The government can make it easier for foreign companies to get tax benefits
State Duma Deputy Alexei Makarov made a proposal to simplify the receipt of privileges by entrepreneurs for conducting transactions abroad. He wrote a document on innovations in the Tax Code, which remove technical difficulties for such concessions.
The most significant of the proposed amendments involves equalizing indirect participation in Russian companies (when a foreigner or a foreign legal entity owns a Russian one not directly, but through, for example, an American subholding) to direct participation in obtaining tax benefits under international agreements. Another proposal expands the list of controlled foreign entities whose income can be exempted from taxation.
The government, in its conclusion on the document, approved the innovations. The Cabinet of Ministers, however, noted the importance of introducing additional protection measures against the use of benefits for tax evasion. Perhaps the bill will soon be submitted for discussion by the State Duma.
It should be noted that the existing tax legislation was created in a hurry, so its revision is especially important, said Mikhail Orlov, partner of KPMG. If amended, most of the holdings will no longer be considered those controlled by foreign companies, as they are located in jurisdictions that cannot be considered offshore.
Why does the Tax Law need adjustments?
The document simplifies the requirements and their implementation for obtaining a preferential tax rate when transferring dividends or interest on loans to other countries. Criteria for granting concessions are often specified in international agreements. For example, the agreements with Germany indicate that if the requirements are met, the tax rate on dividends reaches 10% instead of the 15%. However, due to indirect ownership of a part of the Russian organization, such concessions may be refused, said Mikhail Filinov, partner of PwC. He also noted that the amendments could simplify the process of paying dividends to many European countries.
In addition, the document expands the list of allowed incomes for the recognition of a controlled foreign company as an active holding and sub-holding organization. The list will include profit from the sale of shares, as well as other funds not involved in eroding the tax base and withdrawing funds from taxation. The innovations will free the earnings of holdings that conduct real financial activities, for example, they invest in foreign organizations, from paying taxes, concluded Anastasia Stepanova, Head of Tax and Legal Consulting at KPMG.