Regularization of Russian Private Clients’

Undeclared/Untaxed Funds

Undeclared Funds vs. Undistributed Revenues

Current Reporting Obligations on Foreign Accounts

Residency status (for reporting purposes):Is defined by the RF Currency Legislation;Generally includes Russian citizens, except those who are away for no less

than 1 year (uninterrupted stay outsider of Russia without crossing the border)

General Rule: RF residents shall report to Russian tax authorities:

on opening (closing) bank

accounts/deposits abroad;

on changing bank accounts/deposits

details;on all

transactions of foreign bank accounts (or

deposits);During 1 month period

During 1 month period

Current Rule: Dividends and Interest are Taxed Only if Actually Paid

Foreign LegalEntity

Foreign Jurisdictions: Cyprus, Malta, BVI Switzerland, etc.

Russian Federation

Withholding tax/ if any

Personal income tax:

9% for dividends

13% for interests

Dividends/Interests

Use of Capitalization Funds. Common Rules.

• RF tax resident owns units/securities distributed by the fund and;

• RF tax resident actually receives any income upon sale/disposal of units

RF tax resident is liable for RF tax only WHEN

• Fund’s units are owned by foreign entities;• Russian sourced income from the sale/disposal of

units

Foreign Companies could be potentially liable for RF tax

WHEN

Tax rates for income received from transactions with securities in the RF:• 13% for the RF residents • 30% for non-residents

Use of Capitalization Funds. Specifics of Securities and Financial Instruments Taxation.

Actual expenses for acquisition of

securities/financial instruments

Market value of the securities/financial

instruments

Material gain

Personal income tax:

• 13% for the RF residents

• 30% for non-residents

Material gain

Paid Personal

income tax

Expenses reducing personal income

from sale

In case of further sale of securities

• Tax base for securities transactions is the financial result: income from sale of securities after deduction expenses for their purchase.

• Tax rate: 13% for the RF residents, 30% for non-residents;

I.

II.

III.

Use of Life Insurance Products: Taxation only Upon Distributions

Russian national

Foreign Insurance Company

Funds transfer as payment for insuring life/property/etc.

Proceeds from insurance policy upon certain events (death, disability, elderly age, etc.)

Income generated during the term of such insurance policy

Use of Life Insurance Products.

General Rules: Income generated during the term of insurance policy is taxable at a rate of 13% as

income received from foreign sources;Insurance payments are taxable at a rate of 13% (para 2 and 3 of art. 208 of the RF Tax

Code);

Tax exemption is applied to the following payments (para 2 and 3 of art. 213.1 of the RF Tax Code)

Insurance payments upon a certain age/period of the insured person or in other events if:(i) the insurance payments are

paid by the taxpayer (ii) insurance payments do not

exceed the sum of his paid premiums;

The difference between these amounts will be included in tax base.

Insurance payments upon events:- Death- Injury to health; and (or)- Reimbursement of medical

expenses of the insured person (exception – payments for sanatorium treatment);

Dividends: Russian Tax upon payment from Cyprus

CYCyprus

Russia Dividends

No Withholding Tax

9% Personal income tax less WHT paid in Cyprus

Interest: Russian Tax upon Payment from Cyprus

CY

Cyprus

Russia Interests

No Withholding tax

13% Personal income tax

Currency Control

Foreign Jurisdiction

RussiaDividends

Foreign LegalEntity

Currency Transaction

Currency Control: All transactions shall

be made via Authorized banks

Otherwise

Fine in the amount up to the sum of illegal currency transaction

Proposed CFC Legislation

The Russian Ministry of Finance is working on the draft tax law which would introduce concepts of CFC (Controlled Foreign Company) for tax purposes;

Potentially, such new CFC rules may require Russian companies and individuals to report and account for passive profits of their CFCs even if no distributions are made;

Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of taxNew Trends on Taxation of Off-shore Profits by Russian Tax Authority

Key Events of De-offshorization

Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax

May 2012

• Tax Administration Forum of OECD in Moscow (8th session):

• The following goals were set: improvement of tax agencies efficiency and tax cooperation, fighting offshore companies and tax evasion;

June 2012

• Amendments to Federal Law No. 134-FZ as of June 26, 2013 on Fighting of Illegal Financial Operations”:

• Defining of Beneficial Owner (UBO) as an individual directly or indirectly owning of 25% of charter capital of the entity or who has a possibility to determine actions (decisions) of the entity;

• Tightening of relevant banking rules;

May 2013

• Main directions of the RF tax policy for 2014, 2015 and 2016 are approved by the RF Government:

• Fighting tax evasion using tax efficient jurisdictions was set as a main goal;

December 2013

• The RF President Vladimir Putin delivered his annual address to the RF Federal Assembly:

• Stressed the necessity of creating a system of measures for deoffshorization of Russian economy;

Implementation of

new special

provisions in tax

legislationToughening of law

enforcement practice

Impact of Internation

al organizatio

ns on jurisdictions used to aggressive

tax planning

Strengthening

processes for

exchange of tax

information between countries

Key Directions of Further De-offshorization

Recent/Pending Changes to Russian Legislation on Fighting Use of Off-shores

30% tax on Distributions to Foreign Investors not providing information on beneficiaries is introduced to the RF Tax Code (came into force on December 3, 2013);

New transfer pricing rules are introduced to the RF Tax Code (came into force on January 1, 2012);

Rules on Controlled Foreign Companies (CFC Rules) are under development;

Draft of Law on Tax Residence of Companies is under development;

Control on Income Sources

For individuals there is no total control for their income sources on which assets were previously acquired:

See: Federal Law No. 116-FZ dated July 20, 1998 “On state control for compliance of large expenses to income factually received by individuals (did not come into force);See: Art. 86.1., 86.2., 86.3. of the RF Tax Code came into force from January 1, 2000, but were cancelled from July 9, 2003;

PEPs expenses are under control from January 1, 2013 See: Federal Law No. 230-FZ of December 3, 2012 “On control for compliance of expenses of individuals occupying state posts and other individuals to their levels of income” (came into force from January 1, 2013);

Federal Law No. 230-FZ of December 3, 2012

Main purpose: fighting corruption;

Applies to transactions made from January 1, 2012;

Came info force from January 1, 2013;

Key Persons Covered by Federal Law No. 230

Federal State Officials

State officials of the RF sub-federal units (regions);

Members of the Board of directors of the RF Central Bank

Officials of federal state service and state civil service of the RF sub-federal units

Officials in Pension, Social and other funds

Spouses and minor children of the above mentioned persons

Others

Federal Law No. 230-FZ of December 3, 2012Acquisition of assets:- Land plots- Other real estate- Vehicle- Securities- Shares

The amount of transaction exceeds total income of PEP and his/her spouse for the last 3 years before transaction

Obligation of PEPs to inform on:

His/her expenses Spouse’s

expenses

Minor children's

expenses

Income sources

Consequences for Non-compliance

Release from occupied positions;

Criminal, administrative or other liability;

Strengthening of Control for Financial Operations of Individuals

Federal Law No. 134-FZ as of June 28, 2013 on Fighting of Illegal Financial Operations

Tax authoritiesOperative-

investigation bodies

Provision of Information on bank accounts of companies, entrepreneurs, individuals

In relation to receiving information on individuals: consent of the higher tax authority is required

On the basis of court decision

Bank

Tax AmnestyPresidential decree № 1773

“On conducting tax amnesty in 1993” as of 27th

of October, 1993

Federal Law № 269 -FZ "On the simplified procedure for

declaring of income by individuals" of 30th of

December 2006

Federal Law N 330-FZ as of 21st of November, 2011 in respect of transport, land

and individual property tax, debts on which originated prior to January 1, 2009

Legal entities and individuals who had declared sums of previously unpaid taxes before November 30, 1993 and transferred them into the budget were relieved from tax penalties.

Within 10 months, from March 1, 2007 to January 1, 2008, individuals had the opportunity to pay taxes on income earned by them before 1 January 2006, but hidden from taxation without indication of type and source of income.

The law was not effective in respect of individuals sentenced under Art. 198 of the RF Criminal Code (tax evasion).

Tax debts originated prior to January 1, 2009 were written off (“forgiven”) by the tax authorities automatically.

The law was not effective in respect of such debts, related to entrepreneurs activities or private practice of individuals.

Limitation Period for Tax Offences

An individual can not be brought to responsibility (fines) for tax offences if 3 years expired before such decision left was made, beginning from:

the next day after the end of the tax period during which the offence was committed (effective for offences under Art. 120, 122 of the RF Tax Code);

the date of its commission (for all other offenses);

Within the framework of the field tax audit the reviewed period can not exceed 3 years from the date, when decision on the appointment of such audit was made (5 years for taxpayers participating in regional investment projects);

Tax liability ceases in the following cases: Payment of taxes; Death of an individual taxpayer; Liquidation of the taxpayer (legal entity); Other cases provided by the law;

Relief of Tax LiabilityThe corrected tax return is submitted: after deadline for such

submission expired, but before expiry of deadline

for tax payment

Relief of tax liability

Provided that the taxpayer did not know about: discovery of tax underpayment by the tax

authorities the appointment of the field tax audit

The amended tax return is submitted: after deadlines for

submission of tax return and for tax payment expired

1. Provided that the taxpayer paid the underpaid taxes before he became aware of: discovery of tax underpayment by the tax

authorities the appointment of the tax field audit2. Provided that the tax payer paid the underpaid taxes and such underpayment was not identified in course of the field tax audit

Relief of tax liability

Relief of tax liability does not exclude implication of criminal liability.

The taxpayer can be released from criminal liability if a prescribed period of time passed since crime has been committed (p. 1 of art. 78 of the Criminal Code of the RF).

Relief of Criminal Liability

Two years after committing a Minor

offense (maximum punishment does

not exceed 3 years of imprisonment);

Six years after committing an Average-

gravity crime (maximum punishment does

not exceed 5 years of imprisonment);

Note:The tax offence is considered to be committed in case taxes are not paid in the time term established by the tax legislation

*Large scale:• more than RUB 600 000

(USD 17,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable,

• OR more than RUB 1,8 mln (USD 50,000);

Relief of Criminal Liability

Minor offenses

Tax and duty evasion committed by an individual

on a large scale*(art. 198 of the Criminal Code of

the RF)

Failure to fulfill the tax agent obligations on a

large scale**(p. 1 of art. 199.1 of the

Criminal Code of the RF)

Tax and duty evasion committed by

organization on a large scale **

(p. 1 of art. 199 of the Criminal Code of the RF)

The taxpayer who committed minor tax offence for the first time may be released from criminal liability in case of payment of all underpaid taxes and fines.

**Large scale:• more than RUB 2 000 000 (USD 56,000) within 3

consecutive years, provided such tax underpayment exceeds 10% of due taxes payable,

• OR more than RUB 6 mln RUB (USD 166,000);

*Especially Large scale:• more than RUB 10 mln. (USD 277,000) within 3

consecutive years, provided such tax underpayment exceeds 20% of due taxes payable,

• OR more than RUB 30 mln (USD 833,000);

Relief of Criminal Liability (Continuation)

Average-gravity crimes

Tax and duty evasion committed:• by a group of persons

with prior agreement• on especially large scale*(p. 2 of art. 199 of the Criminal

Code of the RF)

Concealment of funds or property of the legal entity

or entrepreneur, at the expense of which taxes and duties are to be paid, on a

large scale**(art. 199.2 of the Criminal Code

of the RF)

Failure to fulfill the tax agent obligations on

especially large scale*(p. 2 of art. 199.1 of the

Criminal Code of the RF)

**Large scale:• More than RUB 1 500 000

(USD 42,000);

Limitation Period for Administrative Liabilityfor Tax Offences

The taxpayer can not be brought to administrative liability for a tax offence after expiration of 1 year term from the date when the tax offence was committed (for long-lasting offences - from the date of discovery of the tax offence).

Administrative offences related to taxation and

duties

• Violation of time term for registration with the tax authorities

• Violation of the time term for submission of a tax return

• Failure to submit data necessary for tax control

• Gross violation of accounting and submission of financial statements

Thank You For Attention!