If it is possible to hide in offshores?

In present conditions the importance of the exchange of financial and tax information between states is growing more and more. Realizing this, at the G20 meeting the finance ministers of the participating countries approved the automatic exchange of such data as far back as June 19, 2013. Such instrument considers that the Federal Tax Service of the RF will receive financial information from the tax services of other countries. By that, various foreign institutions can serve as data sources (banks, depositories, brokers, financial investment vehicles, insurance companies). 

The complex of information includes data on Russian residents, having their business abroad, as well as:

• opening and closing bank and other accounts; also information on payments on accounts and balances of them is available,
• receiving there income from the sale of insurance products, financial assets in the form of dividends and interests on borrowings,
• participating in private funds, trust companies etc. 

On October 29, 2014 the representatives of 51 states have signed the multilateral agreement on a standardized exchange of information on taxpayers between tax authorities of different countries (Common Reporting Standard Multilateral Competent Authority Agreement CRS MCAA). 

The implementation of the project of automatic exchange of tax information takes place simultaneously with the G20 / OECD project * on the fight against the tax base erosion and profit shifting (OECD Action Plan on Base Erosion and Profit Shifting (BEPS Plan)). This project is aimed at the disclosure of the information on controlled foreign companies (CFC), the tightening of the rules of profit taxation of such business entities, the avoidance of double «non-taxation», the solution to problems that occur by taxation in the area of the digital economy. Also, the plan includes the review of requirements to taxation by transfer pricing of financial transactions and to companies’ documentation within the control over transfer pricing.

On May 12, 2016 at the OECD Forum on Tax Administration held in China, Russia represented by the Federal Tax Service of the Russian Federation became a 81th participant and signed a multilateral agreement on a standardized automatic exchange of information on taxpayers between tax authorities of different countries. The exchange of financial information of the FTS of the RF with tax authorities of other countries will occur since 2018 according to the data of 2017. As a result, according to the Minister of Finance of the RF, «…it means that to hide own income from the Russian tax authorities in foreign countries will be much more difficult, and in course of time impossible to do…».

Currently, the Federal Tax Service of the RF informed about 7,000 legal and natural persons about the business presence abroad within the implementation of the CFC Act. As seen, this process goes slow and grudgingly. Mainly the medium-sized business and natural persons located in transparent jurisdictions disclose their assets abroad. On such assets it is also not required to pay taxes in Russia. However, most of the major companies took the position of waiting and do not believe that the FTS of the RF will reach offshore.

The signing of the above mentioned agreement is part of a package of measures aimed at deoffshoriation of Russia. In addition, approving the automatic exchange of tax information, the G20 countries agreed to impose sanctions on countries that do not participate in the exchange of such data. Perhaps, this can explain the approval of the new anti-offshore "black list" of 111 countries by the FTS of the RF. The profit of CFC located in jurisdictions from this list will not be exempt from taxation, according to the Russian legislation.

Thus, the business, which owns its assets abroad, has only a little less than two months. Prior to July 1, 2016 a set of laws and regulations on the tax amnesty is in force, which allows to avoid the responsibility for undeclared foreign accounts and assets identified by the Internal Revenue Service.

* OECD - Organization for Economic Co-operation and Development