For the first time in Russia, the Unified State Register of Legal Entities (EGRUL) is being “cleaned” from the statistical companies. The Federal Tax Service (FTS) began to implement this program in 2016, and following the results of 2017, striking the fly-by-night companies off the register will be continued. On 01.06.2016 there were 4,8 mln active organizations, and on 01.06.2017 the number reduced by 5,7% and amounted to 4,5 mln. In relative figures, most of all legal entities decreased in Murmansk region – 14,8%, Chelyabinsk region – 13,8% and Moscow – 11,8% (see Table 1).

Such a rapid reduction is not a result of negative processes in economy: according to preliminary estimates, growth of the GDP of Russia in Q1 2017 is 0,5%; key industries – trade and construction – are recovering, as well as industrial production is increasing. The main reason of reduction is to be sought in purposive exclusion of fly-by-night companies from EGRUL.

As explained by Dmitry Grigorenko, deputy head of the FTS, taxmen remove companies, which do not provide any financial reports for a year and beyond and have no account activity. According to various estimates there are 600-700 th fly-by-night companies in Russia; that is 13-16% of total number. That is to say one in ten companies could be statistical, that is why verification of potential partners before closing of deals is crucial for economic security provision.

Several years ago the situation was much worse: in 2011 there were about 1,8 fly-by-night companies or 40% of total number, that is 2,6 times more than now. It is obvious that strike against dubious organizations works. There is also a tendency of shorten the life of such companies: if earlier they could carry out illegal operations for years, now, as a rule, the company is abandoned after 1-2 "transactions" and it no longer shows any signs of activity.

The need for information is especially increased when cooperation with a new counterparty is planned. To reduce the risk of financial loss and involvement in a fraudulent scheme, it is necessary to check all possible information about a potential partner. If the FTS discovers that the counterparty is a fly-by-night company, the transaction with it will be deemed to be directed at obtaining an unreasonable tax benefit. In this case, the exclusion of transaction costs from the income tax base and referring to VAT offset are recognized illegal. As a result, if there is a fact of cooperation with a fly-by-night company, additional taxes will be charged and a claim for payment of a fine and penalty will be raised.

The Tax Service is constantly improving the regulatory framework for struggle against fictitious companies and identifying their signs. Here are the most important documents: Order No. MM-3-06/333@ of the Federal Tax Service of 30 May 2007 and Order No. MMV-7-14/72@ of the Federal Tax Service of 11 February 2016, which recorded signs of a fly-by-night company and measures for their detection. Analysis of the Russian arbitration practice found the most common signs (see Picture 1).

Picture 1. Signs of a fly-by-night company most often found in the materials of arbitration cases

Extract from EGRUL confirms the fact of state registration of the company in accordance with the established procedure, but it cannot automatically be sufficient confirmation of "due diligence and caution" of the taxpayer when choosing a partner for cooperation. Further verification through the professional information system is necessary.

Globas users have an opportunity to quickly verify the counterparties using Reliability index, which evaluates the negative signs and takes into account the recommendations of the FTS on identification of fly-by-night companies.

According to Globas, currently the number of companies with negative signs is 10-13% of the entire amount of organizations, which corresponds to official statistics. Reliability index is calculated for all Russian enterprises of the real economy.

The Government of Russia by its decree No. 963-r of 23.05.2017 On signing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting has approved Russia’s joining the multilateral convention of the Organisation for Economic Co-operation and Development (OECD). The draft has been prepared by the Ministry of Finance of the Russian Federation and has been approved by the Ministry of Foreign Affairs, the Ministry of Economic Development, the Ministry of Justice and the Federal Tax Service.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting of 24.11.2016 was developed by the member countries of the Special Group of the OECD as a part of the Action Plan on Base Erosion and Profit Shifting (BEPS). The Convention has been opened for signature since December 31, 2016. With Russia having joined the Convention, the number of BEPS member countries has totaled 67.

The provisions of the Convention are intended to prevent offshore profit shifting and help to coordinate work on implementation of the BEPS Action Plan via multilateral approval of changes in the ways of implementation of existing agreements on avoidance of double taxation. This also eliminates the need for bilateral negotiations on each of these agreements taken separately.

This, in its turn, helps the members to provide flexibility during fulfilment of their obligations, and to create conditions for high transparency of activity both of countries themselves and of their tax authorities and taxpayers.

The application of the Convention will affect 63 agreements on double taxation avoidance between the Russian Federation and foreign countries, except countries that are not members of the Special Group of the OECD for development of the Convention. The exception also applies to Sweden and Japan due to extended negotiations on conclusion of new agreements that take into account the provisions of the Convention.

The Convention does not contradict the Treaty on the Eurasian Economic Union, and other previous international treaties of the Russian Federation.

The Organisation for Economic Co-operation and Development is an international economic organisation of developed countries that have united based on market economy and democracy. The OECD was founded in 1948 as Organisation for European Economic Co-operation (OEEC) in order to coordinate European economic recovery projects under the Marshall Plan. Organisation’s headquarters are located in Château de la Muette, Paris. José Ángel Gurría Treviño has been its Secretary-General since 2006. The Council of representatives of member countries governs the OECD, and the decisions are based on general consensus. At present, the organization includes 35 countries, with the most of the EU member countries among them. The European Commission, as an institution of the European Union, is also a separate member of the organization. The share of the OECD member countries in the gross world product amounts to 60%.

Just to remind you, according to the Federal Tax Service, treaties on avoidance of double taxation are applied by the Russian Federation with the following countries: