Legislative Tracking

Draft Law on CFC

Edition dated 27 May 2014

On 27 May 2014 the RF Ministry of Finance of Russia published a new edition of the draft Federal Law “On amending Parts I and II of the RF Tax Code (in respect of taxation of the profits of controlled foreign companies and increasing the efficiency of the tax administration with respect to foreign companies)” (hereinafter, “the Draft Law”) on its official website.

In connection with the implementation of deoffshorisation measures for the Russian economy, on April 11, 2014 the RF Ministry of Finance published a letter (No. 03-00-RZ/16236 dated April 9, 2014, hereinafter the “Letter”) on its official website regarding the application of reduced withholding tax rates or taxation exemption (hereinafter, the “Tax Benefits”) to “passive income” (dividends, interest and royalties) as stated in double tax treaties (hereunder, “DTTs”).

The Letter consolidates previously issued clarifications and contains some additional comments. In particular, it provides a list of extra criteria which may be used to determine the “beneficial owner of income” and an open list of examples of conduit transactions which tax benefits prescribed by DTTs cannot be applied to. Moreover, in the Letter the RF Ministry of Finance underlines the responsibility of the tax agent when it comes to assessing and withholding tax at source (including the correct application of tax benefits provided by DTTs) when distributing income to a foreign entity. 

Controlled foreign companies rules and other legislative initiatives

24 March 2014

On 18 March 2014, the RF Ministry of Finance (hereinafter, “the Ministry of Finance”) presented a draft Federal Law “On amending Parts I and II of the RF Tax Code (in respect of taxation of profits of controlled foreign companies and increasing the efficiency of tax administration with respect to foreign companies)” (hereinafter, “the Draft Law”).

The provisions of the Draft Law are the results of work undertaken by the Ministry of Finance in order to implement measures previously announced under the RF Government’s action plan to counteract the offshorisation of the Russian economy. In particular, the new rules cover the following issues:

1. Taxation of the profits of controlled foreign companies (hereinafter, “the CFC rules”).

2. Determination of the tax residency status of legal entities.

3. Taxation of income from the indirect sale of shares in real estate rich companies (more than 50% of the value of the assets of which directly or indirectly consists of real estate located in Russia).

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