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 

New limit values for income from business activities

Practice of the world economy shows that efficiency of small and medium-sized businesses (SMB) is one of the most important indicators of the state’s competitiveness. The share of small and medium-sized businesses in the gross domestic product of our country is about 20%, while abroad this figure reaches 50% for the developed countries. According to the statistics, slightly more than 3% of small enterprises in Russia are operating more than three years, while the remaining close earlier.

Information agency Credinform has often addressed to the topic of small and medium-sized businesses in Russia. For example, one of the latest publications informs that during the past forum “Small business – the national idea”, the Presidium of business association “Support of Russia” and the VII Conference of the Chamber of Commerce and Industry of the Russian Federation in the beginning of 2016, it was discussed the suggestion of increasing the limit values of income from 60 to 120 mln RUB for using the simplified tax system.

After these events, the RF President’s Administration has released the lists of orders. As a result, the RF Government has adopted a resolution №265 from April 4, 2016 “On limit values of the income for each category of small and medium-sized businesses received from the entrepreneurial activity”

The resolution affirmed the limit values of income received from the business activity for the past calendar year. The income is summed by all existing types of activity and by all tax regimes for the subjects of SMB: 120 mln RUB for micro-sized, 800 mln RUB for small-sized and 2 bln RUB for medium-sized enterprises. The resolution will come into force since August 1, 2016.

As already known, the criteria of being the SMB subjects are confirmed by the Federal Law №209-FL from 24.07.2007 (as amended from 29.12.2015) “On the development of small and medium entrepreneurship in the Russian Federation”, which determines the average stuff for SMB enterprises. The limit values of revenue from sales of goods, works and services are defined by the resolutions of the RF Government for each of the categories. The previous resolution №702 was released in July 13, 2015.

The implementation of new norms can be resulted in easier access of small and medium-sized enterprises to grants, relatively cheap loans and state orders, including orders from state corporations. In addition, the effect of a three-year ban on scheduled inspections of legal entities and individual entrepreneurs - small businesses will spread on many more companies.

Information about the enterprises of small and medium-sized business will be contained in the State Register of small and medium-sized companies, which must appear on the website of the Federal Tax Service after August 1, 2016.

The publication of Credinform contains the statistics of a number of small and medium-sized enterprises in Russia   formed by the Information and analytical system Globas-i. That publication will help to size the scale of new norm operations.