Deoffshorisation in Russia

Transcription

1 Deoffshorisation in Russia June 2015 Alexei Ryabov Tax Partner

2 Contents 1 Deoffshorisation campaign 2 CFC rules 3 4 Tax residency Beneficial ownership 5 Tax amnesty 6 Questions and answers Page 2

3 1 DEOFFSHORISATION CAMPAIGN

4 Deoffshorisation campaign: background 12 December March May, 26 August, 22 October November January June June 2015 President message to the Federation Council on Deoffshorisation of Russian economy The first draft of the Deoffshorisation legislation Revised versions of the Draft Law, the Draft Law was submitted to the State Duma The Law 376-FZ was enacted The Law 376-FZ came into force The amendments to the 376-FZ were adopted by the Federation Council The Draft Law on Capital Amnesty was adopted by the Federation Council Page 4

5 Deoffshorisation Campaign Tax vs non-tax measures TAX MEASURES NON-TAX MEASURES Controlled Foreign Company Tax Residency Beneficial Ownership Introduction of local codified GAAR (planned) Amnesty of Capital Extension of criminal liability Page 5

6 2 THE CONTROLLED FOREIGN COMPANY ( CFC ) RULES

7 CFC rules Controlling person Russian tax residents Controlling Persons 100% 15% 45% 40% PHC (BVI) SubHoldCo (Cyprus) HoldCo (Russia) PHC (BVI) CFC Individuals Russian tax residents (more than 183 days in Russia) - taken together with spouses and infants Legal entities Russian tax residents (established or managed and controlled in Russia) DutchCo CyprusCo CFC BVICo Page 7

8 Control Legal participation CFC rules CFC foreign legal entity Controlling Persons 1 Participating interest* in 2015 More than 50% Participating interest* starting from More than 25%, or More than 10%, if participation of 2 all Russian tax residents (even unrelated) exceeds 50% OR *Participating interest - direct (indirect) participation, including participation through structures (i.e., trusts, funds, foundations etc.) Control : decisive influence on decisions affecting a controlled company s distribution of profit; and (or) ability to influence the entity that manages such structure s assets as regards decisions on profit distribution Page 8

9 CFC rules CFC foreign structure: significant amendments Settlor is a controlling person Settlor is not a controlling person Has the right with respect to: - Income OR - Management of the income or - Property (revocable trust) OR Carries out control Beneficiary is not a controlling person - Does not carry out control Page 9 Trust / Foundation Companies Does not have right with respect to: - Income - Management of the income - property - Property upon liquidation Does not carry out control Beneficiary is a controlling person Has the right with respect to: - Income - Management of the property - Property upon liquidation and - Carries out control

10 CFC rules Calculation of CFC profits (1 of 2) CFC Profits Local audited FS Russian Tax Rules Treaty country AND Company subject to mandatory audit subject to lex personalis Recommendation: Page 10 Any other cases Unless the Law is amended, seek legal advice on mandatory audit for all CFCs. In addition, seek clarifications from the Russian Ministry of Finance

11 CFC rules Calculation of CFC profits (2 of 2) Distributed in the current and next year In Russia or abroad Profits Dividends 13% 20% Russian tax Tax paid by CFC Excluded income: FOREX differences Income on reassessment CFC Income deemed received by the controlling person as of 31 December of the year following the CFC financial year Page 11

12 CFC rules Issues to consider for Cyprus Grey areas in definition of control and determination of participating interest (e.g., voting vs. non-voting shares) Page 12 No practice of exempt structure matter of judgment Main exemptions of CFC profits (e.g. ETR test) may not be applicable to typical Cypriot companies (e.g. holding, financing) Carefully consider simplification of structures/ restructuring and related accounting treatment to avoid CFC leakages Prospects of using audited financial accounts as CFC profits basis still unclear! * ETR - effective tax rate

13 2 TAX RESIDENCY OF FOREIGN COMPANIES BY PLACE OF EFFECTIVE MANAGEMENT

14 Tax residency General provisions Definition 100% HoldCo (Russia) A foreign company can be treated as Russian tax resident if: the place of management of the foreign company is in Russia; OR Page 14 Dutch Co Management Cypriot Co BVI Co it is tax resident in Russia under an applicable double tax treaty (tie breaker procedures) The introduction of the place of management principle enables Russian taxes to be levied on worldwide income of foreign companies, if they are effectively managed from Russia This creates an exposure for Cypriot companies instructed from Russia

15 Tax residency Determination of place of management KEY CRITERIA: Executive management is exercised from Russia The company s chief (executive) officers perform their duties mainly in Russia Chief officers are persons who oversight an enterprise s activities and responsible for planning, management and SUPPLEMENTARY CRITERIA: Accounting records or management accounts are maintained in Russia The company s corporate records are maintained in Russia Day-to-day management of personnel takes place in Russia If the key criteria are met both in Russian and in other foreign state, the supplementary criteria should be considered (at least one of them is a sufficient trigger) Page 15

16 Tax residency Exemptions 1 Operating companies Own qualified personnel and assets in DTT countries only 2 Shareholder control General shareholder s meeting Standards, methodologies and/or policies that apply to the group or are strategically important for shareholders 3 Issuers of qualifying bonds 4 Active holding companies 5 O&G projects participants Foreign issuers of traded bonds (special conditions should be met) Active holding and subholding foreign companies Foreign companies with main activities under PSAs and similar agreements Operators of oil shelf project or its shareholder Page 16

17 Tax residency Self-recognition Self-recognition is pre-conditioned by: A permanent establishment in Russia Activities in Russia via an autonomous subdivision Documents in Russia that can serve as a basis to accrue and pay taxes Page 17

18 Tax residency Issues to consider Managing historical risks (PE via place of management) No practical procedure / official form regarding registration Internal regulations and defense files for proper management of the current risks. Professional directors start being viewed as insufficient substance! VAT, property tax and other tax implications Page 18

19 3 CONCEPT OF ACTUAL RECIPIENT (BENEFICIAL OWNER) OF INCOME

20 Beneficial ownership Application of reduced rates under DTTs Russian tax resident 100% 100% 100% BVICo CypCo RusCo WHT on dividends 5%? 15% Conditions for applying reduced rates under DTTs: Ability of CypCo to use and/or manage income received Ability of CypCo to derive benefits from income received Ability of CypCo to decide on the further utilization of income received Justification of real business activity and substance based on Russian unjustified tax benefit concept (recent court practice) Page 20

21 Beneficial ownership Dividends - «Look-through» approach Russian tax resident BVICo CypCo RusCo WHT 0% or 13% depending on participation interest > 50 WHT 0% < 50% - WHT 13% Key considerations : Confirmation of the actual right/absence of actual right on income Confirmation of the Russian tax residency Calculation of the CFC profit (risk of double taxation) resolved through recent changes in the Law Exemption of dividends at the level of the Russian tax resident Page 21

22 4 TAX AMNESTY

23 Tax amnesty General overview Draft Law N «On the Voluntary Declaration of Property and Bank Accounts (Deposits) by Individuals» Relief from liability upon provision of a special declaration Period 1 July till 31 December 2015 Declaration may be filed only once with no right to make amendments Period covered till 1 January 2015 No declaration fee or tax payments Page 23

24 Tax amnesty What may be declared (1) Offshore company Cash Nominee Assets Assets Grey area May be declared Page 24

25 Tax amnesty What may be declared (2) Property (including placed into trust and received from a nominee owner): Land plots, other real estate Vessels Securities (shares, participatory interest and equity units) CFCs Foreign bank accounts, as well as accounts in Russian and foreign banks, with respect to which the person is considered as a beneficial owner NB! Cash is not clearly included in the list of the property Yachts and aircraft may be treated as real estate Precious metals, art objects are not covered Page 25

26 Tax amnesty What is exempt Criminal liability Evasion to repatriate of the currency to Russia Evasion of payment of customs duties Evasion to pay taxes (fees) Failure to perform the duties of a tax agent Concealment of monetary funds or property on which the taxes and (or) fees should be levied Administrative liability (including upon foreign exchange operations) Tax liability Page 26

27 5 QUESTIONS AND ANSWERS

28 Contacts Alexei Ryabov Tax & Law Partner Outbound Tax Leader, Russia / CIS Tel: +7 (495) Mobile: +7 (905) Alexei.Ryabov@ru.ey.com Page 28

29 Addendum 1. Russian CFC exemptions (1) Non-commercial organizations which do not distribute profits Companies, which effective tax rate exceeds 75% of the blended Russian tax rate Industry exemptions: Banks or insurance companies Issuers of traded bonds Companies in the Eurasian Economic Union Active foreign companies (including foreign holding and sub-holding companies) Foreign companies participation in which is realized exclusively via Russian public companies Foreign companies involved in projects under oil&gas production-sharing, concession and similar agreements in the corresponding country provided that over 90% of the company s profit for the financial year is from such projects Page 29

30 Addendum 1. Russian CFC exemptions (2) Active company share of passive income < 20% >75% >50% Page 30 SubHoldCo >75% Active Companies HoldCo >50% Active Company Active foreign holding company Direct interest > 75% for 365 days; Income (profit) is absent or Share of passive income > 5%; Direct interest in active foreign companies > 50% for 365 days; Direct interest in active foreign subholding companies > 75% for 365 days Active foreign subholding company Direct interest > 75% for 365 days; Income (profit) is absent or Share of passive income > 5%; Direct interest in active foreign companies > 50% for 365 days

31 Addendum 1. Russian CFC exemptions (3) How to calculate effective tax rate (ETR): ETR = T P where T is amount of corporate income tax paid by foreign company in jurisdiction of its incorporation P is amount of profit of foreign company calculated based on CFC rules (see above) Blended tax rate (BTR): where R1 is Russian profit tax rate (20%) BTR = R1 P1+R2 P2 P1+P2 R2 is Russian tax rate for dividends (9%, it is expected that it will be increased to 13%) P1 is sum of profit of foreign company (except of dividends received by this foreign company and dividends paid by foreign company) P2 is sum of dividend income received by foreign company Page 31

32 Addendum 2. Recent amendments (Draft Law No ) Definition of CFC The rules for recognizing structures as CFCs are refined Direct or indirect participation via public companies is scoped out Exemptions Profits of active holding and sub-holding companies are exempt from taxation under the CFC rules Calculating CFC profit The CFC profit should not include dividends, on which the CFC has no actual rights (look-through approach) Page 32

33 Addendum 2. Recent amendments (Draft Law No ) Definition / Criteria Place where BoD meetings are held is not the criteria for the effective place of management anymore Additional Criteria Clearance how to apply supplementary criteria Improvement of the self-recognition procedure Selfrecognition Page 33

34 Addendum 3 CFC schedule (1) Notification on participation in foreign legal entities (25% and more + transitional period) Notification about participation in foreign structures Notification regarding participation in CFCs (50% and more) Notification regarding participation in CFCs 25%/10% (50%) June 15 March 20 March 20 March March 28 March 28 March 28 Page 34 Annual income tax return (no CFC reporting and payments) Annual income tax return including CFC s profit (if CFC s profit is RUB 50mln. (EUR 0.96mln.) or more) Annual income tax return including CFC s profit (if CFC s profit is RUB 30mln. (EUR 0.57mln.) or more) No fines will be charged for the tax periods of for nonpayment or underpayment of tax as a result of non-inclusion in the tax base of CFC s profit

35 Addendum 3 CFC schedule (2) Nonpayment or underpayment of tax as a result of non-inclusion in the tax base of a share in the CFC profit 20% of the amount of unpaid tax, but no less than RUB 100,000 A transitional period is established: fines will not be charged for the tax periods when decisions are made to impose tax liability for such tax offenses. Failing to notify the tax authorities of participation in a CFC RUB100,000 (<EUR 2,000) for each CFC Failing to provide the tax authorities with information or for submitting documents containing inaccurate information on a controlled entity Failing to notify the tax authorities of participation in a foreign entity RUB100,000 (<EUR 2,000) for each CFC RUB 50,000 (<EUR 1,000) for each CFC Criminal liability (up to 6 years) for nonpayment or underpayment of taxes due to a CFC tax underpayment. For tax periods does not apply if the damage is recovered Page 35

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