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On 24 November 2014 the Russian President signed Federal Law No. 376-FZ “On amending
parts one and two of the Tax Code of the Russian Federation (in the part related to taxation
of profits of controlled foreign companies and income of foreign companies)”, which enters
into force on 1 January 2015.
The Law is aimed at preventing the abuse of “offshore” structures and introduces new rules
in the following areas into the Tax Code:
■■ Taxation in Russia of controlled foreign companies’ profits (“CFC rules”)
■■ Disclosure of participations
■■ Tax residency of foreign companies
■■ “Actual right to” (beneficial ownership of) income
■■ Taxation of income from disposal of property-rich shares/LLC interest
■■ Additional condition for tax exemption for free-of-charge receipts of property from affiliates
The Law requires group structures to be reconsidered, in particular, with regard to the
purpose of foreign companies, their functions and “substance” and the form of their
presence in Russia and in the relevant foreign country.
The CFC rules will require Russian tax residents (individuals and companies) to disclose their
foreign participations and to pay tax on profits generated by controlled foreign companies
(even before such profits will be distributed to Russia).
The Russian Tax Code will treat as a controlled foreign company (“CFC”):
■■ a foreign company that is not a Russian tax resident (“CFC-company”);
■■ a “foreign structure” which does not have a legal personality (fund/foundation,
partnership, trust or other form of collective investment or trust management) and which
is entitled to conduct profit generating activities in the interests of its participants or other
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Russian tax residents (legal entities and individuals) will be
recognized as controlling persons, if with regard to a CFC,
■■ a participation1 of above 25% (in 2015, above 50%), or above
10% if the participations of all Russian tax residents in the CFC
in aggregate exceed 50%; or
■■ control (in their own interests or in the interest of spouse
and underage children) which implies exercise (possibility to
exercise) of influence on decisions on distribution of CFC’s
The profits of the following categories of CFC are exempt from
taxation as income of controlling persons:
(i) the CFC established in member-countries of the
Eurasian Economic Union;3
(ii) the CFC with a permanent place of residence in a tax treaty
country4 (except for “grey list” countries),5 if:
—— the CFC is a bank or an insurance company; or
—— the effective income tax rate of the CFC ≥ 75% of the
average Russian weighted tax rate;6
(iii) the CFC with a permanent place of residence in a double tax
treaty country (except for “grey list” countries), if:
—— passive income7 of the CFC does not exceed 20% of its
(iv) the CFC that is a non-commercial organization which
lex societatis does not permit income distribution;
(v) the CFC that is a Eurobond issuer and qualifies for exemption
from withholding of Russian tax at source (according to
Article 310 of the Tax Code), if:
—— at least 90% of the income of the CFC is derived from its
(vi) the CFC that is a participant in projects with foreign
governments (e.g., product sharing, concession, license,
or service agreements), if
—— at least 90% of the income of the CFC is derived from its
(vii) the CFC that is an operator of new hydrocarbon fields
(or direct shareholders of such operator);
(viii) the CFC-structure which lex societatis and foundation
documents limit the founders’ rights (including the rights
to receive assets from the “structure”, transfer the right to
determine beneficiaries, receive directly/indirectly8 income
from the “structure”).
1 An individual’s participation will be deemed to include participations of his spouse and underage children.
2 Control is meant to be exercised by virtue of direct/indirect participation, contract, applicable law or other special relations.
3 The Eurasian Economic Union unites Russia, Belarus, Kazakhstan, Armenia.
4 The Law refers to countries that have an agreement on tax matters with Russia (the “tax treaty countries”). These include (as of 1 January 2015) 82 countries that have
double tax treaties with Russia (the “double tax treaty countries”). It is possible that the Law means to include also countries that have agreements on administrative
assistance in tax matters (including information exchange) with Russia; clarification of the Ministry of Finance on this point would be helpful.
5 The Federal Tax Service will compile the list of countries that do not cooperate with information exchange (the “grey list”). This list will be in parallel to the list of “offshore”
countries that was approved by the Ministry of Finance on 13 November 2007 and serves as a “black-list” for the 0% Russian profit tax on incoming dividends (the “black-list”).
6 The effective income tax rate is calculated according to the CFC’s lex societatis, including taxes withheld at source; is determined only if there is profit at the financial year-end.
The average Russian weighted tax rate is calculated according to the Russian Tax Code based on a 20% general rate and a 13% dividend rate (which applies instead of 9%
rate for individuals and legal entities, from 1 January 2015).
7 Passive income is defined broadly and includes: (i) dividends; (ii) income from the distribution of profits/property (including upon liquidation); (iii) interest income (except for
foreign banks); (iv) royalties; (v) income from the sale of shares/LLC interests /assignment of rights in a foreign company that is not recognized as a legal entity; (vi) income
from transactions with derivatives; (vii) income from the sale of immovable property; (viii) income from the lease/sublease/financial lease of property (except for transport
vehicles used in international carriage); (ix) income from the sale (including by redemption) of investment units in unit investment funds; (x) income from consulting, legal,
accounting, audit, engineer, advertising, marketing and information processing services, and research and development works; (xi) income from secondment of personnel;
(xii) other analogous income.
8 Through a related party.
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The profit of the CFC will be calculated and included in
the income of its controlling person in accordance with the
■■ Profit is calculated (a) separately with respect to each
CFC, (b) with respect to profits for the reporting financial
years,9 from 2015, (c) if the CFC has a permanent place of
residence in a tax treaty country and its financial statements
are, by applicable law, subject to mandatory audit—on the
basis of the CFC’s non-consolidated financial statements, with
certain corrections10 (otherwise—on the basis of a calculation
in accordance with rules in the Russian Tax Code).
■■ A CFC’s profit is included in the controlling person’s tax base
if it exceeds RUB 10 mln (in 2015 – RUB 50 million,
in 2016 – RUB 30 million).
■■ The profit of the CFC will be reduced by (a) the amount of
any dividends distributed at the end of the financial year
(within certain time frame)11 as well as profits which may
not be distributed in accordance with CFC’s lex societatis,
(b) profit that has been included in the tax base of other
Russian controlling persons.
■■ The profit of the CFC will be included in the controlling person’s
tax base (a) pro rata to its participation in the CFC, (b) as of the
31 December of the year following the tax year in which the
financial year ends,12 (c) together with income which is subject
to 20% profit tax (organizations) or 13% income tax (individuals).
■■ Russian tax calculated on a CFC’s profit will be reduced by the
amount of the CFC’s foreign and Russian taxes which were
withheld at source or paid through its permanent establishment.
For the period until 1 January 2017, special rules will be introduced
to soften the impact of the tax regime on the liquidation of a CFC:
■■ exempt a controlling person from taxation of income in the
form of property and/or property rights received as a result of
■■ exempt from transfer pricing control the sale of securities and
property rights (including LLC interest and investment units)
by a CFC to its controlling person (or its Russian affiliates).13
The following tax fines will be introduced for violation of the
CFC rules by controlling persons:
■■ failure to file (or filing an incorrect) tax return—a fine of
■■ non-payment (in full or in part) of tax on a CFC’s profit—
a fine of 20% of the tax amount (subject to a minimum of
9 The financial year is determined in accordance with CFC’s lex societatis.
10 The corrections relate to the conversion of foreign currencies into rubles and require the use of the annual average exchange rate of the Bank of Russia, re-valuation of
securities and derivatives and formation/recovery of reserves, corresponding adjustments in the circumstances provided by transfer pricing rules, and loss carry-forward.
11 With respect to CFC-”structure”: reduction is possible only if controlling persons and beneficiaries have paid tax on dividend income.
12 As of 31 December 2016, if the financial year of the CFC ends on 31 December 2015.
13 The wording of the relevant provision is not perfect and requires additional analysis.
14 The liability applies to the tax periods starting from 2018.
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15 I.e., apparently, for the first time, by 20 March 2017.
16 The following activities as such are not recognized to be actual management: preparation or adoption of resolutions on matters within the competence of the general
shareholders’ meeting; preparation for holding board meetings; certain planning and control functions.
17 Fulfilment of one condition is sufficient.
18 Applicable if main conditions in (i) or (ii) are not fulfilled; fulfilment of one condition is sufficient.
Tax residency of foreign companies
The Law will introduce the concept of “tax residency” for foreign
companies by reference to their place of actual management. The
place of actual management will be Russia if the following take
place in Russia (to certain extent):16
Main conditions17 Additional conditions18
(i) meetings of the board
(ii) activities of the
(iii) activities of key top officials
(incl. decision making)
(iii) operative management
of human resources
Disclosure of participations
The Law establishes requirements to disclose certain information and establishes liability for non-notification:
Responsible person Subject of notification/disclosure Term for submission Fine
Taxpayers (companies and
Shareholding of above 10% in a Russian jointstock
within a month RUB 200
Russian tax residents Participation of above 10% in a foreign company within a month
from 1 April 2015)
Formation of “foreign structures”, entitlement
to control or income
Controlling persons (who are
Russian tax residents)
CFC by 20 March the year
following the tax year in
which the CFC’s profit
is subject to taxation15
Foreign companies and
"structures" that have taxable
property (real estate) in Russia
Founders, participants, beneficiaries and managers
(including individuals and public companies that
own directly or indirectly above 5%)
Together with filing
property tax return
100% of annual
Certain categories of foreign companies will be tax resident in
Russia only if they elect so:
(i) a company that is a tax resident in a tax treaty country;
(ii) a holding company if:
(a) the participation of a Russian controlling person in it is
(directly/indirectly) 50% or more and has been held for
365 calendar days or more; and
(b) more than 50% of its assets are in the form of
investments in foreign subsidiary companies (provided
that each such subsidiary is held at least 50%; has
permanent place of residence in a double tax treaty
country (except for “grey list” countries); has passive
income of no more than 20%); and
(c) above 95% of income is in the form of dividends
(or no income at all);
(iii) a participant in projects with foreign governments;
(iv) an operator of new hydrocarbon fields (or direct shareholders
of such operator).
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However, foreign companies may elect for Russian tax residency
only if they have permanent place of residence in a tax treaty
country and conduct operations in Russia through a subdivision.
Not recognized as Russian tax residents are:
■■ Eurobond issuers that qualify for exemption from withholding
of Russian tax at source (according to Article 310 of the
Tax Code), if they derive at least 90% of income from their
■■ foreign companies that are liquidated before 1 January 2017.
A foreign company which is recognized as a Russian tax
resident will be treated “equally” with Russian companies for
profit tax purposes19 and will not be recognized as a CFC (only
if tax residency status is elected).
“Actual right” to income
The Law introduces the concept of the “actual right” to income
(“beneficial ownership”) as a condition for tax treaty relief and
allows Russian payors of income to request relevant confirmations
(in addition to tax residency certificate).
A person will have the “actual right” to income if it:
■■ i s a “direct beneficiary” of income (i.e., it benefits from income
and determines its economic destiny), and
■■ has the right, on its own, to use or dispose of income (by virtue
of direct/indirect participation, control or other circumstances)
or another person is authorized to dispose of income for such
On the contrary, a foreign person will not have the “actual right”
to income if it has (i) limited powers to dispose of the income,
(ii) performs intermediary functions for the benefit of another
person (without performing any other functions or accepting
any risks, and directly/indirectly transferring income fully/partially
to that other person), and (iii) that other person, if received the
income directly would not be entitled to tax treaty reliefs.
Where a foreign recipient of dividends20 is resident in a tax treaty
country, but has no “actual right” to income, the Russian Tax Code
permits taxation of the dividends on the basis that they are income
of the person that has the “actual right” to such dividends and
has indirect shareholding (through a chain of companies) in the
company distributing such dividends:
■■ for tax residents: by self-assessment at a tax rate of 13% or 0%
(legal entities, subject to certain conditions);
■■ for non-residents: by withholding tax at source in accordance
with an applicable tax treaty.
Sale of property-rich shares/LLC interests
Currently the Russian Tax Code requires foreign companies to
pay tax upon sale of shares/LLC interests in a Russian company
only if assets of that company consist of more than 50% of real
estate. From 2015, the Russian nationality requirement and direct
ownership of real estate requirement will be abolished which
significantly extends the scope of Russian taxation for transactions
related to Russian real estate. In addition, the obligation to pay
tax will be imposed on the seller - foreign company (formerly this
obligation was imposed on the purchaser as a tax agent).
The exemption from tax for Russian companies selling shares in
Russian companies will be abolished in the circumstances when
more than 50% of the target company’s assets are real estate.21
Free-of-charge transfer of property
An additional condition will be introduced for the profit tax
exemption for free-of-charge receipts of property from subsidiary
companies in which the recipient has a 50% or more participation,
namely: the exemption will not apply if the subsidiary company is
resident in a “black-list” country.
19 Additional analysis is required as to whether such tax residents (foreign companies) will be eligible to apply reduced tax rates for dividends (13% and 0%) and as to whether
distribution of dividends by such tax residents will be subject to Russian withholding tax.
20 The applicability of this procedure to other types of income (e.g. interest, royalty) should be clarified.
21 This exemption was introduced in 2011 for transactions with shares/LLC interest acquired after 1 January 2011 and held for more than 5 years.)
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