Tax regulation of controlled foreign corporations changes starting from 2021

Tax regulation of controlled foreign corporations (CFC) changes starting from 2021.

The Federal Tax Service warns on its website: tax regulation of controlled foreign corporations (CFC) changes starting from 2021.

Federal Law No. 368-FZ of 09.11.2020 ‘On Amendments to Parts One and Two of the Tax Code of the Russian Federation’ introduced provisions on a new regime for paying personal income tax on fixed CFC profits, as well as changes concerning the usual procedure for paying CFC profit tax and liability measures for tax offenses.

1. Payment of tax on CFC’s profit fixed

Individual taxpayers can calculate the tax on the fixed profit of a CFC, regardless of the number of CFC’s available to such a person. In addition, the taxpayer has the right not to submit documents confirming the amount of the CFC’s profit.

For the first time, the CFC fixed income tax can be paid by individuals as early as 2021 based on the results of the 2020 tax period.

The fixed amount of the CFC’s profit is established by the Tax Code of the Russian Federation and amounts to:

• for the tax period of 2020 — 38,460,000 RUB.

• for tax periods starting in 2021 — 34 000 000 RUB.

At the same time, the individual taxpayer retains the obligation to submit an annual CFC notification.

For more information about the new regime for paying personal income tax on fixed CFC income, see the section ‘Controllers and controlled foreign corporations’.

2. The change in the timing of the CFC notification submission and an increase in tax liability

Starting from 2021, notification of CFC by individual taxpayers is submitted no later than April 30.

For taxpayers-organizations, the deadline for submitting a CFC notification has not changed — no later than March 20.

A fine for failure to submit such a notification within the prescribed period is up to 500,000 RUB. To avoid unintentional failure to submit a CFC notification within the established time limit and the occurrence of tax liability, the Federal Tax Service of Russia recommends that taxpayers — controllers take care of the performance of their tax duties in advance.

3. CFC controllers who do not calculate CFC fixed income tax are required to submit supporting documents

From 2021, taxpayers-controllers who do not calculate CFC fixed income tax are required to submit to the tax authority documents confirming the amount of CFC profit (loss) regardless of whether they have an obligation to pay CFC income tax.

Starting from the 2020 tax period, organizations are required to submit such documents together with the income tax return, and individuals are required to submit such documents together with the CFC notification.

In connection with the increases in the penalties under Paragraph 1.1 of Article 126 of the Tax Code, the FTS of Russia asks the taxpayers to pay attention to the timeliness of the submission of supporting documents provided by the Tax Code.

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