Important Recent Tax Changes, April 2017.
When to Determine Whether an Entity is a Controlled Foreign Corporation (CFC)
A Letter of the RF Ministry clarifies, in the absence of any explicit Russian Tax Code (RTC) provision, that the status of a foreign entity as a controlled foreign company is to be determined on the date the foreign entity declares a dividend. In the absence of the declaration of a dividend, such status would be determined on the last day of the year following the year for which CFC status (and income) would be relevant. On each such dividend declaration date, each shareholder is to be tested to determine if a controlling entity. (MinFin Letter 17 March 2017, Number: 03-12-11/2/15511)
This is a very mechanical rule which could allow for tax planning to shift the incidence of CFC taxation by the intentional declaration of a dividend (as part of a restructuring, sale, gift or other transaction relating to the shares of the foreign legal entity).
Court Practice Overview
If a Taxpayer’s Tax Overpayments exceed Arrears, there is no Failure to Pay Penalty
If a taxpayer’s overpayment of taxes as a result of an audit exceeds the taxpayer’s tax arrears as a result of that audit, then the taxpayer will not have to pay any penalty for failure to pay taxes (Resolution of the Arbitration Court of the Northwestern Federal District dated 7 April 2017, on Case No. А56-29135/2016).
This means that if a taxpayer receives an audit adjustment for additional taxes, but has a credit for overpaid taxes with the Russian treasury for taxes or as a result of such audit, no tax underpayment penalty can be imposed.
International Tax Matters
Russian Legislation Harmonizes Foreign Currency Relations of EAEU Member States
The Russian Government has approved a draft Agreement to harmonize the approaches for regulating legal foreign currency exchange relations in EAEU Member States. The Agreement establishes a set of uniform requirements to be applied to foreign currency transactions in the internal currency markets of EAEU Member States and to foreign exchange transactions between residents, including the procedure for making payments and money transfers, and for repatriating funds. Each contracting member state of the EAEU reserves the right to determine how foreign exchange transactions are to be performed, for opening/closing accounts, and for accounting for and exercising control over foreign exchange transactions. The Agreement also establishes how the residents of third countries can open accounts with banks located in EAEU Member States, and vice versa. (Government Directive, 14 April 2017, Number: 697-r, Published: 19 April 2017).
The UN issued a revised edition of its Developing Country TP Manual
The United Nations Committee of Experts on International Cooperation in Tax Matters issued the second edition of its Practical Manual on Transfer Pricing for Developing Countries in a digital format:
The OECD updated its VAT Guidelines
The updated Guidelines set coordinated standards and recommended approaches to solving issues arising as a result of applying national VAT laws to international trade.
In particular, there is a special focus on the provision of services and the sale of intangible assets.
The OECD updated its Country-by-Country (CbC) Reporting Guidelines
On 6 April 2017, as part of BEPS (Base Erosion and Profit Shifting) Action 13, the OECD updated its Guidance on the Implementation of Country-by-Country (CbC) Reporting by MNE Groups.
The OECD updated its list of Automatic Exchange Relationships
The OECD published an updated list of automatic exchange relationships among jurisdictions committed to exchanging CbC Reports under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (CbCMCAA) on its website.
The OECD will develop a conceptual framework to tax electronic commerce
A decision was taken to develop a conceptual framework for tax electronic commerce in EAEU territories. A proposal was made to harmonize the mechanism for the taxation of electronic commerce and exchange of information between tax and customs authorities to monitor the flow of goods. There was approval to unify the structure and to individually assign registration numbers to applications for the import of goods, and to pay the indirect taxes assigned by the tax authorities of EAEU countries when the goods are imported. There was also approval of the system for monitoring the exchange of information for taxation purposes between tax authorities of EAEU Member States upon request and on their own initiative.
The OECD will harmonize excise duty rates on alcohol and tobacco
As part of the plan to converge the tax legislation of EAEU Member States, there are plans to harmonize excise duty rates on alcohol and tobacco products: