The Federal Tax Service has introduced a new form of notification of controlled foreign companies

April 30, 2022 is the deadline for filing a CFC notice for individuals. For violation of this deadline, an increased fine of 500 thousand rubles is provided for each controlled foreign company. Read this article for information on how to correctly fill out the CFC notification in 2022 using the new form.

Attention

: Since 2022, the form of notification of CFC has changed. The new form was approved by Order of the Federal Tax Service of Russia dated August 26, 2019 No. ММВ-7-13/ [email protected] In this article I tell you how to correctly fill out a notification about a CFC using the new form. You can download the notification form at the bottom of the article.

Attention : Starting with reporting for 2022, the deadline for filing a notice of controlled foreign companies for individuals has been postponed to April 30. The deadline for providing notifications about CFC for legal entities remained unchanged - March 20. The fine for failure to provide notification of a CFC within the prescribed period has increased fivefold: from 100,000 to 500,000 rubles for each controlled foreign company.

Who needs to submit a CFC notification?

Let me remind you that a Controlled Foreign Company (CFC) is a foreign organization or foreign structure without forming a legal entity (for example, a trust) controlled by a tax resident of Russia (clause 1 of Article 25.13 of the Tax Code of the Russian Federation).

That is, a notification about a CFC must be submitted if two conditions are met simultaneously:

1. You are a tax resident of the Russian Federation;

You control a foreign organization or foreign structure without forming a legal entity

Grounds for recognizing a foreign company as controlled

Foreign companies - non-residents of Russia, whose shareholders and/or beneficiaries are residents of the Russian Federation, are considered controlled if:

• the share of participation of a resident of the Russian Federation is more than 25% or the total share in which residents of the Russian Federation is more than 50%, and the share of each of such residents is more than 10%;
• Residents of the Russian Federation, although they do not have a participation share, exercise control over it in their own interests.

The presence of control by a resident of the Russian Federation is determined based on the ability to influence the foreign company’s decisions on the distribution of after-tax profits not only due to direct and indirect participation in the company, but also on the basis of:

• participation in the company management agreement;
• other features of the relationship between a resident of the Russian Federation and a foreign company (clause 7 of Article 25.13 of the Tax Code of the Russian Federation).

For example, when an individual does not directly participate in a foreign company, hiding behind offshore shareholder companies, but is the beneficial owner, the ultimate beneficiary of the foreign company and enters into a trust agreement with the nominee shareholders of the foreign company. In this case, the owner of the business can also be recognized as a controlling person of the foreign company.

A trust in the sense of the Tax Code of the Russian Federation is a foreign structure without the formation of a legal entity (ISBOLE). Such structures are equated to controlled foreign companies (clause 2 of Article 25.13 of the Tax Code of the Russian Federation).

How to avoid being a controlled company?

1. Get rid of the foreign company.

2. Get rid of Russian tax residence.

But recognizing a company as controlled is not the same as having to pay taxes on it in Russia!

Who is the controlling person of the CFC?

For CFC purposes, a Russian tax resident citizen controls a foreign organization if:

• The share of his direct or indirect participation in the organization is more than 25%, or;

The share of his direct or indirect participation in the organization is more than 10%, and at the same time the share of participation of tax residents of Russia in this organization is more than 50% (clause 3 of Article 25.13 of the Tax Code of the Russian Federation), or;

• He has control over the organization in his own interests or in the interests of his spouse and minor children (Clause 6 of Article 25.13 of the Tax Code of the Russian Federation).

A Russian citizen - tax resident controls a foreign structure without forming a legal entity (ISBOLE), if:

1. He is the founder (founder) and:

• has the right to receive profit (income) of this structure in whole or in part, or;

has the right to dispose of the profit (income) of this structure, or;

• has the right to property transferred to this structure (clause 10 of article 25.13 of the Tax Code of the Russian Federation)

2. Exercises control when any of the following conditions are met:

• has the actual right to the income received by such structure, or;

has the right to dispose of the property of such a structure, or;

• has the right to receive the property of such a structure in the event of its termination (liquidation) (Clause 12 of Article 25.13 of the Tax Code of the Russian Federation).

That is, if at least one of the above conditions applies to you, you need to submit a notification about the CFC.

What is the deadline for submitting a CFC notification?

A notification about a CFC is submitted by individuals no later than April 30 of the year following the year in which the CFC’s profit was distributed or as a result of which the CFC received a loss (clause 2 of Article 25.14 of the Tax Code of the Russian Federation). Organizations must submit a notice of CFC by March 20 following the year in which the CFC profits are distributed. This looks more clear in the following diagram:

In this article, I tell you in detail how to fill out a CFC notification for an individual. If you need to fill out a CFC notification for a legal entity, I recommend seeking help from a specialist.

Cover page - CFC Notice

On the title page you indicate your tax identification number, contact details, tax authority code and the period for which the CFC notification is submitted. Let's take a closer look at the order of filling them out.

At the very top of the title page you need to indicate your TIN, consisting of 12 characters. In the checkpoint

put dashes.

In the Adjustment number

enter “0” if you are submitting an initial notification. If in the future you discover an error in a previously filed CFC notice, you will be able to submit a corrective notice.

It's important to understand

: in
the Period for which the notification is submitted field,
you must indicate the year of distribution of profits (recognition of CFC losses), and not the financial year in which the income was received. Returning to the diagram that I presented above, if we are talking about the 2022 financial year of a CFC, then in the Period field you indicate 2022 - the year of distribution of the CFC’s profit, which you report on in 2022.

In the Submitted to the tax authority (code)

you indicate the code of your tax authority. The code of your tax office can be found through the official service of the Federal Tax Service (FTS).

In the Taxpayer (code) field, enter “2” - this is the code for an individual.

In the Taxpayer Information field, enter your full last name, first name and patronymic.

Fields This notice is compiled on XXX pages with attached copies of documents on YYY sheets

I recommend completing it later, after you have fully completed the CFC notice and prepared copies of all supporting documents.

In the lower half of the title page you only need to fill out the section I confirm the accuracy and completeness of the information specified in this notice.

Enter the number “1” (individual) and indicate your contact phone number and email address if you are going to submit a notification about the CFC yourself. If the notification about the CFC will be submitted by someone on your behalf under a power of attorney, put the number “2” (representative of an individual) and fill in the details of the power of attorney in the field Name and details of the document confirming the authority of the taxpayer’s representative

. In this case, also do not forget to attach a copy of the power of attorney to the notice of the CFC.

In what cases is it beneficial to pay tax on the fixed income of a CFC?

The main advantage of applying the tax regime on fixed income of CFCs: The controlling person does not need to submit financial statements and an audit report for each of his CFCs, i.e. there is a saving of administrative resources.

There are also no risks of receiving a fine of up to 1.5 million rubles. for failure to provide these documents for each CFC.

Financial statements and the auditor's report on them are standard documents in most foreign countries, so it is up to each beneficiary to decide whether they are difficult to provide.

The main disadvantage of applying the tax regime on fixed profits of CFCs is that the tax paid on fixed profits cannot be offset against the subsequent distribution of dividends to an individual, i.e. in fact, there will be double taxation of part of the profit distributed to the individual.

To answer the question about the advisability of the “fixed profit” regime in a particular situation, one should start from how profitable the CFC is and how the beneficiary plans to dispose of the profit:

A) If all the profits of a CFC are distributed in the form of dividends to the controlling person, then there is no economic sense in paying tax on the fixed profits of the CFC.

Thus, with a conditional profit from a single CFC of 100 million rubles, the controlling person will first pay 5 million rubles in personal income tax on fixed profits, and subsequently pay another 15 million rubles in personal income tax when distributing actual profits in the form of dividends. If the general regime for taxation of CFC profits is applied, the accrued personal income tax on CFC profits will also be ~15 million, and it can be reduced by the withholding tax paid in the country of registration of the CFC.

B) If the beneficiary plans to reinvest this profit for a long time (at least 3 years or 5 years - depending on how long the regime is required to apply), and not distribute dividends, then you can think about paying tax on the fixed profit of the CFC.

Thus, with a conditional profit from a single CFC of 100 million rubles, the taxpayer will pay ~5 million rubles in personal income tax when applying the fixed profit regime. If the general regime for taxation of CFC profits is applied, the accrued personal income tax will be ~ 15 million rubles, and it can be reduced by the tax paid in the country of registration of the CFC.

C) If a CFC is active, then according to the general rules, tax is not paid in Russia on its profits. Therefore, a flat tax is also just a way to protect the company from the attention of Russian regulatory authorities. Upon subsequent distribution of dividends, personal income tax will need to be paid.

D) If the beneficiary has many CFCs, then paying a flat tax can save time and administrative costs for preparing reports. In this case, it may be a “compensation” payment, freeing you from routine paperwork.

E) If the CFC is unprofitable (unprofitable), then the losses cannot be offset during the period of application of the tax on fixed profits, but can be taken into account in the future, starting from the tax period in which the taxpayer refused to pay personal income tax on the fixed profits of the CFC. At the same time, to account for such losses, you will still have to prepare financial statements to confirm them .

Page 002 - Information about an individual

The “Information about an individual” page is filled out only if the TIN is not specified. Since you and I filled out the TIN on the title page, page 002 does not need to be filled out ( clause 20 of Appendix No. 3 to the Order of the Federal Tax Service of Russia dated August 26, 2019 N ММВ-7-13/ [email protected]

).

Let's look at filling out the remaining sheets of the CFC notice based on a fictitious example in which Ivan Ivanovich Ivanov controls two foreign organizations and one structure without forming a legal entity. This is what it looks like in the diagram:

Sheet A - Information about a controlled foreign company that is a foreign organization

Sheets A and A1 must be completed for each controlled foreign organization. In our example, there are two such organizations - Chamomile Ltd. and Horns & Hoofs Ltd., so you will need to complete these sheets separately for each organization.

This is what it will look like:

Controlled Foreign Company Number

you choose yourself, the main condition is that it be unique for each CFC. For convenience, I recommend numbering them from one and then in ascending order. By the way, you should have already indicated this number in the notification of participation in a foreign organization.

Name of the foreign organization

indicated in Latin transcription. In the updated CFC notification form, it is no longer required to indicate the name in Russian transcription, as was the case before.

In field 3. Code of state (territory) of registration (incorporation)

indicate the code of the country in which the foreign organization was registered. You can find the country code using the world classifier here. In this example, the code for the British Virgin Islands is 092.

In field 5. Registration number(s) in the state (territory) of registration (incorporation)

You must indicate the registration number that was assigned to the company at the time of its registration. This can usually be found on the company's Certificate of Incorporation.

Field 6. Taxpayer code(s) in the state (territory) of registration (incorporation) or their equivalents

Only completed if the company has a separate tax number (also known as a TIN - Tax Identification Number). In some countries, this number is the same as the company registration number.

Field 7. Taxpayer code in the state (territory) of tax resident or equivalent

is filled out only in a fairly specific case, when the company is registered in one country, but is a tax resident of another country. For example, a company is registered in Jersey but is a tax resident of Cyprus. In our example, we leave this field empty.

In field 8. Address in the state (territory) of registration (incorporation)

the full address of the location of the foreign company in Latin transcription is indicated.

Rules for filling out the notification

If you need to generate and send a notification of participation in foreign organizations to the tax office, we recommend that you use the tips below and see a sample of filling out the document.

To begin with, let us remind you that the notification form has a unified form and is mandatory for use.

When filling it out, we recommend following a few simple rules.

1. You can enter information into the form either by hand (but only with a blue, black or purple ballpoint pen) or in printed form on a computer.
2. Words must be written in large capital letters, legibly, so that they are readable and understandable.
3. You cannot make mistakes on the form or make blots. If a mistake does occur, you should not correct it; it is better to fill out another form. And, of course, it is prohibited to indicate knowingly false information in the notification - if such facts are discovered, the consequences can be the most unpleasant.

If, after the notification has been sent, the taxpayer suddenly discovers that there was some inaccuracy in it, he has the right to submit an updated notification - no sanctions are provided for this, the main thing is to comply with the deadlines.

Sheet B - Information on the financial statements of a controlled foreign company

Attention: Starting from the 2020 tax period, the following documents must be submitted along with the CFC notification:

• financial statements of the CFC or, in the absence of financial statements, other documents confirming the profit (loss) of the company for the financial year
• an auditor's report on the financial statements of the CFC, if the audit is mandatory in the country where the CFC is located, or if such an audit was done voluntarily.

It is important that the above documents must be attached to the notification even if a loss is received or the profit of the CFC is exempt from taxes (clause 5 of Article 25.15 of the Tax Code of the Russian Federation). Documents drawn up in a foreign language must be translated into Russian. No notarization or apostille is required. The fine for failure to provide documents is 500,000 rubles (clause 1.1 of Article 126 of the Tax Code of the Russian Federation).

Please note that Sheet B is completed separately for each controlled foreign organization and foreign structure without the formation of a legal entity (ICFLE) specified in Sheets A or B.

Thus, for our example, three sheets B should be filled out.

In field 1. Number of the controlled foreign company

the unique number of the controlled foreign company previously indicated in Sheet A or Sheet B is indicated.

Field 2. Determination of profit of a controlled foreign company (code)

filled in as follows:

• Code “1” is indicated if the profit of a CFC is determined based on the financial statements of such a company, and these statements must be confirmed by an auditor’s report.
• Code “2” is indicated - if the profit of the CFC is determined according to the rules established for taxpayers - Russian organizations

In field 3. The date that is the last day of the period for which financial statements are prepared

You must indicate the last day of the CFC's financial year. Most often, the financial year coincides with the calendar year, in which case this field will indicate December 31 of the corresponding year, as in my example.

In field 4. Date of preparation of financial statements for the financial year

the date of preparation of the financial statements of the CFC in accordance with the legislation of the foreign country is indicated. Since in our example this is the British Virgin Islands, where there is no requirement to prepare financial statements, we leave this field blank.

Field 5. The date that is the last day of the period for which
the profit of a controlled foreign company
is filled in if the profit of the CFC is determined according to the rules established for taxpayers - Russian organizations, that is, if code 2 is indicated in Field 2 of this sheet.

In field 6. Date of the audit report

it is necessary to indicate the date of drawing up the audit report if a mandatory audit of the financial statements of the CFC is established or such an audit is carried out voluntarily. In my example, financial statements were not prepared and no audit was carried out, therefore we leave the field blank.

For many, the most important thing will be to fill out field 7. Grounds for exemption from taxation of profits of a controlled foreign company

. The codes for the grounds for exempting CFC profits from taxation are given in the table below:

Please note that if there are several grounds for exemption from taxation of CFC profits, the number “1” (yes) is indicated for each such ground.

Sheets B for the remaining controlled foreign companies from my example are filled out in a similar way.

Important

: if your controlled foreign company has a basis for exempting profits from taxation, then along with the CFC notification you must provide documents confirming the right to exempt CFC profits (clause 9 of Article 25.13-1 of the Tax Code of the Russian Federation). In this case, the documents must be translated into Russian in the part that is necessary to confirm the exemption of CFC profits from taxation.

(Reminder) Notice of CFC for 2022 (based on the results of the 2022 financial period)

Notification on CFC for 2022 (based on the results of the 2020 financial period): basic requirements, conditions and filing procedure

—————————-

ZOOM webinar:

Date and time: December 14, 2021 (Tuesday), 11.00 (Moscow time)

Duration: news analysis (30 min), answers to questions (60 min)

Link: https://zoom.us/j/92146804897?pwd=a2M3Z3daa2JiOVVDclA4aTlKVnppZz09

Conference ID: 921 4680 4897

Access code: TAw8ru

Available in recording on YouTube channel:

https://www.youtube.com/channel/UCLrTdrQFpqSNK1YTyHGKctw

—————————-

Who must submit the notification and in what form

Individuals (citizens of the Russian Federation or foreign citizens) who, based on the results of 2022 (for the period from January 1 to December 31), spent more than 183 days in the Russian Federation. Legal entities registered in accordance with the legislation of the Russian Federation.

If participation in a foreign organization is carried out by a Russian company , which, in turn, belongs to Russian (or foreign) individuals tax residents of the Russian Federation - Notification of CFC is submitted both by the Russian company (about the fact of direct participation) and from individuals (about the fact of indirect participation through a Russian company).

In what cases is notification provided?

• If the above persons as of 12/31/2021 or on any date they received dividends in 2022 own (owned) a share:
  over 25% (exactly 25% - no filing required) in a foreign organization OR
• over 10% (exactly 10% - no filing required) in a foreign organization, if tax residents of the Russian Federation own over 50% in this foreign organization
• If the above persons as of 12/31/2021 or on any date they received dividends in 2022 are (were) the founders of a trust/fund/partnership (relevant for UK and Scottish LLPs and LPs, respectively) OR retained the right to property transferred to this structure, or retained the right to receive profit from this structure
• If the above persons are directors of the company who have the right to fundamentally influence the distribution of profits

When determining the share of participation in the presence of indirect participation, the shares in the ownership chain are multiplied.

In what cases is NOT notification provided?

It is sufficient to meet any of the conditions below:

• if an individual at the end of 2022 is a tax non-resident of the Russian Federation
• if an individual sold/liquidated the company before 12/31/2021 and did NOT pay dividends to himself in 2022
• if an individual sold a share in the company before December 31, 2021 in such a way that his share became less than 25% or less than 10% (if the share of ownership by all tax residents of the Russian Federation is more than 50%) and did NOT pay dividends to himself in 2022 if the share of ownership was more than 25% (more than 10%)

Deadline and methods for submitting notification

• For individuals - until April 30, 2022 on paper in person at the Federal Tax Service at the place of registration or by mail in a valuable letter with a list of attachments and receipt of receipt, or electronically through the taxpayer’s personal account
• For legal entities - until March 20, 2022 at the Federal Tax Service at the location (or for the largest taxpayers, if applicable) only electronically via TKS

What to include in the notification

• For individuals - together with a notice of CFC by April 30, 2022 - financial statements for the company's 2020 financial period (or for the financial period ending in mid-2022, for example, for the period 09/01/2019-08/31/2020) with translation into Russian language (notarized translation is NOT required). What documents to attach to the notification of a CFC if the CFC does not prepare financial statements can be found in the review (REMINDER) Annual memo to owners of foreign companies (CFC) and foreign bank accounts in connection with tax residency planning. An audit of financial statements is required only in cases where: 1) it is required in accordance with the requirements of local legislation, 2) there is no tax treaty with the country (for example, Estonia, the Netherlands (Holland), offshore companies, etc.), in all other cases an audit of financial statements Not required
• For legal entities - together with an income tax return due by March 28, 2022 - financial statements for the 2022 financial period of the company, then the requirements are similar to those for individuals

If the profit for the 2022 financial period exceeded 10 million rubles

10 million rubles. /72.1464 (USD rate) = USD 138.607

10 million rubles. /82.4488 (EUR rate) = EUR 121.287

10 million rubles. /92.5689 (GBP rate) = GBP 108.027

10 million rubles. /9.3023 (HKD rate) = HKD 1.075.002

10 million rubles. /3.1151 (CZK rate) = CZK 3.210.170

If the profit before tax at the average rate in 2020 did not exceed 10 million rubles, you only need to submit the Notice of CFC 2022 and the Financial Statements 2022 to the Federal Tax Service.

If the profit before tax at the average rate in 2020 exceeded 10 million rubles, you only need to submit to the Federal Tax Service the Notification of CFC 2022 and Financial Statements 2022, AND ALSO (select any of the following):

1. declare the basis for exemption of retained earnings from taxation
2. distribute all 2022 profits in the form of dividends in 2022 and declare them in 3-NDFL 2022 by April 30, 2022 (conversion into rubles for personal income tax purposes - at the rate on the value date for a personal bank account in 2021)
3. pay tax on retained earnings by calculating it and declaring it in 3-NDFL 2022 by April 30, 2022 (conversion into rubles for personal income tax purposes - at the average rate for 2020)
4. submit by 12/31/2021 a Notification of the transition to paying personal income tax on the fixed income of a CFC (allowing you to pay 5 million rubles, regardless of the amount of profit for all existing CFCs. For those wishing to switch to this system until 12/31/2021, a “graceful” period for the subsequent obligatory application of this regime for 3 years instead of 5 years)

Penalty for failure to submit / late submission (missing the deadline)

The fine for failure to submit or missing the deadline for submitting a Notification on a CFC, starting with a notification on a CFC for 2022) is 500,000 rubles for each CFC. Moreover, the tax authority is currently also actively fines for failure to submit financial statements along with the CFC Notification; the fine is also 500,000 rubles. The total fine may be 1 million rubles. If there is at least one mitigating circumstance, at the request of the taxpayer, this fine must be reduced by at least 2 times (but at the same time, this fine cannot be completely canceled) and in practice it amounts to 500,000 rubles for both violations.

How to submit a CFC notification

Individuals are allowed to submit a notice of CFC in paper form (Clause 4 of Article 25.14 of the Tax Code of the Russian Federation). Accordingly, there are three possible options for filing a CFC notification:

1. Personally to the tax office at your place of residence
2. Through your representative (if he has a notarized power of attorney) also to your tax office
3. By mail, be sure to send a valuable letter with a list of the contents.

Attention: from March 18, 2022, it became possible to submit a notification about a controlled foreign company electronically through the Personal Account for individuals on the Federal Tax Service website. For more information, see my article “How to Submit a CFC Notice Online.”

Who is required to give notice?

This document must be submitted:

• citizens of Russia;
• persons with dual citizenship;
• those who have no citizenship at all;
• enterprises and organizations.

In addition, the obligation to prepare the document also lies with some foreign companies, including those that have divisions and branches within the Russian Federation and are considered, accordingly, taxpayers of our country.

The reason for filing a notification is both joining and leaving a foreign organization. When “reformatting” shares, you should also notify the regulatory authorities.

Penalties for failure to provide notification of CFC or errors in notification

Please note that there are very serious fines for violating CFC legislation:

• For failure to submit a notification about a CFC on time, a fine of 500,000 rubles is provided for each controlled foreign company, information about which was not provided (Clause 1 of Article 129.6 of the Tax Code of the Russian Federation). Thus, if the hero from my example had not submitted a notice of CFC on time, the amount of the fine would have been 500,000 rubles * 3 = 1,500,000 rubles.
• For failure to provide supporting documents for CFC (financial statements and auditor’s report), a fine of 500,000 rubles is provided (clause 1.1 of Article 129.6 of the Tax Code of the Russian Federation)
• For errors made when filling out a notice of a CFC, a fine of 500,000 rubles is provided for each controlled foreign company in respect of which false information was provided (clause 1 of Article 129.6 of the Tax Code of the Russian Federation).
• For failure by an individual to pay tax on the profits of a CFC, a fine is provided in the amount of 20% of the amount of unpaid tax, but not less than 100,000 rubles (Article 129.5 of the Tax Code of the Russian Federation)

Tearing off the masks

Having a Russian citizen controlled by a foreign company imposes a number of obligations. Firstly, this is a notification to the tax authority in the following order:

1) One-time notification of participation in a foreign company (establishment of a foreign structure without forming a legal entity (ISBOLE)).

A notification of participation in a foreign organization is submitted no later than three months from the date of the formation of a participation interest in such a foreign organization, clause 3 of Art. 25.14 Tax Code of the Russian Federation.

If this is not done on time, notice may be given at any time. The fine for violating the deadline is relatively small - 50,000 rubles. in relation to each foreign company (structure), charged once (clause 2 of article 129.6 of the Tax Code of the Russian Federation).

2) Annual notification of the presence of controlled foreign companies (CFC), ISBOLE. If a tax resident of the Russian Federation had a CFC (ISBOYUL) in 2022, then the notification is submitted in 2022 - no later than March 20 by the organization and no later than April 30 by the individual (Article 25.14 of the Tax Code of the Russian Federation, clause 1.1. Article 223 of the Tax Code of the Russian Federation, subparagraph 12, paragraph 4, article 271 of the Tax Code of the Russian Federation and letter of the Ministry of Finance of Russia dated October 20, 2015 No. 03-03-06/60105). Notifications are submitted in a similar manner for subsequent years.

For failure to provide or submission of a notification containing false information, the fine is already higher - 500,000 rubles (clause 1 of Article 129.6 of the Tax Code of the Russian Federation).

In addition to the notification, the following is submitted:

• financial statements of the CFC for the financial year based on the results of which the resident of the Russian Federation submits a notification (clause 1, clause 5, article 25.15 of the Tax Code of the Russian Federation);
• an audit report on these financial statements of the CFC, if the audit is mandatory in the country of residence of the CFC or is carried out voluntarily (clause 2, clause 5, Article 25.15 of the Tax Code of the Russian Federation).

Documents must be translated into Russian.

Financial statements are submitted by an individual - together with a notification, an organization - along with an income tax return (the deadline for submission of which is no later than March 28).

For failure to provide these documents, the same significant fine is provided as for failure to submit the CFC notification itself - 500,000 rubles (clause 1.1 of Article 126 of the Tax Code of the Russian Federation).

In this case, the tax authority also has the right to request these documents from a resident of the Russian Federation, and the resident of the Russian Federation is obliged to provide them within one month from the date of receipt of the corresponding request (clause 1, clause 2 of Article 25.14-1 of the Tax Code of the Russian Federation).

Failure to submit financial statements of a CFC and an audit report even after the request of the tax authority entails the collection of another fine, already in the amount of 1,000,000 rubles (clause 1.1-1 of Article 126 of the Tax Code of the Russian Federation).

Thus, even if the profit of a CFC is not taxed in Russia, the controlling person must provide the financial statements of the CFC, an auditor’s report on these financial statements and confirm with any documents that the profit of the CFC is exempt from taxation in Russia.

How can I avoid the obligation to provide this information?

1. Get rid of the controlled foreign company.

2. Switch to paying tax on fixed income of CFCs.