Audits of individual taxpayers holding assets and accounts outside the Russian Federation
Since the end of 2020, the Federal Tax Service of the Russian Federation (hereinafter, the FTS) has started to review information received as part of the automatic exchange of financial information with foreign jurisdictions. According to representatives of the FTS, the review is performed using programming algorithms in the automated information system AIS "Tax-3" (Nalog-3).
The FTS then sends relevant information arising from the results concerning identified risks to the territorial tax authorities of Russia for further processing and to work with individual taxpayers. One focus in particular is identifying cases of taxpayers evading personal income tax on income outside Russia, concealing information and income from controlled foreign companies (hereinafter, CFC ), and violating the requirements of Russian currency legislation covering bank account transactions outside Russia, as well as the filing of statutory notifications and reporting regarding these accounts.
Thus, at the end of December 2020, a number of individuals received decisions that field tax audits were going to be conducted on them, as well as orders to provide information and documents in relation to their accounts outside Russia, including transactions through these accounts and CFC . The requests related to both 2017 (2017 was the first year for which Russia received information as part of the automatic exchange of financial information) and the periods of 2018 and 2019. If violations are identified, there will be additional tax charges, fines and interest for the individual taxpayers, and in some cases criminal liability may apply.
We draw your attention to the fact that the FTS’ work to process the data received from foreign countries is still in progress, and individuals who were tax resident in Russia in 2017–2019 are advised to verify their compliance with the requirements of Russian tax and currency controls legislation, especially with respect to their accounts (deposits) in banks outside Russia*, and regarding CFCs .
Please note that for 2020, tax reporting of income received outside Russia and via CFC should be submitted by Russian tax residents by no later than 30 April 2021. Annual reporting for accounts with foreign banks and other financial market organizations should be filed by Russian citizens (subject to certain exceptions) no later than 31 May 2021.
If you have any questions about how much the above information applies to you, or whether you need to prepare a report / interact with your local tax inspectorate regarding any decisions or orders received from them, then please contact us to discuss your situation and the actions to take as soon as possible, at any time convenient to you.
* Beginning in 2020, notification and reporting requirements also apply to accounts (deposits) in certain financial market organizations, in addition to those in banking institutions.