The Federation Council is considering a Federal Law “On Amendments to Part Two of the Tax Code of the Russian Federation (on Certain Measures of Tax Support)” (the “Law”), proposing significant changes to tax legislation. Thus, the provisions of the Law introduced new rules in the regulation of relations between controlled foreign companies (“CFC”) and controlling persons.
According to the Law, Russian legal entities and individuals will be able to obtain the rights of a shareholder (participant) in Russian companies through their CFCs and exercise them until 31 December 2022.
At the same time, for the controlling person to obtain such rights, the following conditions must be met:
- the controlling person who notified the tax authority about the CFC for the tax period of 20211;
- the controlling person owns more than 50% of the participation in the CFC2;
- A CFC commits harmful actions/omissions in relation to a Russian organization or a controlling person 3;
- The CFC is registered on the territory of an unfriendly state4.
If all the above conditions are met, the controlling person will be able to apply for the exercise of the rights of a shareholder (participant) to the Federal Tax Service, which must be considered within 10 days5. The recommended form of application is available on the website of the Federal Tax Service. If such an application is satisfied, the Russian company will have to publish in the EFRSFDUL6 data on the controlling person who exercises the rights of its shareholder or participant instead of the CFC7.
Also, the Law provides for restrictions on the exercise by the Russian controlling person of his rights as a shareholder (participant). So, it will be impossible to vote on the following issues:
- on the amendment of the charter of the organization and approval in a new edition8;
- on the reorganization and liquidation of the organization9;
- on the increase/decrease of the authorized capital, except for mandatory cases provided for by law10;
- on the early termination of the powers of members of the management bodies of the organization elected before the application is satisfied11;
- about the consolidation of shares12;
- participation in financial and industrial groups, associations, and other associations of commercial organizations13.
In addition, the controlling person cannot make transactions on the alienation of shares (stakes) of a Russian organization14, distribute the profits of the LLC15 and pay dividends on the shares of the JSC in favor of the CFC16 until 31 December 2022.
1 paragraph 19 of article 4 of the Law
2 paragraph 1 of article 3 of the Law
3 paragraph 2 of article 3 of the Law
4 paragraph 1 of article 3 of the Law
5 paragraph 8 of article 3 of the Law
7 paragraph 12 of article 3 of the Law
8 subparagraph 1 of paragraph 16 of article 3 of the Law
9 subparagraph 2 of paragraph 16 of article 3 of the Law
10 subparagraph 3 of paragraph 16 of article 3 of the Law
11 subparagraph 4 of paragraph 16 of article 3 of the Law
12 subparagraph 5 of paragraph 16 of article 3 of the Law
13 subparagraph 6 of paragraph 16 of article 3 of the Law
14 paragraph 18 of article 3 of the Law
15 subparagraph 1 of paragraph 19 of article 3 of the Law
16 subparagraph 2 of paragraph 19 of article 3 of the Law