CFC rules: over 100 jurisdictions land on FTS “blacklist”

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CFC rules: over 100 jurisdictions land on FTS “blacklist”
Tax Flash Report
by PwC experts
CFC rules: over 100 jurisdictions land on
FTS “blacklist”
November 2015 / Issue No. 35
In brief
The Russian Federal Tax Service (FTS) has released for public discussion a so-called “blacklist” of those countries
and jurisdictions that the FTS deems not to have provided proper exchange of tax information with the Russian
tax authorities1. Certain provisions of Russia's controlled foreign company (CFC) legislation make reference to
such a list (e.g. tax exemptions for CFC profits in Russia).
The business community had been expecting that the FTS list would more or less match the list developed by the
MinFin2, which encompasses 40 countries (the zero profits tax rate cannot be applied to dividends received from
the listed countries). However, the FTS list has turned out to be three times longer than the MinFin's list and
encompasses even such jurisdictions as United Kingdom, Switzerland, Austria and Brazil (see Appendix 1).
The document is now at the public discussion stage. We hope that the FTS will accommodate the needs of the
business community by reducing this list at least for the initial years of applying the CFC rules (the list may be
reviewed on an annual basis).
In detail
Please note that Article 25.13-1 of the Russian Tax Code (RTC) describes situations when CFC profit is tax exempt
in Russia. In total, there are eight such situations. Three of them are inapplicable, however, if a CFC is
permanently domiciled in a country that does not ensure tax data sharing with Russia. This means that the
following exemptions are inapplicable if a CFC is on the FTS blacklist:
 the CFC has a high effective tax rate in its home jurisdiction (at least 75% of the average weighted Russian
rate);
 the CFC is a bank or insurance company operating under its personal law based on a licence or other
special authorisation to carry out banking or insurance activity;
 the CFC is an issuer of marketable bonds, a company authorised to earn interest income, or a company to
which relevant rights and obligations have been assigned.
The blacklist does not affect other tax exemptions for CFC profit (e.g. if a CFC is an active company or participates
in minerals production projects, with certain nuances).
The FTS blacklist was expected to include traditional offshore zone jurisdictions, similar to the MinFin's already
existing blacklist, which covers 40 jurisdictions (e.g. Beliz, the British Virgin Islands, the Cayman Islands, and
others). The Russian business community, in particular, had assumed that the profits of companies under their
http://regulation.gov.ru/projects#npa=41221
Russian Federation Ministry of Finance Order No. 108n of 13 November 2007 "On Approving the List
of Countries and Territories That Provide a Beneficial Tax Regime and/or Do Not Stipulate the
Disclosure and Submission of Information When Conducting Financial Transactions (Offshore Zones)"
1
2
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control, which are not domiciled in such traditional offshore zones and pay relatively high profits tax, would be
tax exempt in Russia under the CFC rules.
However, the FTS list has turned out to be three times longer that the MinFin's list and encompasses 137
jurisdictions (see Appendix 1), including, for example, United Kingdom, Switzerland, Austria, Brazil
and other countries.
The takeaway
Many taxpayers have assessed their tax liabilities based on the expectation that foreign companies and structures
under their control are not on the blacklist and that the profits of such entities earned since 2015 would be tax
exempt in Russia under the CFC rules. However, as noted, the FTS blacklist has proven to be quite extensive.
Thus, taxpayers should review their foreign assets to determine whether there are any other grounds for taking
Russian tax exemptions on their CFCs domiciled in jurisdictions on the FTS blacklist.
Please note that under the tax amnesty (see Tax Flash Report No. 17, May 2015), movable property located in a
country that does not ensure tax data sharing with Russia should be returned to Russia. So, there is a probability
that the FTS blacklist may also cover this provision of the amnesty.
We can only hope that FTS blacklist will be reduced. We urge you to actively take part in the public discussion of
the FTS blacklist, which runs through 6 November.
Tax Flash Report
by PwC experts
Appendix 1
List of countries and territories that do not ensure proper tax data sharing with the Russian Federation:
Territories
Countries
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
Abkhazia
Austria
Angola
Principality of Andorra
Antigua and Barbuda
Afghanistan
The Bahamas
Bangladesh
Barbados
Bahrain
Belize
Benin
Bolivia
Bosnia and Herzegovina
Brazil
Brunei
Burkina Faso
Burundi
Bhutan
Vanuatu
Great Britain
East Timor
Gabon
Haiti
Guyana
Gambia
Ghana
Guatemala
Guinea
Guinea-Bissau
Honduras
State of Palestine
Grenada
Georgia
Djibouti
Dominica
Dominican Republic
Congo
Zambia
Zimbabwe
Israel
Jordan
Iraq
Yemen
Cape Verde
Cambodia
1.
2.
3.
4.
5.
6.
Anguilla
Aruba
Bermuda
British Virgin Islands
Gibraltar
People's Republic of China: Hong Kong
Special Administrative Region
7.
People's Republic of China:
Macao Special Administrative Region
8.
Union of the Comoros:
Island of Anjouan
9.
Malaysia:
Labuan Island
10. Montserrat
11. Curacao (Dutch part)
12. Republic of Niue
13. Cayman Islands
14. Cook Islands
15. Turks and Caicos Islands
16. Separate administrative unit of the United
Kingdom of Great Britain and Northern
Ireland:
Isle of Man
17. Separate administrative units of the United
Kingdom of Great Britain and Northern
Ireland: Channel Islands (the islands of
Guernsey, Jersey, Sark and Alderney)
18. Saint Martin (Dutch part)
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47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
Cameroon
Kenya
Kiribati
Colombia
Comoros
Costa Rica
Cote d'Ivoire
Laos
Lesotho
Liberia
Lebanon
Lichtenstein
Mauritius
Mauritania
Madagascar
Malawi
Maldives
Malta
Marshall Islands
Mozambique
Monaco
Myanmar
Nauru
Nepal
Niger
Nigeria
Nicaragua
United Arab Emirates (UAE)
Oman
Pakistan
Palau
Panama
Papua New Guinea
Paraguay
Peru
Republic of the Congo
Rwanda
El Salvador
Samoa
San Marino
Sao Tome and Principe
Swaziland
Seychelles
Senegal
Saint Vincent and the Grenadines
Saint Kitts and Nevis
Saint Lucia
Solomon Islands
Somalia
Sudan
Surinam
Sierra Leone
Tanzania
Togo
Tonga
Trinidad and Tobago
Tuvalu
Tunisia
Uganda
Uruguay
Federated States of Micronesia
Fiji
Central African Republic
Chad
Switzerland
Ecuador
Equatorial Guinea
114.
115.
116.
117.
118.
119.
Eritrea
Estonia
Ethiopia
South Ossetia
South Sudan
Jamaica
Let’s talk
We would be happy to answer your questions.
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