Tax rules for controlled foreign companies will be change

The State Duma Committee on Budget and Taxes recommended that the lower house of parliament adopt in the first reading a draft law clarifying a number of provisions of the Tax Code on the procedure for paying taxes on profits of controlled foreign companies (CFCs) in Russia.

The draft document proposes to exclude income in the form of dividends and the corresponding amount of withholding tax from the calculation of the effective tax rate of CFC profits in cases where the actual recipient of dividends is the controlling person – a Russian tax resident, since in this case the CFC has no right to dispose of such dividends when exercising its economic activity and does not bear the tax burden in connection with their receipt. It is also proposed to clarify the concepts of a foreign holding (sub-holding) company, as well as to streamline the criteria for exemption of CFC profits from taxation if the foreign holding (sub-holding) company is recognized as an active holding (sub-holding) company.

The document provides for the transition from a special to a general procedure for adjusting the CFC’s profit in relation to transactions with financial derivatives – it is proposed to take into account the financial results from transactions with financial derivatives in a general manner based on the financial statements of the CFC. It is also proposed to unify the procedure for determining the costs of a CFC in the sale (other disposal) of shares in the authorized (joint) capital (fund) of organizations, shares in mutual funds of cooperatives and mutual investment funds, securities, providing that the corresponding costs are determined in accordance with the procedure (method write-off) stipulated by the relevant CFC financial statements.

To stimulate investment activity, the bill proposes to provide for the possibility of reducing income from the sale of property rights (shares, shares) by the amount of the contribution made to the property of subsidiaries. It is also proposed not to deprive the taxpayer of the right to depreciate a fixed asset in terms of the costs of its creation (acquisition), which were not taken into account when determining the investment tax deduction, and also to give the taxpayer the right to transfer the unused tax deduction in the part credited to the federal budget for the following periods – similar to the procedure stipulated for the part credited to the budget of the constituent entity of the Russian Federation.

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