Maintaining the obligation to submit documents on the controlled foreign companies

Maintaining the obligation to submit documents on the controlled foreign companies

LEGAL DIGEST, NEWS \ 27.05.2022

The Federal Tax Service authorities remind of the need for Russian organizations to provide documents confirming the amount of profit of controlled foreign companies, despite the temporary exemption from liability for their non-submission.

The Federal Tax Service (FTS) in its Order No. SHYU-4-13/5376 dated April 29, 2022 notes that despite the temporary cancellation of liability for failure to submit documents confirming the amount of profit (loss) of a controlled foreign company (CFC) for the reporting years 2021 and 2022, the obligation to submit them, in accordance with clause 5 of article 25.15 of the Tax Code of the Russian Federation, remains.

This means that in case of non-submission of supporting documents, the territorial tax authority should notify the companies of the existence of this obligation and request the relevant documents:

  1. The financial statements of the CFC prepared in accordance with the personal law of such a company, or other documents confirming the profit of the CFC for the financial year.
  2. An auditor’s report on the financial statements of a CFC, if its corporate documents or personal laws establish the conduct of a mandatory or voluntary audit.

These reporting is provided by Russian companies together with the profits tax declaration, by individuals – together with the CFC notification. Along with this, taxpayers may have an obligation to reflect income in the form of CFC profits in profits tax declarations.

If companies are unable to submit documents within the prescribed period, they need to provide appropriate explanations confirming the inability to obtain documents. At the same time, there will be no liability for:

  • late submission of documents;
  • impossibility of timely determination of the amount of tax liabilities on income in the form of CFC profits and payment of tax owing to a circumstance excluding guilt in committing an offense;
  • inability to reflect information about the financial statements of the CFC in the CFC notification.

At the same time, the territorial tax authority should take into account the list of countries implementing restrictive measures against Russian taxpayers, and take into account the validity of the explanations provided about the impossibility of submitting supporting documents.

If the supervisory authority considers the accepted explanations to be inaccurate, it will have to independently analyze open data sources on the activities of the CFC, including the possibility to send an international request regarding the CFC. Also, the tax authority may carry out tax control measures with respect to the taxpayer – the controlling person.

If the submission of documents seems possible, then the controlling company should take all measures to obtain them in order to send such documentation to the territorial authorities of the Federal Tax Service.

Please be reminded that the controlling person of a foreign company is recognized as individuals or legal entities that meet one of the following conditions:

  • share of participation in CFC is more than 25%;
  • share of participation in the CFC is more than 10%, if the share of participation of all persons recognized as tax residents of the CFC is more than 50%;
  • a person exercises control over the organization for his or her own benefit or for the benefit of his or her spouse and minor children.

These categories of taxpayers are required to inform the tax authorities about their participation in a CFC and provide a number of necessary documents: a notification of participation in foreign companies, a CFC notification, a profits tax declaration and attached reporting and an auditor’s report.

In the matters of the preparation and the procedure of submission of a CFC documents, please contact Acsour specialists.