The CFA Association Russia held a business breakfast in which representatives of the finance and investment communities discussed recent changes to tax legislation in the informal atmosphere of the Tverbul’ restaurant.

Guests at the breakfast were members of the CFA Association Russia and CFA candidates, who had the opportunity to hear representatives of the  consulting firm Ernst & Young and the law offices of Egorov Puginsky Afanasiev & Partners (EPAM). The guests came together early in the morning to examine the tax consequences of the last year and to draw up recommendations for tax planning under the new conditions.

Igor Shikov, head of tax practice at Egorov Puginsky Afanasiev & Partners, talked about the implementation of the recently enacted laws which relate to what are known in other countries as Controlled Foreign Companies, whose Russian owners are taxed according to Federal Law 376-FZ. In terms of this law, “control” primarily refers to the ability of the owner to influence the distribution of profits.

In general, Shikov said, the new laws stem logically from the battle for de-offshorizing of the economy (here Russia is following global trends), but not all of their provisions can be considered to be without dispute. The main drawback of the Law, in Shikov’s opinion, is that it has no positive incentives for natural persons to stop offshoring, and certain preferences are gained only by legal persons which are tax residents of the Russian Federation. According to this contributor, “They are simply creating intolerable conditions for people with regard to ownership by foreign companies, especially considering that the qualifications of Federal Tax Service employees in the regions are obviously not sufficient to competently implement the new rules.”

Agreeing with him was Andrei Ermolaev, senior manager of Tax and Legal Services at Ernst & Young, who spoke about the application of the new laws on international exchange of tax information. Viktor Kalgin presented examples of several business organizations working within Russia, and he demonstrated the inadequate approach of arbitration courts to defining tax obligations in cases when information received from foreign counterparts is involved.

Andrei Ermolaev notes, “Despite the fact that all arguments presented by the parties during the case should carry the same weight, in practice it almost always takes just one letter from foreign tax authorities to reach a decision not in favor of the company.”

However, it’s not all that bad according to his colleague, senior manager of Tax and Legal Services at Ernst & Young Viktor Kalgin. Russia has really had to go through the necessary stages of developing a tax system much faster than its foreign counterparts. The help of professional tax advisers is today more relevant than ever. “It’s like the common cold, the ‘organism’ adapts to new conditions,” Kalgin says. “The main thing is not to self-medicate, and everything will turn out well.”

In talking about global trends, the speakers noted that the economic world is becoming more transparent: European countries have shown a readiness to disclose information to foreign tax authorities. In this case, the concept of beneficial ownership and the international exchange of tax information between countries have become especially relevant in Russia, too. The state is paying increasing attention to anti-offshoring regulation to ensure the transparency of beneficial ownership of companies and to prevent tax evasion by using offshored companies.

In summarizing the discussion, the speakers agreed that reform of taxation for foreign companies is an important and necessary step in developing Russia’s tax system in line with international trends. At the same time, such innovations represent a fundamental change in the existing tax regime, which will undoubtedly have a significant impact on businesses, social and economic groups, and the economy of Russia as a whole.