Anti-money laundering efforts enter the interstate and supranational level: the European Parliament adopted a directive, which obliges each EU country to create a register of ultimate beneficiaries of all companies registered on its territory, including those in its offshore jurisdictions. It will contain names, nationality and place of permanent residence of real owners not only of companies, but also of trusts. The innovation will come into operation since 2017, when national parliaments will lead their legislation to accepted standards.

Our country has joined the program of the OECD (Organization for Economic Cooperation and Development) about the automatic exchange of tax information, and it means that, technically, the Russian official authorities will be able to gain an access to the register formed by the Europeans already since 2018. Other individuals and organizations will be able to use this information, if they prove substantially the claim, laying to beneficiary.

Created system will become the first in the world centralized database on ultimate beneficiaries of companies in the EU, which will allow fighting with illegal schemes of tax avoidance and check of validity of reduced rates by transfer pricing.

However, there are many other offshore zones in today's world: in Asia, the Caribbean and other regions. There is a possibility, that the business will simply move its activities to more loyal countries and areas (Singapore, Bahrain, Belize etc.), thereby avoiding to be placed into the unified register of EU countries.

Corporations and proprietors are often faced with additional VAT and income tax charges due to insufficient Due Diligence when dealing with fraudulent companies (in Russia, ‘fly-by-night’ is a common term used for such entities). Many such entities are involved in tax scams, which prompted the Russian tax authorities to stress the use of the concept of Due Diligence to avoid dealing with such companies.

The concept of “Due Diligence” is not well-defined in Russian legislation, like in other countries where it is a common practice of investigating companies prior to entering into business transactions. The Russian Tax Authorities have provided explanations and recommendations concerning Due Diligence in a letter referenced No. ЕD-4-2/4124 as of 16th March 2015 even when Register extracts (EGRUL extract) and copies of financial statements are available on a new business partner.

The use of private data on natural persons (managers, founders, proprietors) listed in State Registers is regulated by Federal Law “About Personal Data” No. 152 as of 27th July 2006 , Article 6.

The most important elements of Due Diligence are the legal status and background check concerning business reputation (past trading experiences). It is absolutely essential to verify the legal status of legal entities which are parties in transactions. Equally important is the verification of proxies held by executives, which authorizes them to execute financial transactions on behalf of the legal entity.

Tax authorities also recommend that corporations and proprietors regularly conduct an independent risk assessment on the tax implications caused by respective transactions. The Tax Authorities recommend paying attention to the following negative factors:

• Entity is not registered in the State Register
• Counterparty is registered at the address as described as ‘mass’ registration (except business centers of 15+ companies at a single legal address)
• Address data of trading locations, storage and manufacturing facilities are not available Absence of such data indicates serious negative factors of a potentially unreliable party.

Transactions should be undertaken on the basis of cash in advance only, or not at all.

Tax authorities recommend that all business entities should show a high level of responsibility when authenticating business partners. It’s not sufficient to only get the Register extract (EGRUL extract). To authenticate and validate the legitimacy of a new business partner requires a comprehensive Due Diligence. These recommendations are much in line with the ‘Know Your Customer (KYC)’ onboarding process required by anti-money laundering laws. Russia uses its tax authorities to enforce compliance in eliminating blatant tax evasion practices of ‘fly-by-night’ companies.

The Information and Analytical System GLOBAS-i® of Credinform provides the tools to be able to comply with the recommendations of the Tax Authorities. You can find all necessary information about your business partner/buyer/supplier on-line: registration data, licenses, legal proceedings, management holding proxies and information on shareholders. The information about records in the Register of debarment and suspension of government contractors maintained by the Russian Antimonopoly Authorities is also available. Russian companies are also assigned a Reliability Index helping to identify “fly-by-night” companies, a service which is available online.