Tax Flash Reports

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Rules set to change again on debt forgiveness and receiving property from shareholders

A new set of amendments to the Russian Tax Code (RTC) is now in the works that would significantly reduce those instances when the transfer of property by a shareholder to a subsidiary does not trigger taxable income for the latter party. Debt forgiveness by a shareholder would also no longer be eligible for an exemption. According to the authors of the relevant bill, these amendments are intended to eliminate duplicating provisions of the RTC, as well as to minimise possible tax evasion. Moreover, the lawmakers are seeking to clarify that, when creating doubtful debt provisions, only differences between the accounts payable and accounts receivable of the same counterparty may be used. The Russian Ministry of Finance (MinFin) drafted the text of the bill, which will be open to public discussion until 2 November 2016. If the proposed amendments are enacted quickly, the new rules would take effect already on 1 January 2017.

Tax breaks on vehicles make a comeback

Russia’s lawmakers continue to fine tune the tax rules with various tweaks and adjustments. As part of these efforts, a bill has been submitted to the State Duma that calls for making vehicles purchased from related parties tax exempt.

MinFin confirms stable tax regime for next three years

On 5 October, the Russian Ministry of Finance (MinFin) published a draft version of the Main Priorities for Russian Federation Tax Policy for 2017-2019. According to this policy document, the tax burden should not undergo any fundamental change in the near term (with the exception of taxation in the oil and gas industry). For example, it does not call for introducing any of the measures that taxpayers have been most concerned about, such as a progressive scale personal income tax or a hike in the VAT rate up 20%. At the same time, however, it does recommend limiting loss carry-forward by 30% of the current year tax base, and abolishing the maximum period over which losses may be carried forward (currently 10 years). This effectively means that losses would be recognised over a longer period of time (which, given inflation, would have an unfavourable impact on taxpayers); however, this approach would help to gradually recognise the entire amount of losses. The policy also suggests limiting recognition of losses incurred within a consolidated group of taxpayers (CGT). Effectively, the tax burden may grow for those CGTs with a large number of loss-making companies, while other CGTs could face a growing administrative burden. Importantly, starting from 2018 the MinFin would like to launch the automatic exchange of tax information with the relevant authorities of other countries in line with the OECD programme. Back in September 2016, the MinFin published a bill addressing the practical aspects of such exchanges. The MinFin has indicated Russia’s willingness to join the OECD Multilateral Agreement aimed at introducing coordinated changes in effective double tax treaties (DTTs).

New tax return will include CFC section

The Russian Federal Tax Service (FTS) has published a draft of the new corporate income tax return, which will replace the current return and will apply to 2016 tax period. The draft return reflects recent changes in tax law. Recently, a new mechanism for taxing profits earned by controlled foreign companies (CFC) was introduced. To reflect this, the draft tax return features a new section where taxpayers will report tax amounts assessed on a CFC’s share of profits. The draft document is open to public discussion until 13 October.

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.