The latest version of the draft federal law on the taxation of income of CFCs was published on 2 September 2014 on the official website of the Russian Ministry of Finance.
Since the bill was first published on 18 March 2014, it has been extensively revised several times. The turning point was the meeting between the Prime Minister and the representatives of the Russian Union of Industrialists and Entrepreneurs on 18 June 2014, after which Dmitry Medvedev instructed the state authorities to revise the bill. The Ministry of Finance and the Ministry for Economic Development were asked to not only clarify certain provisions of the bill and ensure its stage-by-stage implementation, but also to develop incentives for companies to ‘repatriate’ their business in Russia.
A comparison of this latest version with the first of draft bill (please refer to our comments in LCDR No. 256), highlights the fact that the Ministry of Finance has not only taken into account the Prime Minister’s proposals to soften the bill, but it has also given consideration to the comments of the business community. The significant amount of changes made to the initial version allow the latest version of the bill to be characterised as being overall more in line with the interests of businesses.
To name but a few, such changes include: allowing for tax paid abroad to be set off against Russian tax liabilities, expanding the list of companies not covered by the new rules, increasing the ownership threshold for the purpose of determining a CFC’s controlling person from 10% to 25%, exempting taxpayers from paying fines until 2018, and so on.
The bill has not yet been approved by the State Duma and is therefore potentially subject to further amendments during the forthcoming parliamentary hearings. However, as expressly requested by the Russian President, the law-making process must be completed by the end of 2014, so that the law may enter into force in January 2015.
In this respect, the authorities are simultaneously preparing several other bills aimed at regulating certain aspects of business activities affected by the adoption of new rules on CFCs. In particular, certain changes to the legislation on currency control, as well as banking and criminal law are also in the works.
Rumours among the professional community lead us to believe that the current version of the bill is close to the final text. Nevertheless, it is best to put the final details of any planned ownership restructuring and of any conversion of existing optimisation mechanisms on hold for now, until the bill has been signed into law.