The Ministry of Finance has updated the draft law on controlled foreign companies

The Ministry of Finance has updated the draft law on controlled foreign companies

Russia's Ministry of Finance submitted to the government an updated version of the draft law on the taxation of income of controlled foreign companies (CFC) and the income of foreign companies.

Here are some key changes:

1. List of the conditions under which foreign organization is not deemed to be CFC became more detailed with respect to unincorporated organizations such as a fund, partnership, partnership and trust. The list of released organizations includes public companies, companies with an effective income tax rate not less than 75% of Russian, businesses located in the territory of the Eurasian Economic Union and in "white" jurisdictions, as well as banks and insurance companies. The rule for calculating of the effective tax rate in the case of the profit (loss) has been made, and if there are no profits, the organization is deemed to be CFC without calculating the effective interest rate.

2. Only the direct or indirect participation through public companies is not taken into account when determining the share of the controlling person in a foreign organization or structure.

3. In the original versions of the document the controlling person was deemed to be the controlling person if owning more than 10% of shares in CFC. In accordance with the new version of the bill the controlling person is deemed to be the controlling person, if during the transition period (until 1 January 2017) directly and (or) indirectly owns more than 50% of shares together with a spouse, minor children and other persons. After the transition, this threshold will be lowered to 25%. And if all persons recognized as residents of the Russian Federation, together with their spouses, minor children, and related persons, are more than 50% of the control of the organization, the person is recognized as controlling if owning directly or indirectly more than 10% shares of the organization together with the spouse, minor children, and others.

4. Taxpayers are obliged to notify the tax authorities of any foreign assets in which they hold more than 10% of the capital (versus 1% in the former version), even if the company is not controlled; all CFC in respect of which the taxpayer is the controlling person; its participation in foreign unincorporated organizations (including cases where the taxpayer is the founder of such a structure, or a person having the beneficial owner of the income (profit) of such a structure in the event of the distribution).

5. Active operations of foreign companies are not exempt from tax; there is still the requirement to share active and passive income with the possibility of a deduction for capital investment. Exceptions are only for oil companies; their active operations only are exempt from tax - production sharing agreements, concession agreements or other agreements with foreign countries.

6. Profit of a CFC is taxable and is taken into account when determining a tax base for the tax period under the relevant tax if its profit will be more than 10 million rubles since 2017; if profit exceeds 50 million rubles - in 2015; if profit is 30 million rubles - in 2016.

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