Tax Russia Legal Alert December 2015 www.bakermckenzie.com For more information please contact: Alexander Chmelev +7 495 787 27 00 firstname.lastname@example.org Sergei Zhestkov +7 495 787 27 00 email@example.com Maxim Kalinin +7 812 303 90 00 firstname.lastname@example.org Baker & McKenzie — CIS, Limited White Gardens, 10th Floor 9 Lesnaya Street Moscow 125047 Russia Tel.: +7 495 787 27 00 Fax: +7 495 787 27 01 BolloevCenter, 2nd Floor 4A Grivtsova Lane St. Petersburg 190000 Russia Tel.: +7 812 303 90 00 Fax: +7 812 325 60 13 End of 2015 changes: taxes and reporting on bank accounts Wealth management: Tax amnesty is extended till 30 June 2016. New set of amendments to de-offshoring rules covering controlled foreign companies (CFCs), beneficial ownership and corporate tax residency. Russian Government approved the form for Russian individuals to report on the movement of funds on their foreign bank accounts. Reporting for banks: Starting from 1 January 2016 Russian financial organizations will have to report to Russian state authorities on international exchange of financial information ("FATCA" reporting) in accordance with officially established forms. By 30 September 2016 foreign financial organizations must report to the Russian tax authorities on accounts opened by Russian citizens and legal entities controlled by them. What the new rules say Tax amnesty On 22 December 2015 Russian State Duma adopted a law1 extending the term of the tax amnesty till 30 June 2016. No other changes to the amnesty program have been made. However, they are expected within the first months of 2016. De-offshoring rules On 22 December 2015 the Russian State Duma passed Draft Law No. 953192-6 2 at the first reading introducing, inter alia, the following amendments to the CFC Rules: Extension till 1 January 2018 of a special tax exemption allowing the liquidation of CFCs free from taxes for controlling persons (companies and individuals) in Russia; CFC profits may now be determined according to the financial statements if: a) the CFC is a resident of a tax treaty jurisdiction exchanging tax information with Russia (in such case there is no auditing requirement with regard to the financial statements filed); or 1 http://asozd2.duma.gov.ru/main.nsf/%28SpravkaNew%29?OpenAgent&RN=953408-6&02 2 http://asozd2.duma.gov.ru/main.nsf/%28SpravkaNew%29?OpenAgent&RN=953192-6&02 Tax 2 Legal Alert December 2015 b) the CFC is a resident of any other jurisdiction, including offshores, and it provides an audited statement with no objections from the auditors; Property contributed to a trust or any other foreign unincorporated structure by a controlling person or his/her close relatives is not included in the calculation of the trust's undistributed profits. Distribution of assets of a trust in the amount of the initial contribution is tax-exempt for individuals if the trust has no undistributed profits. We note that the provisions of this draft law are still subject to change. We will continue to provide information on the development of these amendments. Foreign accounts On 12 December 2015 Russian Government established the official form and procedure for Russian individuals to report on transactions on their foreign bank accounts3 . The report should be filed annually with the Russian tax authorities in hard copy (personally, by a representative or by registered post with confirmation of delivery) or by electronic means, not later than June 1 of the year following the reporting period (i.e., the first report should be filed by 1 June 2016). The report is not required if the bank account is closed prior to 31 December 2015. FATCA In accordance with Russian Federal Law No. 173-FZ4 adopted in connection with the US FATCA, on 26 November 2015 the Russian Government established the forms and rules for reporting by Russian financial institutions: on registration with foreign tax authorities; on clients who are foreign taxpayers; on requests received from foreign tax authorities; and on information to be reported to foreign tax authorities. Simultaneously with the reporting of Russian banks, Russian Federal Law No. 173-FZ requires foreign financial organizations to disclose information to the Russian tax authorities on accounts opened by Russian citizens and legal entities controlled by them. The relevant reporting form was approved on 9 November 2015 by the Russian Federal Tax Service. The first report should be filed by 30 September 2016. Russian legislation does not set sanctions for foreign financial institutions for failure to report. Actions to consider Tax amnesty: consider disclosure and restructuring by 30 June 2016. De-offshoring: monitor developments in 2016, consider effects on foreign structures. 3 Decree No. 1365 of the Russian Government dated 12 December 2015 4 Federal Law No. 173-FZ dated 28 June 2014 “On the Specifics of Conducting Financial Transactions with Foreign Nationals and Legal Entities, on Amendments to the Russian Code of Administrative Offences and Invalidation of Certain Provisions of Russian Legislative Acts” Tax 3 Legal Alert December 2015 Foreign accounts: prepare the report and send it to the Russian tax authorities by 1 June 2016. FATCA: consider new reporting forms, monitor introduction of liability for nonreporting foreign legal entities. This LEGAL ALERT is issued to inform Baker & McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.