Regularization of Russian
Private Clients’
Undeclared/Untaxed Funds
Undeclared Funds vs. Undistributed
Revenues
Current Reporting Obligations on Foreign Accounts
General Rule: RF residents shall report to Russian tax authorities:
on opening
(closing) bank
accounts/deposi
ts abroad;
During 1 month period
on changing bank
accounts/deposits
details;
During 1 month period
on all
transactions of
foreign bank
accounts (or
deposits);
Residency status (for reporting purposes):
Is defined by the RF Currency Legislation;
Generally includes Russian citizens, except those who are away for no less
than 1 year (uninterrupted stay outsider of Russia without crossing the border)
Current Rule: Dividends and Interest are Taxed
Only if Actually Paid
Withholding tax/ if
any
Foreign Legal
Entity
Foreign Jurisdictions:
Cyprus, Malta, BVI
Switzerland, etc.
Dividends/Interests
Personal income tax:
9% for dividends
13% for interests
Russian Federation
Use of Capitalization Funds. Common Rules.
RF tax resident is
liable for RF tax only
WHEN
Foreign Companies
could be potentially
liable for RF tax
WHEN
• RF tax resident owns units/securities
distributed by the fund and;
• RF tax resident actually receives any
income upon sale/disposal of units
• Fund’s units are owned by foreign entities;
• Russian sourced income from the
sale/disposal of units
Tax rates for income received from transactions with securities in the RF:
•13% for the RF residents
• 30% for non-residents
Use of Capitalization Funds. Specifics of Securities and
Financial Instruments Taxation.
I.
II.
Actual expenses for
acquisition of
securities/financial
instruments
In case of further sale of
securities
Market value of the
securities/financial
instruments
Material
gain
Material
gain
Paid
Personal
income tax
Personal
income tax:
•13% for the
RF residents
• 30% for nonresidents
Expenses reducing
personal income
from sale
III. •Tax base for securities transactions is the financial result: income from
sale of securities after deduction expenses for their purchase.
•Tax rate: 13% for the RF residents, 30% for non-residents;
Use of Life Insurance Products: Taxation only Upon
Distributions
Russian national
Proceeds from insurance policy
upon certain events (death,
disability, elderly age, etc.)
Funds transfer as payment for
insuring life/property/etc.
Income generated during the term
of such insurance policy
Foreign
Insurance
Company
Use of Life Insurance Products.
General Rules:
Income generated during the term of insurance policy is taxable at a rate of 13% as
income received from foreign sources;
Insurance payments are taxable at a rate of 13% (para 2 and 3 of art. 208 of the RF Tax
Code);
Tax exemption is applied to the following payments (para 2 and 3 of art. 213.1 of
the RF Tax Code)
Insurance payments upon a certain
age/period of the insured person or in
other events if:
(i) the insurance payments are
paid by the taxpayer
(ii) insurance payments do not
exceed the sum of his paid
premiums;
The difference between these
amounts will be included in tax base.
Insurance payments upon events:
-Death
-Injury to health; and (or)
-Reimbursement
of
medical
expenses of the insured person
(exception
–
payments
for
sanatorium treatment);
Dividends: Russian Tax upon payment from Cyprus
Cyprus
CY
No Withholding Tax
Russia
9% Personal income tax less
WHT paid in Cyprus
Dividends
Interest: Russian Tax upon Payment from Cyprus
CY
Cyprus
No Withholding tax
Russia
13% Personal income tax
Interests
Currency Control
Foreign Legal
Entity
Foreign
Jurisdiction
Russia
Dividends
Currency
Transaction
Currency Control:
All transactions shall
be made via
Authorized banks
Otherwise
Fine in the amount up to the sum
of illegal currency transaction
Proposed CFC Legislation
 The Russian Ministry of Finance is working on the draft
tax law which would introduce concepts of CFC
(Controlled Foreign Company) for tax purposes;
 Potentially, such new CFC rules may require Russian
companies and individuals to report and account for
passive profits of their CFCs even if no distributions are
made;
Taxpayers receiving dividends from sources outside of the
Russian Federation are entitled to reduce the amount of
tax
New Trends on Taxation of Off-shore
Profits by Russian Tax Authority
Key Events of De-offshorization
• Tax Administration Forum of OECD in Moscow (8th session):
May • The following goals were set: improvement of tax agencies efficiency and
Taxpayers
receiving
dividends
from sources
outside of the
tax cooperation,
fighting
offshore companies
and tax evasion;
2012
Russian
Federation
are entitled
to reduce
the
of
• Amendments
to Federal
Law No. 134-FZ
as of June
26,amount
2013 on Fighting
tax of Illegal Financial Operations”:
June
2012
May
2013
• Defining of Beneficial Owner (UBO) as an individual directly or indirectly
owning of 25% of charter capital of the entity or who has a possibility to
determine actions (decisions) of the entity;
• Tightening of relevant banking rules;
• Main directions of the RF tax policy for 2014, 2015 and 2016 are approved
by the RF Government:
• Fighting tax evasion using tax efficient jurisdictions was set as a main goal;
• The RF President Vladimir Putin delivered his annual address to the RF
Federal Assembly:
Decem
• Stressed the necessity of creating a system of measures for deoffshorization
ber
of Russian economy;
2013
Implementation of
new special provisions
in tax legislation
Toughening of law
enforcement practice
Impact of International
organizations on jurisdictions
used to aggressive tax
planning
Strengthening processes for
exchange of tax information
between countries
Key Directions
of Further Deoffshorization
Recent/Pending Changes to Russian Legislation on
Fighting Use of Off-shores
30% tax on Distributions to Foreign Investors not
providing information on beneficiaries is introduced to the
RF Tax Code (came into force on December 3, 2013);
New transfer pricing rules are introduced to the RF
Tax Code (came into force on January 1, 2012);
Rules on Controlled Foreign Companies (CFC
Rules) are under development;
Draft of Law on Tax Residence of Companies is
under development;
Control on Income Sources
 For individuals there is no total control for their income sources on
which assets were previously acquired:
See: Federal Law No. 116-FZ dated July 20, 1998 “On state control for
compliance of large expenses to income factually received by individuals
(did not come into force);
See: Art. 86.1., 86.2., 86.3. of the RF Tax Code came into force from
January 1, 2000, but were cancelled from July 9, 2003;
 PEPs expenses are under control from January 1, 2013
See: Federal Law No. 230-FZ of December 3, 2012 “On control for
compliance of expenses of individuals occupying state posts and other
individuals to their levels of income” (came into force from January 1,
2013);
Federal Law No. 230-FZ of December 3, 2012
Came info force from January 1, 2013;
Applies to transactions made from January 1,
2012;
Main purpose: fighting corruption;
Key Persons Covered by Federal Law No. 230
Federal State Officials
State officials of the RF sub-federal units (regions);
Members of the Board of directors of the RF Central
Bank
Officials of federal state service and state civil service of
the RF sub-federal units
Officials in Pension, Social and other funds
Spouses and minor children of the above mentioned
persons
Others
Federal Law No. 230-FZ of December 3, 2012
Acquisition of assets:
-Land plots
-Other real estate
-Vehicle
-Securities
-Shares
The amount of
transaction exceeds
total income of PEP
and his/her spouse
for the last 3 years
before transaction
Obligation of PEPs to inform on:
Consequences for Non-compliance
Release from occupied positions;
Criminal, administrative or other
liability;
Strengthening of Control for Financial Operations
of Individuals
Federal Law No. 134-FZ as of June 28, 2013 on Fighting of Illegal Financial Operations
Bank
In relation to receiving
information on
individuals: consent of
the higher tax authority
is required
Tax authorities
Provision of Information
on bank accounts of
companies, entrepreneurs,
individuals
On the basis of court
decision
Operativeinvestigation
bodies
Tax Amnesty
Presidential decree № 1773 Federal Law № 269 -FZ "On Federal Law N 330-FZ as of
“On conducting tax
the simplified procedure for
21st of November, 2011 in
amnesty in 1993” as of 27th
declaring of income by
respect of transport, land
of October, 1993
individuals" of 30th of
and individual property tax,
December 2006
debts on which originated
prior to January 1, 2009
Legal entities and individuals
who had declared sums of
previously unpaid taxes before
November 30, 1993 and
transferred them into the budget
were relieved from
tax
penalties.
Within 10 months, from March 1,
2007 to January 1, 2008,
individuals had the opportunity to
pay taxes on income earned by
them before 1 January 2006, but
hidden from taxation without
indication of type and source of
income.
Tax debts originated prior to
January 1, 2009 were written off
(“forgiven”) by the tax authorities
automatically.
The law was not effective in
The law was not effective in
respect of individuals sentenced respect of such debts, related to
under Art. 198 of the RF Criminal entrepreneurs activities or private
Code (tax evasion).
practice of individuals.
Limitation Period for Tax Offences
Tax liability ceases in the following cases:
 Payment of taxes;
 Death of an individual taxpayer;
 Liquidation of the taxpayer (legal entity);
 Other cases provided by the law;
An individual can not be brought to responsibility (fines) for tax offences if 3
years expired before such decision left was made, beginning from:
 the next day after the end of the tax period during which the offence was
committed (effective for offences under Art. 120, 122 of the RF Tax Code);
 the date of its commission (for all other offenses);
 Within the framework of the field tax audit the reviewed period can not
exceed 3 years from the date, when decision on the appointment of such audit
was made (5 years for taxpayers participating in regional investment
projects);
Relief of Tax Liability
The corrected tax return is
submitted:
 after deadline for such
submission expired, but
 before expiry of deadline
for tax payment
The amended tax return is
submitted:
 after
deadlines
for
submission of tax return
and for tax payment expired
Relief of tax liability
Relief of tax liability
Provided that the taxpayer did not know
about:
 discovery of tax underpayment by the tax
authorities
 the appointment of the field tax audit
1. Provided that the taxpayer paid the
underpaid taxes before he became aware of:
 discovery of tax underpayment by the tax
authorities
 the appointment of the tax field audit
2. Provided that the tax payer paid the
underpaid taxes and such underpayment was
not identified in course of the field tax audit
Relief of tax liability does not exclude implication of criminal liability.
Relief of Criminal Liability
The taxpayer can be released from criminal liability if a prescribed period of
time passed since crime has been committed (p. 1 of art. 78 of the Criminal Code
of the RF).
Two years
after committing a Minor
offense
(maximum punishment does
not exceed 3 years of
imprisonment);
Six years
after committing an Averagegravity crime
(maximum punishment does
not exceed 5 years of
imprisonment);
Note:
The tax offence is considered to be committed in case taxes are not paid in the
time term established by the tax legislation
Relief of Criminal Liability
Minor offenses
Tax and duty evasion
committed by an individual
on a large scale*
(art. 198 of the Criminal Code of
the RF)
*Large scale:
• more than RUB 600 000 (USD
17,000) within 3 consecutive
years, provided such tax
underpayment exceeds 10% of
due taxes payable,
• OR more than RUB 1,8 mln
(USD 50,000);
Tax and duty evasion
committed by
organization on a
large scale **
(p. 1 of art. 199 of the
Criminal Code of the RF)
Failure to fulfill the tax
agent obligations on a
large scale**
(p. 1 of art. 199.1 of the
Criminal Code of the RF)
**Large scale:
• more than RUB 2 000 000 (USD 56,000) within 3
consecutive
years,
provided
such
tax
underpayment exceeds 10% of due taxes payable,
• OR more than RUB 6 mln RUB (USD 166,000);
The taxpayer who committed minor tax offence for the first time may be released from criminal
liability in case of payment of all underpaid taxes and fines.
Relief of Criminal Liability (Continuation)
Averagegravity crimes
Tax and duty evasion
committed:
• by a group of persons
with prior agreement
• on especially large scale*
(p. 2 of art. 199 of the Criminal
Code of the RF)
Failure to fulfill the tax
agent obligations on
especially large scale*
(p. 2 of art. 199.1 of the
Criminal Code of the RF)
*Especially Large scale:
•more than RUB 10 mln. (USD 277,000) within 3
consecutive years, provided such tax underpayment
exceeds 20% of due taxes payable,
•OR more than RUB 30 mln (USD 833,000);
Concealment of funds or
property of the legal entity
or entrepreneur, at the
expense of which taxes and
duties are to be paid, on a
large scale**
(art. 199.2 of the Criminal Code
of the RF)
**Large scale:
•More than RUB 1 500 000
(USD 42,000);
Limitation Period for Administrative Liability
for Tax Offences
Administrative offences
related to taxation and
duties
• Violation of time term for
registration with the tax authorities
• Violation of the time term for
submission of a tax return
• Failure to submit data necessary for
tax control
• Gross violation of accounting and
submission of financial statements
The taxpayer can not be brought to administrative liability for a tax offence after
expiration of 1 year term from the date when the tax offence was committed (for longlasting offences - from the date of discovery of the tax offence).
Thank You For Attention!