Clarification Of Income Computation Under The Russian De-Offshoring Legislation

Federal Law No. 376-FZ provides that the profits of Controlled Foreign Companies registered in jurisdictions that have a tax treaty with Russia are to be calculated based on the company's financial statements prepared in accordance with its personal law, provided that the financial statements are subject to a statutory audit. Otherwise, profits are to be calculated in accordance with the Profits Tax Chapter of the Russian Tax Code.

This has been reconfirmed by the Russian Ministry of Finance in its Letter No. 03-03-06/1/68300 dated 29 December 2014. Taxable income will be calculated in accordance with the national law of the CFC if the CFC's national law requires a mandatory audit and the financial statements have been audited in accordance with that requirement, and the state in which the CFC is registered has concluded a double tax treaty with Russia. If any of these criteria are not fulfilled, the CFC's taxable income will be computed according to the Russian rules.