CFC rules: over 100 jurisdictions land on FTS “blacklist”
Transcription
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 www.pwc.com 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) www.pwc.com 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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