Regularization of Russian Private Clients’ Undeclared/Untaxed Funds Undeclared Funds vs. Undistributed Revenues Current Reporting Obligations on Foreign Accounts General Rule: RF residents shall report to Russian tax authorities: on opening (closing) bank accounts/deposi ts abroad; During 1 month period on changing bank accounts/deposits details; During 1 month period on all transactions of foreign bank accounts (or deposits); Residency status (for reporting purposes): Is defined by the RF Currency Legislation; Generally includes Russian citizens, except those who are away for no less than 1 year (uninterrupted stay outsider of Russia without crossing the border) Current Rule: Dividends and Interest are Taxed Only if Actually Paid Withholding tax/ if any Foreign Legal Entity Foreign Jurisdictions: Cyprus, Malta, BVI Switzerland, etc. Dividends/Interests Personal income tax: 9% for dividends 13% for interests Russian Federation Use of Capitalization Funds. Common Rules. RF tax resident is liable for RF tax only WHEN Foreign Companies could be potentially liable for RF tax WHEN • RF tax resident owns units/securities distributed by the fund and; • RF tax resident actually receives any income upon sale/disposal of units • Fund’s units are owned by foreign entities; • Russian sourced income from the sale/disposal of units Tax rates for income received from transactions with securities in the RF: •13% for the RF residents • 30% for non-residents Use of Capitalization Funds. Specifics of Securities and Financial Instruments Taxation. I. II. Actual expenses for acquisition of securities/financial instruments In case of further sale of securities Market value of the securities/financial instruments Material gain Material gain Paid Personal income tax Personal income tax: •13% for the RF residents • 30% for nonresidents Expenses reducing personal income from sale III. •Tax base for securities transactions is the financial result: income from sale of securities after deduction expenses for their purchase. •Tax rate: 13% for the RF residents, 30% for non-residents; Use of Life Insurance Products: Taxation only Upon Distributions Russian national Proceeds from insurance policy upon certain events (death, disability, elderly age, etc.) Funds transfer as payment for insuring life/property/etc. Income generated during the term of such insurance policy Foreign Insurance Company Use of Life Insurance Products. General Rules: Income generated during the term of insurance policy is taxable at a rate of 13% as income received from foreign sources; Insurance payments are taxable at a rate of 13% (para 2 and 3 of art. 208 of the RF Tax Code); Tax exemption is applied to the following payments (para 2 and 3 of art. 213.1 of the RF Tax Code) Insurance payments upon a certain age/period of the insured person or in other events if: (i) the insurance payments are paid by the taxpayer (ii) insurance payments do not exceed the sum of his paid premiums; The difference between these amounts will be included in tax base. Insurance payments upon events: -Death -Injury to health; and (or) -Reimbursement of medical expenses of the insured person (exception – payments for sanatorium treatment); Dividends: Russian Tax upon payment from Cyprus Cyprus CY No Withholding Tax Russia 9% Personal income tax less WHT paid in Cyprus Dividends Interest: Russian Tax upon Payment from Cyprus CY Cyprus No Withholding tax Russia 13% Personal income tax Interests Currency Control Foreign Legal Entity Foreign Jurisdiction Russia Dividends Currency Transaction Currency Control: All transactions shall be made via Authorized banks Otherwise Fine in the amount up to the sum of illegal currency transaction Proposed CFC Legislation The Russian Ministry of Finance is working on the draft tax law which would introduce concepts of CFC (Controlled Foreign Company) for tax purposes; Potentially, such new CFC rules may require Russian companies and individuals to report and account for passive profits of their CFCs even if no distributions are made; Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax New Trends on Taxation of Off-shore Profits by Russian Tax Authority Key Events of De-offshorization • Tax Administration Forum of OECD in Moscow (8th session): May • The following goals were set: improvement of tax agencies efficiency and Taxpayers receiving dividends from sources outside of the tax cooperation, fighting offshore companies and tax evasion; 2012 Russian Federation are entitled to reduce the of • Amendments to Federal Law No. 134-FZ as of June 26,amount 2013 on Fighting tax of Illegal Financial Operations”: June 2012 May 2013 • Defining of Beneficial Owner (UBO) as an individual directly or indirectly owning of 25% of charter capital of the entity or who has a possibility to determine actions (decisions) of the entity; • Tightening of relevant banking rules; • Main directions of the RF tax policy for 2014, 2015 and 2016 are approved by the RF Government: • Fighting tax evasion using tax efficient jurisdictions was set as a main goal; • The RF President Vladimir Putin delivered his annual address to the RF Federal Assembly: Decem • Stressed the necessity of creating a system of measures for deoffshorization ber of Russian economy; 2013 Implementation of new special provisions in tax legislation Toughening of law enforcement practice Impact of International organizations on jurisdictions used to aggressive tax planning Strengthening processes for exchange of tax information between countries Key Directions of Further Deoffshorization Recent/Pending Changes to Russian Legislation on Fighting Use of Off-shores 30% tax on Distributions to Foreign Investors not providing information on beneficiaries is introduced to the RF Tax Code (came into force on December 3, 2013); New transfer pricing rules are introduced to the RF Tax Code (came into force on January 1, 2012); Rules on Controlled Foreign Companies (CFC Rules) are under development; Draft of Law on Tax Residence of Companies is under development; Control on Income Sources For individuals there is no total control for their income sources on which assets were previously acquired: See: Federal Law No. 116-FZ dated July 20, 1998 “On state control for compliance of large expenses to income factually received by individuals (did not come into force); See: Art. 86.1., 86.2., 86.3. of the RF Tax Code came into force from January 1, 2000, but were cancelled from July 9, 2003; PEPs expenses are under control from January 1, 2013 See: Federal Law No. 230-FZ of December 3, 2012 “On control for compliance of expenses of individuals occupying state posts and other individuals to their levels of income” (came into force from January 1, 2013); Federal Law No. 230-FZ of December 3, 2012 Came info force from January 1, 2013; Applies to transactions made from January 1, 2012; Main purpose: fighting corruption; Key Persons Covered by Federal Law No. 230 Federal State Officials State officials of the RF sub-federal units (regions); Members of the Board of directors of the RF Central Bank Officials of federal state service and state civil service of the RF sub-federal units Officials in Pension, Social and other funds Spouses and minor children of the above mentioned persons Others Federal Law No. 230-FZ of December 3, 2012 Acquisition of assets: -Land plots -Other real estate -Vehicle -Securities -Shares The amount of transaction exceeds total income of PEP and his/her spouse for the last 3 years before transaction Obligation of PEPs to inform on: Consequences for Non-compliance Release from occupied positions; Criminal, administrative or other liability; Strengthening of Control for Financial Operations of Individuals Federal Law No. 134-FZ as of June 28, 2013 on Fighting of Illegal Financial Operations Bank In relation to receiving information on individuals: consent of the higher tax authority is required Tax authorities Provision of Information on bank accounts of companies, entrepreneurs, individuals On the basis of court decision Operativeinvestigation bodies Tax Amnesty Presidential decree № 1773 Federal Law № 269 -FZ "On Federal Law N 330-FZ as of “On conducting tax the simplified procedure for 21st of November, 2011 in amnesty in 1993” as of 27th declaring of income by respect of transport, land of October, 1993 individuals" of 30th of and individual property tax, December 2006 debts on which originated prior to January 1, 2009 Legal entities and individuals who had declared sums of previously unpaid taxes before November 30, 1993 and transferred them into the budget were relieved from tax penalties. Within 10 months, from March 1, 2007 to January 1, 2008, individuals had the opportunity to pay taxes on income earned by them before 1 January 2006, but hidden from taxation without indication of type and source of income. Tax debts originated prior to January 1, 2009 were written off (“forgiven”) by the tax authorities automatically. The law was not effective in The law was not effective in respect of individuals sentenced respect of such debts, related to under Art. 198 of the RF Criminal entrepreneurs activities or private Code (tax evasion). practice of individuals. Limitation Period for Tax Offences Tax liability ceases in the following cases: Payment of taxes; Death of an individual taxpayer; Liquidation of the taxpayer (legal entity); Other cases provided by the law; An individual can not be brought to responsibility (fines) for tax offences if 3 years expired before such decision left was made, beginning from: the next day after the end of the tax period during which the offence was committed (effective for offences under Art. 120, 122 of the RF Tax Code); the date of its commission (for all other offenses); Within the framework of the field tax audit the reviewed period can not exceed 3 years from the date, when decision on the appointment of such audit was made (5 years for taxpayers participating in regional investment projects); Relief of Tax Liability The corrected tax return is submitted: after deadline for such submission expired, but before expiry of deadline for tax payment The amended tax return is submitted: after deadlines for submission of tax return and for tax payment expired Relief of tax liability Relief of tax liability Provided that the taxpayer did not know about: discovery of tax underpayment by the tax authorities the appointment of the field tax audit 1. Provided that the taxpayer paid the underpaid taxes before he became aware of: discovery of tax underpayment by the tax authorities the appointment of the tax field audit 2. Provided that the tax payer paid the underpaid taxes and such underpayment was not identified in course of the field tax audit Relief of tax liability does not exclude implication of criminal liability. Relief of Criminal Liability The taxpayer can be released from criminal liability if a prescribed period of time passed since crime has been committed (p. 1 of art. 78 of the Criminal Code of the RF). Two years after committing a Minor offense (maximum punishment does not exceed 3 years of imprisonment); Six years after committing an Averagegravity crime (maximum punishment does not exceed 5 years of imprisonment); Note: The tax offence is considered to be committed in case taxes are not paid in the time term established by the tax legislation Relief of Criminal Liability Minor offenses Tax and duty evasion committed by an individual on a large scale* (art. 198 of the Criminal Code of the RF) *Large scale: • more than RUB 600 000 (USD 17,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable, • OR more than RUB 1,8 mln (USD 50,000); Tax and duty evasion committed by organization on a large scale ** (p. 1 of art. 199 of the Criminal Code of the RF) Failure to fulfill the tax agent obligations on a large scale** (p. 1 of art. 199.1 of the Criminal Code of the RF) **Large scale: • more than RUB 2 000 000 (USD 56,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable, • OR more than RUB 6 mln RUB (USD 166,000); The taxpayer who committed minor tax offence for the first time may be released from criminal liability in case of payment of all underpaid taxes and fines. Relief of Criminal Liability (Continuation) Averagegravity crimes Tax and duty evasion committed: • by a group of persons with prior agreement • on especially large scale* (p. 2 of art. 199 of the Criminal Code of the RF) Failure to fulfill the tax agent obligations on especially large scale* (p. 2 of art. 199.1 of the Criminal Code of the RF) *Especially Large scale: •more than RUB 10 mln. (USD 277,000) within 3 consecutive years, provided such tax underpayment exceeds 20% of due taxes payable, •OR more than RUB 30 mln (USD 833,000); Concealment of funds or property of the legal entity or entrepreneur, at the expense of which taxes and duties are to be paid, on a large scale** (art. 199.2 of the Criminal Code of the RF) **Large scale: •More than RUB 1 500 000 (USD 42,000); Limitation Period for Administrative Liability for Tax Offences Administrative offences related to taxation and duties • Violation of time term for registration with the tax authorities • Violation of the time term for submission of a tax return • Failure to submit data necessary for tax control • Gross violation of accounting and submission of financial statements The taxpayer can not be brought to administrative liability for a tax offence after expiration of 1 year term from the date when the tax offence was committed (for longlasting offences - from the date of discovery of the tax offence). Thank You For Attention!