On 5 April 2016, the Russian President signed into law amendments to the Federal Law of 8 June 2015 “On Voluntary Disclosure by Individuals of Assets and Bank Accounts (Deposits) and on introducing amendments to certain legislative acts of the Russian Federation” (hereinafter – “the Law”).

As we announced earlier, the Law, that came into force on 8 June 2015, provides individuals (declarants) with a window of opportunity to inform the Russian tax authorities of their assets (property, controlled foreign companies (CFC), bank accounts) free from the threat of prosecution under the criminal, administrative and tax legislation of Russia. Declarants shall be exempt from liability for tax offences as well as from liability for a number of administrative infractions and criminal offences if such actions (offences) are connected with the acquisition (or preparations for acquisition), usage or disposal of property and (or) CFCs reflected in the declaration, and (or) crediting funds to accounts (deposits) which have been reflected in the declaration. The guarantees are provided with respect to actions having taken place before 1 January 2015.

The Law has already been amended once. The respective amendment extended the deadline for submission of the declaration (from 31 December 2015 to 30 June 2016).

A new set of amendments is aimed at improving certain provisions within the law which, that limit the scope of potential declarants and hinder practical application of the Law.

Key changes:

• Individuals (declarants) shall be exempt from being held liable for violations of currency legislation committed before the date when the declaration was submitted and which are related to account (deposit) transactions reflected in the declaration and opened with banks situated outside Russia (previously it was envisaged that the guarantees were to be provided only to those violations having been committed before 1 January 2015). However, in relation to other violations, there is still a provision which says that the guarantees apply only to those actions which took place before 1 January 2015;
• The requirement that property located in states (territories) that are included on the FATF list or that do not exchange information for tax purposes with Russia be repatriated (this requirement was a prerequisite for the respective guarantees to be received) has been removed. As such, a declarant may now provide a declaration about such a property, situated in states on the abovementioned lists, without repatriating to Russia;
• There is a clarifying provision pursuant to which transactions relating to the acquisition and disposal of company assets (CFCs) are recognised as usage of property via shareholdings, participatory interest and investment units in the authorised (share) capital of Russian and (or) foreign companies in which the declarant is a legal or beneficial owner, as well as usage of CFCs in relation to which the declarant is a controlling person;
• When a declarant declares his or her participation in Russian and (or) foreign companies, as well as information regarding the CFCs for which the declarant is a controlling person, the guarantees are to be provided within the limit set of the cost of the assets of these companies (the assets of the CFCs) as of the date on which the declaration was submitted.

Notwithstanding the fact that the abovementioned amendments eliminate some uncertainties which used to give cause for concern among potential declarants with respect to the scope of the granted guarantees (e.g. when an individual only managed the property of foreign companies in previous periods), in order to ensure the effective application of the Law, it still needs to be modified. In particular:

• The guarantees need to be extended to cover tax offences committed in 2015 (for failures to declare and pay personal income tax in relation to income received in 2014);
• The list of property and proprietary rights in relation to which one may receive guarantees of exemption from liability needs to be extended;
• Opportunity needs to be provided for declarants to submit declarations containing information about properties that are not in the possession of the declarant as of the date of the submission of such a declaration (e.g. the property was transferred under a donation or sales contract).

Next steps

Despite there still being some issues regarding application of the Law, the amendments introduced provide for a more favourable legal regime for potential declarants and may reduce the possible liability risks that offences may have been committed for a bigger number of individuals. We recommend that detailed analysis of each individual situation of each potential declarant be performed in order to assess thoroughly the scope of the applicable guarantees.

Should you have any questions, please do not hesitate to contact us.