopted this year. The questions for the future are how it will be implemented, how it will work and how will the system of notices and fines be operating. It will be necessary to create divisions that will deal with foreign companies or to transfer this question to another department. It will take time, resources – both human resources and money, in order to understand how it all will functioning.

The golden rule “the taxes shall be paid” is not cancelled as well as right structuring of your business in general.

Irina Lomakina ( Director of Moscow Office, Honest & Bright)