Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
Russian residents that control less than 50 percent of a foreign company aren’t obligated to report profits of those companies for the year 2015 by the upcoming March 20 deadline, according to recent guidance from the Russian Finance Ministry.
The guidance, in the form of Letter No. 03-12-11/2/9197, contains mainly statements that are favorable for taxpayers, said Damir Nuretdinov, head of Damir Nurettdinov’s Attorney’s Office. The guidance, he said, “appears to confirm that Russian tax residents controlling less than 50 percent in foreign company are not obliged to report profits of such foreign company for the year 2015.” Other Russian residents, however, should submit those returns by March 20—the first reporting deadline for controlled foreign companies—he told Bloomberg BNA in an e-mail Feb. 28.
The ministry clarified that foreign trusts, partnerships, funds, and other forms of collective investment can be regarded as controlled foreign companies (CFCs) in accordance with Section 2, Article 25.13 of the Russian Tax Code.
If Russian tax residents control CFCs via simple partnerships or investment partnerships, then these partnerships aren’t regarded as organizations that control CFCs, the letter said. However, Russian tax residents, members of these partnerships, should be regarded as individuals that control CFCs and hence subject to profit tax liabilities and notification requirements, it said.
According to Section 4, Article 25.15 of the tax code, if CFCs report zero profit, then businesses and individuals who control these CFCs have no obligations to report financial results of these CFCs in their respective profit and income tax returns, according to the letter.
If a fiscal year in jurisdictions where CFCs are registered begins Oct. 1 and ends Sept. 30, then businesses and individuals who control these CFCs must report profit gained between Oct. 1, 2015, and Sept. 30, 2016, during the calendar year that starts from Jan. 1, 2017, the letter said.
The Russian Finance Ministry conceded that the country’s tax legislation is yet to regulate taxation of CFCs that are members of foreign consolidated groups of taxpayers (CGTs), according to the letter.
“Some clarifications are less favorable, e.g. dividend distribution from CFC can not lower profits of CFC and can not bring it lower than minimal reporting threshold"—50 million rubles ($858,000)—"for the year 2015,” noted Roustam Vakhitov, managing partner at International Tax Associates BV. “In any case this is a very helpful guidance for taxpayers just few weeks before the deadline for submission of first reports on profits of CFC,” he wrote in an e-mail Feb. 28.
Russian businesses and individuals owning CFCs in 2016 must notify the tax authorities about the CFCs by March 20, 2017. According to the amendments to the country’s tax code on taxation of CFCs, effective from Jan. 1, 2015, foreign entities controlled by Russian businesses became liable for the Russian profit tax if the CFCs are based in jurisdictions that have no tax treaties with Russia, don’t share tax information with Russia or have a profit tax rate that is more than 25 percent below Russia’s 20 percent profit tax rate.
To contact the reporters on this story: Sergei Blagov in Moscow at: firstname.lastname@example.org
To contact the editor responsible for this story: Molly Moses at email@example.com
Letter No. 03-12-11/2/9197, dated Feb. 17, is available in Russian at http://src.bna.com/mBV.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)