Strategizing Multinational Tax Risks

Russia has introduced legislation defining a “beneficial owner” and the introduction of CFC rules, expected to be effective 1/1/2015.  PwC has provided a summary of the changes, referenced herein.

Click to access pwc-russian-anti-offshore-law-changes-russian-treaties.pdf

Key observations:

• Treaty benefits will not apply if the foreign person has limited powers to dispose of the income or fulfill intermediary functions and do not perform any other duties or undertake any risks, or the income is subsequently transferred to another person who would not be entitled to treaty benefits if they had directly received the income.
• Foreign corporations, trusts, partnerships and funds which hold property subject to Russian property tax are required to notify the Russian tax authorities of their shareholders and founders, beneficiaries and managers.  A 100% penalty tax may apply for noncompliance.
• A legal entity may now be a Russian tax resident based on its place of management.
• Russian tax individuals and legal entities must pay Russian tax on a CFC’s retained earnings if the CFC has not paid a dividend, subject to thresholds.  No penalty is applicable for 2015-2107.

Persons with Russian property and legal interests should review this important legislation to understand the new reporting rules and regime for CFC’s and beneficial ownership.  The law follows the intent of the OECD’s BEPS provisions to prevent tax avoidance via tax havens and low-tax jurisdictions.