On February 19, 2018, the President signed a set of laws setting the terms for another “capital amnesty,” in particular, changes are made to the following:

• Federal Law “On voluntary declaration by individuals of assets and bank accounts/deposits and on amendments to certain legislative acts of the Russian Federation” (the “Voluntary Declaration Law”). These changes amend the voluntary declaration procedure;
• Russian Tax Code, with the changes extending the timeframe for liquidating controlled foreign companies (CFCs) without tax consequences, as well as giving guarantees of exemption from tax shortfalls being assessed and from tax liability in exchange for disclosing the relevant information;
• Russian Criminal Code, with the changes extending the term of criminal immunity for various crimes that could be tied to assets declared as part of the amnesty.

The set of amendments put into effect presumes the following:

1.      Timeframes for the second “capital amnesty”

As reported earlier, the first time voluntary asset and account declaration took place in Russia from June 1, 2015 to July 30, 2016. This first so-called amnesty released individuals from criminal, administrative and tax liability for the relevant offences tied to assets shown in a special declaration and to related income and operations.

The new amendments enact the same guarantees for declarants, with the new timeframes for declaring being from March 1, 2018 to February 28, 2019.

This issue should be of particular interest, given that the Russian authorities can now learn about any assets held by Russians abroad which were unknown earlier, thanks to an automated exchange of financial information starting to work between governments.

2.  Individuals who participated in the first amnesty can participate again

Initially, the Voluntary Declaration Law presumed that a declaration can only be filed once, and that a second declaration or clarifications are not allowed.

Under the new amendments, persons who filed a declaration during the first amnesty can file it again during the second one. It is noted that the second declaration, irrespective of its content, will not be deemed a clarification of the declaration filed earlier.

3.    Special declaration can be filed with any tax body

The special declaration now can be filed with absolutely any tax inspectorate or with the Russian Federal Tax Service at the declarant’s discretion. During the first amnesty, the declaration could only be filed with the central office of the Federal Tax Service or the local tax body where the individual was registered.

4.  Not only open accounts, but closed ones too can be declared

An important point is that lawmakers have clarified that the list of information being declared in the course of the amnesty can include not only foreign bank accounts opened prior to January 1, 2018, but also accounts that are closed as of the time the declaration is filed.

The amnesty presumes that money credited on accounts listed in the special declaration is deemed credited in compliance with the currency laws. Therefore, the risk of a fine in the amount of 75-100% of each transaction (if any) is ruled out.

We should additionally note that the following are subject to the amnesty:

-     Real estate, including land;

-     Automobiles;

-     Securities;

-     Shares in Russian and foreign companies;

-     CFCs;

-     Foreign accounts, whether open or closed as of the time the declaration is filed.

5.    Clarifications on amnesty for CFCs and tax immunity

A declarant is released from liability for not informing the authorities of a CFC if the appropriate notifications were filed along with the special declaration reflecting the information on such CFC at the second stage of the amnesty.

Filing a declaration also releases the declarant from a tax shortfall being assessed for the period prior to January 1, 2018 based on (a) operations tied to acquisition, use or disposition over property and/or CFCs listed in the declaration and (b) monies deposited on accounts indicated in the declaration. At the same time, the amnesty does not apply to income from a CFC’s undistributed profit on which the declarant owed personal income tax.

At the same time, it is important to note that lawmakers have also allowed an extension on tax-free liquidation of a CFC if such liquidation is completed by March 1, 2019. Under the amendments, no taxes are paid on income, whether in cash or in kind, that the declarant receives from liquidation of a CFC.

6.  Clarifications for calculating personal income tax on amounts gained from sale of property received from a nominal owner

Amendments to the Tax Code also assume that when a declarant under amnesty sells or otherwise alienates property received from a nominal owner, given that both the property and the nominal owner are stated in the special declaration, the declarant can deduct expenses in form of the cost of such property either based on accounting records of the transferring party or based on the market value as of the date the property is transferred (whichever is less).

We should note that to date there have not been any amnesty cases at the first stage with negative consequences. Of course, each situation is unique and individual, and one should approach with care the issue of disclosing assets, subject to the goals you wish to achieve through the amnesty. We propose to examine your situation once again in order to define, first, the assets that fall under the program and, second, how expedient it is to declare them.

Federal Law No.33-FZ “On voluntary declaration by individuals of assets and bank accounts/deposits and on introducing amendments to certain legislative acts of the Russian Federation” dated 19.02.2018

Federal Law No.34-FZ “On introducing amendments to Parts One and Two of the Tax Code of the Russian Federation and Article 3 of Federal Law ‘On introducing amendments to Parts One and Two of the Tax Code of the Russian Federation (concerning taxation of profit of controlled foreign companies and income of foreign organizations)’” dated 19.02.2018

Federal Law No.35-FZ “On introducing amendments to Article 76-1 of the Criminal Code of the Russian Federation” dated 19.02.2018

Anastasya Kuzmina   Head of Tax Group   St. Petersburg   Tel.: +7 (812) 346 79 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Anastasya Kuzmina St. Petersburg Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues. 

www.facebook.com/capitallegalservices

www.linkedin.com/company/1508958