The Russian Ministry of Finance has submitted the Controlled Foreign Companies (CFC) draft law for public discussion
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The Russian Ministry of Finance has submitted the Controlled Foreign Companies (CFC) draft law for public discussion

The Russian Ministry of Finance has submitted the Controlled Foreign Companies (CFC) draft law for public discussion.

The following provisions are proposed:

CFC is deemed to be any foreign corporation or non-corporate structure (funds, partnerships and etc.) organized under the laws of jurisdictions with privileged tax regimes and controlled by Russia’s tax residents (CFC controllers).

CFC controllers are Russia’s tax residents (individual or entity) that own directly or indirectly 10% or more of the foreign corporation.

The draft law requires Russian companies and individuals to report to the tax authorities within 20 days on 

1) ownership in the foreign companies in which they own directly and/or indirectly 1% or more.

2) ownership in non-corporate structures should they are entitle to the profit in case of its distribution or they are accounted to be CFC controllers of such structure.

The part of the CFC profit corresponding to the participating interest of the Russian taxpayer is now included into the Russian profit tax base. Should the participating interest is indefinable, the CFC profit to be included in full.

The profit received from CFC will be taxed at the 20% rate for controlling entities and 13% for controlling individuals.

The draft law provides the possibility of bringing to responsibility:

1) in case of failure to pay taxes in full or in part as a result of the CFC profit omission from the profit tax base – fine in the amount of 20 % of the CFC profit but not less than 100 000 rubles, and 

2) in case of failure to report to the tax authorities – fine in the amount of 100 000 rubles.

In addition to the CFC rules, the draft introduces the notion of the tax residence of legal entities.

Foreign organizations will be deemed to be Russian tax residents under the provisions of double taxation treaties concluded by Russia or based on the place of effective management criterion.

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