Overview of the main tax policy directions

by Dmitri Kostalgin

The RF Ministry of Finance prepared a draft of The Main Tax Policy Directions (MTPD). The parliamentary hearings will be held on June 2 in the RF State Duma. We’ve prepared a brief overview of the measures that are noteworthy.

The MTPD could not ignore the current geopolitical situation, that is why the preamble states that tax policy should meet the current global challenges, among which are, first of all, sanctions.

Deoffshorization

Probably the shortest section of the MTPD.

One of the most important and controversial things is taxation of capital gains in liquidation of CFC. The MTPD directly indicates the desire to impose taxes on these gains, but not at the time of liquidation of the CFC but in further realization of the assets. Apparently, this approach eliminates the few advantages of voluntary disclosure and (or) liquidation of the CFC.

It was noted that Russia actively participates in BEPS and, in general, we are in the trend. It is still planned to launch automated information exchange in 2018. Clarification of the rules on the CFC will be continued after the final version of the relevant report.

Thin capitalization and accounting of interest payments

There were quite a lot of suggestions here:

  • It is suggested to extend the minimal 0% rate mode and, possibly, make it permanent. More details on these changes were mentioned in our alert.

  • It is proposed to consider extending the thin capitalization rules to domestic financing. Reclassification of interest into dividends will operate, but dividend exemption on strategic participation will be applied.

  • Following the release of the final recommendations of the OECD on ‘Restricting possible corporate profits erosion due to interest payments’ in the framework of para. 4 of BEPS Plan realization, changes in the national legislation will be made.

Tax administration

The MTPD suggests introducing preliminary clarification on taxation of planned transactions (analogue of tax ruling). However, no details on this issue have been revealed. Let us remind that this issue is in the roadmap on tax administration.

In order to expand taxpayers opportunities to act with due diligence, it has been suggested to provide access to indicators of counterparties’ tax reporting, their number of staff, the amount of taxes paid. A questionable measure from which it is hardly worth expecting any results. Because one shouldn’t expect that there won’t be any claims is a counterparty reflected implementation in the reporting and conjured something with deductions. In this scenario, it's more like shifting the blame on others.

The problem of introducing a general anti-abuse rule (GAAR) is also indicated,  as well as the need for the introduction of these regulations into the Tax Code. Besides that, the RF Supreme Court Plenum on unjustified tax benefit does not include, according to the Ministry of Finance, all possible ways of abuse. It seems that somewhere in the world there’s a manuscript where absolutely all methods are described, and someday it shall be found. Here it is worth paying attention to the bill on the same topic, which is being discussed in the State Duma. However, it is nowhere near even remote analogues of GAAR, and it has been suggested to deny deductions and expenses if a signature on the invoices is the wrong one or the signatory denies having signed it.

Property tax

The main changes will concern the functioning of the privileges in respect of movable property. The MTPD separately indicated that the privilege introduced in 2013 was used by taxpayers for exemption from taxation of old rather than new property. This required changes, which came into force from 2015.

The Ministry of Finance admits that new regulations also have their issues. In particular, if property was obtained within reorganization, even if previously the property was legitimately exempt from tax.

In this connection monitoring will be carried out, and within the expansion of property taxation on the cadastral value of the exemption for movable property will be expanded.

P.S. If you are interested, you can read a similar document prepared by, as they say, our partners from the US Treasury.

Photo: Victor Kapustin