Размышления женщины о геополитике

The UNCTAD presumes that the phenomenon of multiple cross-border ownership creates political challenges, particularly, on the eve of future trade and investment mega deals. The report warns that «Policymakers should be aware of the de facto multilateralizing effect of complex ownership on IIAs [international investment agreements]. For example, up to a third of apparently intra-regional foreign affiliates in major (prospective) megaregional treaty areas, such as the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and the Regional Comprehensive Economic Partnership (RCEP), are ultimately owned by parents outside the region, raising questions about the ultimate beneficiaries of these treaties and negotiations. Policymakers should aim to avoid uncertainty for both States and investors about the coverage of the international investment regime»[68 - Ibid, p. xiii.].

Co-operation between tax administrations is critical for promoting transparency. On 19 April 2013, the G20 Finance Ministers and Central Bank Governors endorsed automatic exchange of tax information. Global tax transparency agenda was further enhanced in 2014 when under the mandate from the G20 the OECD developed the global Common Reporting Standard (CRS) for Automatic Exchange of Information (AEOI), which 101 jurisdictions have now committed to implement, with the first such exchanges to begin by 2017[69 - Saint-Amans, P. Op. cit.].

The Standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations. Countries have already identified almost 55 billion euros in additional revenues through voluntary disclosure programmes and other initiatives targeting offshore evasion[70 - OECD (2016) OECD Secretary-General Report to G20 Leaders. Hangzhou, China September 2016, Paris: OECD Publishing, p.5.]. Finally, 31 countries signed the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country reports as part of continuing efforts to boost transparency by multinational enterprises (MNEs) on January 27, 2016.

Russia’s anti-offshore package

Recently, Russia has joined international efforts in fighting offshore tax evasion. Though the country’s economy has been hemorrhaging due to offshore tax evasion since 1990s, Russia could not start combating tax havens unilaterally.

According to Russia’s Bank for Foreign Trade (Vnesheconombank), offshore companies had become one of the main channels of capital flight from Russia abroad since the beginning of liberal economic reforms. Russian businesses have begun actively using offshore jurisdictions since the 1990

. Most of Russian firms established offshore companies in European countries and especially in the Isle of Man (UK), Cyprus, Gibraltar, Ireland, Switzerland and Liechtenstein. Offshore structures of Russian business are, first of all, centers for concentration profits which are generated in Russia but they evade from paying taxes there and serve as reliable «vaults» for fortunes of Russian «oligarchs» received both by legal and criminal means[71 - Внешэкономбанк (2014) Макроэкономические тенденции, Москва: Внешэкономбанк, c.8—11.].

The IMF highlights the main channels of illegal capital flight from Russia which «have included (i) under-reporting of export earnings, including through transfer pricing schemes; (ii) overstatement of import payments, including through fake import contracts for goods and services; (iii) fake advance import payments; and (iv) a variety of capital account transactions, often effected through the correspondent accounts of nonresident banks with Russian banks»[72 - IMF (2012) Russian Federation: Staff Report for the 2012 Article IV Consultation, IMF Country report N 12/217. URL: https://www.imf.org/external/pubs/ft/scr/2012/cr12217.pdf.].

The Global Financial Integrity report (GFI) traces illicit financial flows (IFF) from developing countries in 2002—2013. Unfortunately, Russia was among top countries hit by illegal flows. Three emerging markets – China with cumulative illicit financial flows of $1.4 trillion during 2002—2013, Russia with more $1 trillion and Mexico with $528 billion – were worst hit by IFF[73 - Kar, D., Spanjers, J. (2015) Illicit Financial Flows from Developing Countries: 2004—2013, Washington: GFI, p.10. URL: http://www.gfintegrity.org/wp-content/uploads/2015/12/IFF-Update_2015-Final.pdf.]. The GFI report (January, 2014) stated that «approximately 61% of Russia’s $403 billion in outward foreign direct investment (FDI) is held in tax havens and the amount of FDI coming into Russia is also dominated by tax havens. Approximately 53% of FDI invested in Russian companies comes from entities located in tax havens»[74 - LeBlanc, B. (2014) Russian Foreign Direct Investment and Tax Havens URL: http://www.gfintegrity.org/russian-fdi-tax-Havens.]. At that, the GFI did not take into account the Netherlands, a low tax jurisdiction that is often used by tax evaders in various sophisticated schemes involving so-called prestigious jurisdictions along with classical offshores.

The GFI study outlines a strong connection between illicit financial flows and use of offshore jurisdictions. The report states that offshore financial centers and banks in developed country are major points of absorption of illicit financial flows from emerging market and developing countries[75 - Kar, D., Cartwright-Smith, D., Hollingshead, A. (2010) The Absorption of Illicit Financial Flows from Developing Countries: 2002—2006, Washington: GFI, p.5. URL: http://www.gfintegrity.org/storage/gfip/ documents/reports/absorption_of_illicit_flows_web. pdf.].

On December 12, 2013, in his annual address to the Federal Assembly, President Putin proposed to introduce amendments to the Russian legislation stipulating that the income of companies located in offshore jurisdictions will be taxed provided that those companies have not distributed income they receive to the Russian owners of the companies in question.

Russia has recently introduced significant changes to the Tax Code adopting the so called «deoffshorization law». Federal Law №32-ФЗ «On Introducing Amendments to Parts 1 and 2 of the Tax Code of the Russian Federation (Regarding Taxation of Controlled Foreign Companies’ Profits and Foreign Organizations’ Income) «» is intended to restrict the use of offshore corporate and trust structures controlled by Russian taxpayers[76 - Федеральный закон от 24.11.2014 N 376-ФЗ «О внесении изменений в части первую и вторую Налогового кодекса Российской Федерации (в части налогообложения прибыли контролируемых иностранных компаний и доходов иностранных организаций).].

A rule concerning foreign controlled companies is included in tax legislation of many developed economies such as the USA, UK, Germany, Sweden, Japan, and Australia. According to international legal practice, a company registered in a foreign state, which belongs to shareholders, or a group of shareholders who are residents of another state may, under certain conditions, pay taxes in the country where its shareholders are resident. The tax treatment of CFCs introduced by the Russian law corresponds to the world practice.

The objectives of the above-mentioned Law are the following:

– to create the mechanism preventing use of low-tax jurisdictions for the purpose of enjoying unfair preferences and obtaining unjustified tax benefits;

– to improve tax laws in terms of taxation and control of foreign organizations.

The law is applied to both organizations and individuals participating in foreign companies or controlling them in any other way. According to the Law, from 1 January 2015, a Russian tax resident should pay income tax on undistributed profits of any foreign entity controlled by him, in proportion to such controlling stake or participation, at the rate of 13% (if an individual) or 20% (if a corporate entity).

The Law introduces a number of new concepts such as «controlled foreign company», «controlling entity», «beneficial ownership», «place of effective management».

According to the Law, a controlled foreign company (CFC) is a non-Russian entity which is not a tax resident in Russia; and is controlled by legal entities and/or individuals that are treated as Russian tax residents. The definition of a CFC covers pass-through entities (such as funds, trusts, partnerships and collective investment vehicles) which generate income for the benefit of their participants/settlors or beneficiaries, as well as corporate entities. The «beneficial ownership of income» test can be applied to a foreign company (including a CFC) to determine whether the company serves merely as a conduit function.

The Law defines control over a corporate entity as exercising influence (or having the ability to exercise influence) over distribution of profits of that entity through direct or indirect participation in the capital of that entity (e.g. as a shareholder); and having rights under a shareholders’ agreement regulating the management of that entity, or other criteria.

A controlling entity of a foreign organization is an individual or a legal entity:

– whose participation interest in an organization is more than 25% (before 1 January 2016 – more than 50%), or

– whose participation interest in an organization (for individuals along with their spouses and minor children) is more than 10%, if a direct and (or) indirect participation interest of all entities recognized as tax residents of Russia in this organization (for individuals along with their spouses and minor children) is more than 50%, or exercising control over such an organization in their own interests or interests of their spouse and minor children.

The income of a controlled foreign company:

– will be treated as an income of the relevant Russian controlling party (whether corporate or individual) of the CFC in proportion to the interest of that controlling party in the capital of the CFC;

– will be deemed to be received by the relevant Russian controlling party when it is distributed by the CFC or, if there is no such distribution in the relevant tax year, on 31 December of that tax year;

– will be calculated on the basis of financial reporting period of the CFC under the laws applicable to the CFC.

The income of a CFC would not be accounted for by a Russian controlling party if the income of the CFC does not exceed 30 million Rubles in the year ending 31 December 2016; or 10 million Rubles thereafter.

CFC’s profit reduced by an amount of paid dividends is included as a portion corresponding to participation interest in CFC into tax base of a controlling entity – resident of the Russian Federation:

– for controlling entity as an individual – on personal income tax;

– for controlling entity as a legal entity – on corporate income tax.

– In broad terms, the CFC rules would apply in relation to non-Russian tax resident corporations (and other entities) controlled by one or more Russian tax residents. The rules would:

– deny double tax treaty benefits to CFCs;

– instead treat the income of a CFC as taxable in the hands of a Russian controlling party when received by a CFC, regardless of whether an actual distribution to any Russian controlling party took place;

– require Russian tax residents to report their interests in foreign companies to Russian tax authorities.

The Law also introduces a new test of «place of effective management» in order to determine whether a foreign company is a tax resident in Russia.

A foreign company will not be treated as a Russian tax resident (unless it elects to be treated so) if:

– it is treated under the provisions of a double tax treaty to which Russia is a party as being a tax resident in another state;

– it is engaged in activities under production sharing agreements, concession agreements, licensing or service agreements or certain other prescribed agreements with a foreign government; or

– it has a separate branch in Russia.

As for individuals, they are recognized as tax residents of the Russian Federation in the same way as before on the basis of their actual stay in Russia for at least 183 calendar days within 12 consecutive months.

In order to facilitate the repatriation of hidden assets to Russia’s economy, the Federal Law #140-FZ «On the Voluntary Declaration of Assets and Bank Accounts/Deposits by Individuals and on Introducing Amendments to Various Legislative Acts of the Russian Federation» was adopted in June 2015[77 - Федеральный закон от 8 июня 2015 года N 140-ФЗ «О добровольном декларировании физическими лицами активов и счетов (вкладов) в банках и о внесении изменений в отдельные законодательные акты Российской Федерации» (с изменениями и дополнениями).].

The main objective of the Law was to ensure legal security of capital and property owned by individuals, protect property interests of Russian citizens, including property outside the territory of the Russian Federation, as well as, in compliance with the transition to the automatic exchange of information in tax matters at the international level (BEPS legislation).

According to the Law, individuals should declare their foreign property (real estate, vehicles, shares in companies, securities and etc.) and foreign bank accounts. In exchange, a declarant is not subject to criminal or administrative responsibility and is exempt from payment of historical taxes, committed before January 1, 2015. Information provided by a declarant will be recognized as confidential. The Law required those applying for amnesty to fully declare their offshore assets. Upon a declaration, that had to be filled before the end of 2015, there would be no penalty for unauthorised expatriation.

The Law did not cover assets acquired through illegal means, only assets expatriated for tax purposes. The Law was developed in close cooperation with the FATF. However, the latter has certain concerns about lack of disclosure and information sharing. This is a serious matter, since a failure to comply with FATF regulations can get Russia blacklisted. However, Russia’s role within the FATF has been actively positive in recent years.

C.Gurdgiev gives the following classification of Russia’s offshore assets. He presumes that the globally allocated Russian capital, held by private individuals, can be divided into 3 (unequal in volume) types:

– Type 1 – an unknown quantum of assets acquired by using illicit gains from activities in Russia and illegally shifted out of the country. This part is not covered by the Law, but the Russian Government plans to introduce a separate piece of legislation to cover these assets, and it has promised that it will fully comply with FATF.

– Type 2 – an unknown quantum of assets, probably similar to that covered by Part 1 and, together with Type 1 accounting for more than 2/3rds of all Russian-owned assets held abroad, was expatriated to minimize tax exposures. Some of them legally, some illegally. This part is covered by the Law.

– Type 3 – a smaller share of Russian assets abroad is perfectly legal and is not covered by the Law. To-date, FATF has no complaints with Russia on these assets[78 - Gurdgiev, C. (2015) Russian Offshore Capital Amnesty Law Proposal. URL: http://trueeconomics.blogspot.ru/2015/04/5415-russian-offshore-capital-amnesty.html.].

The deadline for returning capital to Russia was originally Dec. 31, 2015, but it was extended until July 1, 2016 by the Federal Law №401-FZ «On introducing amendments to article 5 of the Federal Law „On voluntary declaration of assets and bank accounts (deposits) by natural persons and on introducing amendments to certain legislative acts of the Russian Federation“»[79 - Федеральный закон «О внесении изменения в статью 5 Федерального закона «О добровольном декларировании физическими лицами активов и счетов (вкладов) в банках и о внесении изменений в отдельные законодательные акты Российской Федерации» от 29.12.2015. №401-ФЗ.].