Offshores will be fought a decisive battle?

It's no surprise that the one of ultimate purposes of any enterprise is profit earning. And sometimes the national tax legislation lays enough material tax rates on its residents and many companies, for purposes of the reduction of payments to the budget, register their business in offshore states which attract them with favorable terms of taxation.

As the result the treasury of the country, where fixed assets, production capacities and management are concentrated, receives much less amounts. Russian economy suffers from it probably more than any other large state of the world. Cyprus, Cayman Islands, Gibraltar, Andorra – it’s just not the whole list of traditional offshores chosen for the registration by many domestic companies.

The problem is long overdue and demands the legislative regulation. The Ministry of Finance is drafting a number of bills which, may be said, are of revolutionary character. First of all it is planning to introduce the concept of «tax resident» relative to legal entities. Today we have the definition of foreign and domestic company and of resident-natural person. Now therefore, company formally registered abroad, but having all production capacities and management in the RF, doesn’t fall within our tax regulation. It’s submitted that the resident-legal entity will mean even that business which assets’ country of origin will be Russia. After introduction of such norm these companies will pay income tax by their place of work then.

Moreover, the question on offshore daughter companies is being worked out. The point is that if the profit earned abroad isn’t transferred to Russia, the tax authorities will be able to attribute it to the parent company and impose a tax. But for realization of such operation in the practice there should be established full-fledged information exchange between the tax authorities of the countries, which sometimes depends on political relationship between countries. This should help the ratification of the OECD Convention on mutual assistance in collection of taxes, signed a year and a half ago, but still not ratified by the State Duma.

Anyway, either with the introduction of the concept of tax resident for legal entities, or as to the taxation of controlled from Russia offshore companies it will be necessary to work out the law substantially, that should close any possible loopholes. Availability of what share of assets in the country will identify a legal entity as Russian resident? Wouldn’t be foreign companies affected thereby? How to avoid double taxation? Questions remain open and, as informed the Deputy Head of the Ministry of Finance Sergey Shatalov, suggested initiatives will be realized not earlier than in 2015.