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Regularization of Russian Private Clients’
Undeclared/Untaxed Funds
Undeclared Funds vs. Undistributed Revenues
Current Reporting Obligations on Foreign Accounts
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)
General Rule: RF residents shall report to Russian tax authorities:
on opening (closing) bank
accounts/deposits abroad;
on changing bank accounts/deposits
details;on all
transactions of foreign bank accounts (or
deposits);During 1 month period
During 1 month period
Current Rule: Dividends and Interest are Taxed Only if Actually Paid
Foreign LegalEntity
Foreign Jurisdictions: Cyprus, Malta, BVI Switzerland, etc.
Russian Federation
Withholding tax/ if any
Personal income tax:
9% for dividends
13% for interests
Dividends/Interests
Use of Capitalization Funds. Common Rules.
• RF tax resident owns units/securities distributed by the fund and;
• RF tax resident actually receives any income upon sale/disposal of units
RF tax resident is liable for RF tax only WHEN
• Fund’s units are owned by foreign entities;• Russian sourced income from the sale/disposal of
units
Foreign Companies could be potentially liable for RF tax
WHEN
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.
Actual expenses for acquisition of
securities/financial instruments
Market value of the securities/financial
instruments
Material gain
Personal income tax:
• 13% for the RF residents
• 30% for non-residents
Material gain
Paid Personal
income tax
Expenses reducing personal income
from sale
In case of further sale of securities
• 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;
I.
II.
III.
Use of Life Insurance Products: Taxation only Upon Distributions
Russian national
Foreign Insurance Company
Funds transfer as payment for insuring life/property/etc.
Proceeds from insurance policy upon certain events (death, disability, elderly age, etc.)
Income generated during the term of such insurance policy
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
CYCyprus
Russia Dividends
No Withholding Tax
9% Personal income tax less WHT paid in Cyprus
Interest: Russian Tax upon Payment from Cyprus
CY
Cyprus
Russia Interests
No Withholding tax
13% Personal income tax
Currency Control
Foreign Jurisdiction
RussiaDividends
Foreign LegalEntity
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 taxNew Trends on Taxation of Off-shore Profits by Russian Tax Authority
Key Events of De-offshorization
Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax
May 2012
• Tax Administration Forum of OECD in Moscow (8th session):
• The following goals were set: improvement of tax agencies efficiency and tax cooperation, fighting offshore companies and tax evasion;
June 2012
• Amendments to Federal Law No. 134-FZ as of June 26, 2013 on Fighting of Illegal Financial Operations”:
• 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;
May 2013
• 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;
December 2013
• The RF President Vladimir Putin delivered his annual address to the RF Federal Assembly:
• Stressed the necessity of creating a system of measures for deoffshorization of Russian economy;
Implementation of
new special
provisions in tax
legislationToughening of law
enforcement practice
Impact of Internation
al organizatio
ns on jurisdictions used to aggressive
tax planning
Strengthening
processes for
exchange of tax
information between countries
Key Directions of Further De-offshorization
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
Main purpose: fighting corruption;
Applies to transactions made from January 1, 2012;
Came info force from January 1, 2013;
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, 2012Acquisition 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:
His/her expenses Spouse’s
expenses
Minor children's
expenses
Income sources
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
Tax authoritiesOperative-
investigation bodies
Provision of Information on bank accounts of companies, entrepreneurs, individuals
In relation to receiving information on individuals: consent of the higher tax authority is required
On the basis of court decision
Bank
Tax AmnestyPresidential decree № 1773
“On conducting tax amnesty in 1993” as of 27th
of October, 1993
Federal Law № 269 -FZ "On the simplified procedure for
declaring of income by individuals" of 30th of
December 2006
Federal Law N 330-FZ as of 21st of November, 2011 in respect of transport, land
and individual property tax, 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.
The law was not effective in respect of individuals sentenced under Art. 198 of the RF Criminal Code (tax evasion).
Tax debts originated prior to January 1, 2009 were written off (“forgiven”) by the tax authorities automatically.
The law was not effective in respect of such debts, related to entrepreneurs activities or private practice of individuals.
Limitation Period for Tax Offences
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);
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;
Relief of Tax LiabilityThe corrected tax return is submitted: after deadline for such
submission expired, but before expiry of deadline
for tax payment
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
The amended tax return is submitted: after deadlines for
submission of tax return and for tax payment expired
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 audit2. 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
Relief of tax liability does not exclude implication 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).
Relief of Criminal Liability
Two years after committing a Minor
offense (maximum punishment does
not exceed 3 years of imprisonment);
Six years after committing an Average-
gravity 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
*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);
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)
Failure to fulfill the tax agent obligations on a
large scale**(p. 1 of art. 199.1 of the
Criminal Code of the RF)
Tax and duty evasion committed by
organization on a large scale **
(p. 1 of art. 199 of the Criminal Code of the RF)
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.
**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);
*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);
Relief of Criminal Liability (Continuation)
Average-gravity 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)
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)
Failure to fulfill the tax agent obligations on
especially large scale*(p. 2 of art. 199.1 of the
Criminal Code of the RF)
**Large scale:• More than RUB 1 500 000
(USD 42,000);
Limitation Period for Administrative Liabilityfor Tax Offences
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 long-lasting offences - from the date of discovery of the tax offence).
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
Thank You For Attention!