A New Tax Will Not Become an Effective Weapon in the Battle Against Offshore Businesses

The Accounts Chamber of the Russian Federation and the expert community suggested, as a method of preventing tax avoidance via offshore channels, that the RF Government should introduce an additional tax, to be levied on transactions with offshore companies.

However, the RF Ministry of Finance and Federal Tax Service believe that such a tax cannot become an effective measure against the tax evasion practices of offshore businesses because it can be easily avoided by dealing with offshore companies via intermediaries registered outside offshore zones, instead of carrying on direct transactions.

The RF Ministry of Finance is currently considering some other measures applicable in the struggle against different ways of tax deferral, including by using low-tax offshore entities. Among these, there are the introduction of special rules for levying taxation on controlled foreign corporations (CFC), the rules for determining tax residency at the place of a company's actual administration, and the definition of beneficiary ownership; improvement of the rules for transfer pricing control, the under-capitalization rules;  and improvement of tax administration (including international information exchange procedures).

It should be reminded that an active campaign against tax dodging is now underway also in the framework of G20 and the OECD. The OECD's task force has developed a plan of relevant measures, and intends to put forth specific proposals in each area of taxation by 2015. The OECD's proposals will evidently influence the way a similar package of measures in Russia is going to be shaped. Thus, we expect that the issues of transfer pricing, beneficiary ownership and taxation of CFC will be dealt with by the RF Ministry of Finance only after the OECD officially releases the relevant documents.

S.S. Shatalova – Senior Researcher, RANEPA