Tax Flash Reports

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Process of finalising CFC notification form wrapping up

The period for public discussion of the draft template for controlled foreign corporation (CFC) notification form has now ended. The template was modified and fine-tuned over the summer. Below we have enumerated the most important modifications as compared to the previous version published in May, which we have already reported on.

15% tax rate introduced on interest income from RUB bonds by Russian issuers; loyalty programme income exempted from PIT

This Tax Flash Report covers a number of changes concerning certain aspects of the taxation of financial transactions as well as personal income earned under loyalty programmes.

New draft bill on three-tier transfer pricing documentation and automatic exchange of information

On 6 September 2016, the Russian Finance Ministry published a draft bill supplementing Part I of the Russian Tax Code (“RTC”) with provisions purporting to enable the international automatic exchange of information about financial accounts and of TP documentation of multinational corporations (“MNCs”). The publication was made on the governmental web-portal for disclosing the draft bills/regulations. Compared to the April version of the draft bill, the current draft has been expanded significantly to include: · The obligation to prepare and submit, in addition to “country report” (or “country-by-country report”/CbCR in the terminology of OECD), MNC’s “global TP documentation” (equivalent of “master file”) and “national TP documentation” (equivalent of “local file”). · The specifics of automatic exchange of financial information with foreign countries for tax purposes, as well as automatic exchange of country-by-country reports. For this purpose, an entirely new section No. VII-1 is introduced to the RTC. PwC Russia has prepared a separate Flash Report covering this topic[3]. · A dedicated article aiming to regulate the participation of foreign tax authorities in Russian tax audits. These changes are proposed with effect from 1 January 2017. The obligation to file notifications (about a company’s membership in an MNC) and country-by-country reports will apply to financial years starting after 1 January 2017 (compliance for pre-2017 periods is voluntary). Penalties for failure to file the above documents, or for filing inaccurate documents, will not apply to cases occurred in relation to periods of 2017-2019.

Key developments related to tax monitoring

In July 2016, the Russian Government adopted a number of new amendments to Section V.2 of the Russian Tax Code (RTC) on “Tax Control in the Form of Tax Monitoring”. Federal Law No. 240-FZ, which was signed by President of the Russian Federation on 3 July 2016 (the “Law”), has introduced the relevant amendments. These amendments introduce a number of important changes in the tax monitoring procedure. Namely, introduced amendments contain following provisions: Determination of the scope of tax monitoring for taxpayers forming a consolidated group of taxpayers (CGT). Introduction of definition of an internal control system (ICS) and mandate that the Russian Federal Tax Service (FTS) sets the requirements for taxpayers’ ICS. Inclusion of insurance contributions within the scope of tax monitoring. Availability for taxpayers to clarify the Regulations on information exchange at the request of the tax authorities at the stage of filing an application for participating in tax monitoring. Establishing the procedure for filing documents with the tax authorities by ruling out filing methods not specifically stipulated in Article 105.29 paragraph 4 of the RTC. The provisions of the Law take effect on 4 August 2016.

Purchase of eurobonds – MinFin stands up for taxpayers

In our July Tax Flash, we reported on unexpected developments of the court practice regarding the purchase of eurobonds on the secondary market. The tax authorities believe that accumulated coupon income included in the eurobond price is in essence an interest income from sources in the Russian Federation and a Russian buyer must withhold tax on it. The Moscow Arbitrazh Court agreed with them twice (see the cases of Gazprombank and Khanty-Mansiysk bank Otkritie). These court rulings sparked an active public discussion, and the Minfin considered it necessary to issue its clarifications. After the Minfin has expressly stated its position, it is possible that similar claims will not be brought against other Russian buyers of eurobonds. It is reasonable to wait for next courts’ rulings on the existing disputes to assess tax risks associated with the purchase of eurobonds from foreign counterparties.