In the last quarter of 2015, Russia saw a flurry of changes concerning the tax amnesty program, de-offshoring and the reporting of foreign accounts. We highlight the most significant developments below.
What the New Rules Say
On Dec. 22, 2015 the Russian State Duma adopted a law1 extending the term of the tax amnesty until June 30, 2016. No other changes to the amnesty program have been made. However, they’re expected within the first months of 2016.
On Dec. 22, 2015 the Russian State Duma passed Draft Law No. 953192-6,2 introducing the following amendments to de-offshoring rules covering controlled foreign companies (CFCs), beneficial ownership and corporate tax residency:
- Extension until Jan. 1, 2018 of a special tax exemption allowing the liquidation of CFCs free from taxes for controlling persons (companies and individuals) in Russia;
- CFC profits may now be determined according to the financial statements if:
- the CFC is a resident of a tax treaty jurisdiction exchanging tax information with Russia (in such case there’s no auditing requirement with regard to the financial statements filed); or
- the CFC is a resident of any other jurisdiction, including offshores, and it provides an audited statement with no objections from the auditors;
- Property contributed to a trust or any other foreign unincorporated structure by a controlling person or his close relatives isn’t included in the calculation of the trust’s undistributed profits. Distribution of assets of a trust in the amount of the initial contribution is tax-exempt for individuals if the trust has no undistributed profits.
The provisions of this draft law are still subject to change.
On Dec. 12, 2015 the Russian Government established the official form and procedure for Russian individuals to report on transactions on their foreign bank accounts.3
The report should be filed annually with the Russian tax authorities in hard copy (personally, by a representative or by registered post with confirmation of delivery) or by electronic means, not later than June 1st of the year following the reporting period (for example, the first report should be filed by June 1, 2016).
The report isn’t required if the bank account is closed prior to Dec. 31, 2015.
In accordance with Russian Federal Law No. 173-FZ4 adopted in connection with the U.S. FATCA, on Nov. 26, 2015 the Russian Government established the forms and rules for reporting by Russian financial institutions on:
- registration with foreign tax authorities;
- clients who are foreign taxpayers;
- requests received from foreign tax authorities; and
- information to be reported to foreign tax authorities.
The reporting requirement is effective Jan. 1, 2016.
Simultaneously with the reporting of Russian banks, Russian Federal Law No. 173-FZ requires foreign financial organizations to disclose information to the Russian tax authorities on accounts opened by Russian citizens and legal entities controlled by them.
The Russian Federal Tax Service approved the relevant reporting form on Nov. 9, 2015.. The first report should be filed by Sept. 30, 2016.
Russian legislation doesn’t set sanctions for foreign financial institutions for failure to report.
Actions to Consider
Advisors should consider taking the following initiatives:
Tax amnesty: Consider disclosure and restructuring by June 30, 2016.
De-offshoring: Monitor developments in 2016, and consider effects on foreign structures.
Foreign accounts: Prepare the report and send it to the Russian tax authorities by June 1, 2016.
FATCA: Consider new reporting forms and monitor introduction of liability for non-reporting foreign legal entities.
3. Decree No. 1365 of the Russian Government dated Dec. 12, 2015.
4. Federal Law No. 173-FZ dated June 28, 2014 “On the Specifics of Conducting Financial Transactions with Foreign Nationals and Legal Entities, on Amendments to the Russian Code of Administrative Offences and Invalidation of Certain Provisions of Russian Legislative Acts.”