Yana Karausheva
Ex-Junior Lawyer
Tax and Legal Practice
Korpus Prava (Russia)
The amnesty of capitals is an exchange operation offered by the state to its citizens. The information on the assets should be exchanged for the guarantees of release from criminal and administrative liability, as well as from liability for tax and currency violations. One can assess whether this is an even exchange only being aware of the circumstances of each particular situation.
In 2015, plenty of mandatory requirements were introduced, which bind the residents of the Russian Federation to disclose information on external assets: the notice of participation in foreign entities, the notice of controlled foreign entities, the notice of cash flow on accounts (deposits) in foreign banks. It is obvious that all these innovations pursue the only purpose: collection of information on the assets, the income on which has not been included into the tax declaration. Possession of such information increases the chances of a tax authority on providing the evidential basis for prosecution cases.
It is expedient to be granted amnesty when there is a risk that, as a result of analysis of available information and cooperation with tax authorities of foreign states, the Federal Tax Service of Russia will have weighty “compromising material” against a taxpayer. However, one must keep in mind that amnesty applies to the acts committed before January 1, 2015, and the flow of information on external assets flooded into the tax authorities after this date already, therefore, it is very difficult to gather information on the taxpayers’ income for the prior periods (the years 2013-2014).
The amnesty of capitals is a voluntary matter, and before taking a decision on disclosing information, one should think it over prudently. Indeed, along with getting the guarantees of release from liability for the prior periods, one may “put under fire” the deals and transactions not covered by the amnesty.
There is no liability as such for failure to file the amnesty declaration; indeed, this is the taxpayer’s right, and not its duty. As a kind of liability, we may call the regret concerning lost opportunity to be forgiven in case the punishment finally reaches the taxpayer.
Leonid Kunin
Ex-Senior Lawyer
Tax and Legal Practice
Korpus Prava (Russia)
Depending on the objects declared, the declaration filed within the framework of amnesty can release the declarant from the following types of liability:
We believe that there are no reasons not to trust the guarantees stipulated by the Federal Law, but all those guarantees are valid only if the acts, with respect to which they are provided, were committed by the declarant and (or) formal property owner before January 1, 2015. Thus, if the declarant commits unlawful acts using the undeclared assets of accounts in future, such acts will be subject to respective liability, and no guarantees concerning the acts committed after 01.01.2015 will be valid. This being the case, the information contained in the declaration can do harm to the declarant in future in case of committing unlawful acts with the objects declared.
Anna Senchenko
Leading Lawyer
Tax and Legal Practice
Korpus Prava (Russia)
Within the framework of the Law on the amnesty of capitals, the declarant has the right to provide, among other things, the information on the accounts (deposits) opened with the banks located outside the Russian Federation. This concerns the accounts (deposits) in foreign currency and in the currency of the Russian Federation.
This being the case, it should be noted that the brokerage accounts are intended for carrying out of settlements by the brokers in broker operations relating to investments into securities and performed om the basis of brokerage agreements concluded with customers. The special brokerage accounts are credited with the money of the customers transferred by them to a broker for being invested into securities, as well as with the funds received by the broker for the transactions with securities made on the basis of brokerage agreements with the customers. As a matter of fact, the brokerage account is not considered to be the customer account, but is a form of independent record-keeping for operations performed by the broker for each separate customer. Thus, an individual cannot declare the brokerage account.
Alongside with that, within the framework of the Law on the amnesty of capitals, the declarant can provide information on the securities being in its actual ownership. But this being the case it is necessary to keep in mind that in that case it will be necessary to indicate in the declaration the information on each security, in particular, the name and registration address of the issuer, the nominal value, the amount etc.
The specific character of investment accounts is that they represent the hybrid of an individual’s operating account and the brokerage account. Such account can be declared.
Irina Otrokhova
Chief Compliance Officer
Corporate Services
Korpus Prava (Cyprus)
The Federal Law No. 140-FZ dated June 08, 2015 “On voluntary declaration by individuals of assets and accounts (deposits) in banks, and on amendments to certain legislative acts of the Russian Federation”, the so-called “Law on the amnesty of capitals” (hereafter – the “Law”), which became effective, resulted in huge excitement and raised many questions from Russian owners and businessmen. One of them concerns information on the property subject to declaration. Despite the list of the property, the information on which can be declared, is given the Law, the declarants are often interested in such questions as:
So, let’s take a look at the list of information set by the Law, which the declarant can indicate in the declaration filed by him:
It should be noted that the Law provides declaration only of the property and assets that are in possession of the declarant as of the date of filing the declaration to the tax inspectorate. The “Law on the amnesty of capitals” does not provide the opportunity of declaring the cash funds. As an alternative way out, the declaration of information on the accounts of a declarant and/or account of the company belonging to the declarant, to which the cash funds have been transferred. However, one has to remember that the guarantees of release from liability stipulated by the Law are effective only with respect to the declarant’s acts committed before January 01, 2015.
Irina Kocherginskaya
Managing Director
Tax and Legal Practice
Korpus Prava
As declaration of the assets within the framework of amnesty is a voluntary matter, then, certainly, thinking, whether to file declaration or not, is first of all necessary for those, whose assets have been acquired for undeclared income in order to be released from tax and criminal liability for the tax crimes committed. From this point of view, the position of the taxpayer “I have declared all income, which then transferred abroad, that’s why I don’t need any amnesty” does have the right to exist. But before giving the unambiguous answer, whether such taxpayer needs declaration or not, it is necessary to thoroughly trace the route from that declared income to the asset that have been finally acquired for such income. And if the taxpayers that have paid the taxes from the received income are of frequent occurrence, only the very few among them can exactly support the money flow with any documents. Unfortunately, the major part of the taxpayers didn’t transfer the money directly from their operating account, where such income was received, to the account of the seller of the assets. Most often the following situations were simulated:
And as the Law on amnesty provides release from liability not only for tax violation and crimes, in all the above mentioned or similar cases the honest taxpayers should think over amnesty.
Thus, we always ask each our customer that is convinced that he “did not steal anything, and received all income in a lawful manner” the following question: “And can you confirm by any documents the flow of the money from your operating account to the seller’s account?” If not, then it means that you cannot prove that the asset has been acquired for the same honestly earned money. In the opinion of inspection authorities, this will be other money, and, as a consequence, other income. That’s why here is our advice for all of you: you have to assess your situation thoroughly before taking a decision, whether you need amnesty or not.
Aleksey Oskin
Leading Lawyer
Tax and Legal Practice
Korpus Prava (Russia)
It’s unlikely that any tax consultant will give anunambiguous answer to this question, as well as to any other question relating to volunatary declaration by the citizens of their property (simply speaking – amnesty of capitals). The reason for that is uncertainty and lack of understanding how the regulations of the Law No. 140-FZ dated June 08, 2015 will be aplied in future.
First of all it is nessecary to note that the taxpayer must not and doesn’t have to declare its property, its account or amy other assets. Such declaration stipulated by the Law No. 140-FZ is just a voluntary matter.
Indeed, if the taxpayer decided to declare its assets, then the primary objective it pursues is using the guarantees provided by the Law on the amnesty of capitals.
As it is seen from the text of the Law, the main guarantees provided for the declarant are the opportunity to release the declarant from all types of liability, as well as release from collection of tax arrears. As it appears from the rules of the Law, the declarant is released from liability for violations relating to acquisition (formation of the sources of acquisition), use or disposition of property and (or) controlled foreign companies, the information on which is set out in the declaration,and (or) opening of, and (or) crediting money to the accounts(deposits), the information on which is included to the declaration.
The literal interpretation of this rule means that indication of information on the controlled foreign company in the declaration on amnesty is to be the sufficient ground for achieving the goals intended, as acquisition of the assets in the name of the controlled company is covered by the denoted type of violation. Therefore, it is not necessary to declare the assets belonging to the controlled company separately.
Besides, if, none the less,the declarant wishes to declare such property, it is necessary to remember that it is possible to indicate only the information on the property, the owner or real owner of which is the declarant. The real ownership means exercizing by the formal owner of the owner’s rights on behalf and in the interests of the beneficiary (real owner) on the basis of formal property ownership agreement.
Thus, in the event the assets belong to the controlled company, and there is no formal property ownership agreement with respect to such assets, the declarant will not be able to include the information on such assets into the special declaration.
Olga Kuramshina
Ex-Leading Lawyer
Tax and Legal Practice
Korpus Prava (Russia)
As it is known, now the lawyers often have opposite opinions concerning this matter. I support the opinion that, first of all, here we should take into account not the fact whether the taxpayer is planning to return money to Russia, but the way this money was received. We see several grounds, which can make you consider that it is necessary to file a special declaration:
Besides, there is a criminal liability for certain types of tax violations, and this means that a mistake in making the decision may result in conviction, and sometimes in imprisonment of the taxpayer.
The next question one should ask himself is to what extent the risks are real? If after the moment of making a controversial operation the period of prosecution (such period may vary depending on the amount of the money transferred) expired, it is not necessary to file an application.
As a conclusion, I would like to remind you that as long as the practice of applying the special declaration as protection of the taxpayer from tax, administrative and criminal liability is not drawn out, the contradictions in the lawyers’ recommendations would remain. This being the case, the only recommendation that is worth to be given to the taxpayer, is: “Analyze the things, which take place, adequately, and act depending on how high the probability to detect the violation is”. There is no correct answer to this question yet.
Tatiana Frolova
Leading Lawyer
Korprus Prava Private Wealth
After the President’s Message in 2014, when the talks on future amnesty of capitals began, nobody affirmed that amnesty would extend not to all assets of the citizens willing to disclose their capitals, and only to those, which will be in their ownership as of certain date.
It would be logical to suppose that amnesty will cover all property and accounts that are in the ownership of individuals as of the moment the Law on amnesty enters into legal force; however, the legislator chose another way.
In this Law, it is clearly indicated that the guarantees provided by it cover the assets, which are in the ownership of the declarant or formal owner as of beginning of 2015.
Thus, the citizens that decided to cash in and close their foreign accounts in order to avoid the obligation to file the cash flow reports for them, which was introduced in 2014 and was to be effective starting from 2015, and after that (in 2015) acquired real property or securities for such money, have lost the opportunity to be granted amnesty for such assets.
At the same time, we should remember that individuals do not have to inform relevant authorities on acquisition of the assets outside the Russian Federation. As a consequence, if the real property or securities were acquired in 2015, there is no need to inform anybody thereof, and today the governmental authorities do not have any other opportunities to receive such information, except for getting it directly from the individuals. Thus, the authority, having set the date, as of which the assets must be in the declarant’s ownership for the purposes of receiving guarantees under the Law on Amnesty, by its own efforts excluded from that list the assets acquired by individuals in the first half of the year 2015. Well, this is the choice of our legislator.
Artem Paleev
Managing Partner
Korpus Prava
The question “How legislation on Controlled Foreign Companies is related to legislation on amnesty?” or “I have filed the notice of the Controlled Investment Company; as far as I see it, I do not already have to file declaration on amnesty?” deserves the title “The question of the year”.
The confusion in the minds of taxpayers appeared, first of all, because both of these innovations (both the regulations of the Tax Code of the Russian Federation and the Law on amnesty) are given, including the mass media, within the framework of the uniform process – deoffshorization. However, these laws have different purposes and different targets, which means that performance or non-performance one of them has no influence on performance or non-performance of the other one.
Well, the legislation on Controlled Foreign Companies. First of all, the taxpayers shall understand that the requirements set by the legislation on Controlled Foreign Companies are the duties of the taxpayers, which they must observe. Second, it is important to understand what this legislation struggles with. It struggles with such phenomenon as deferred tax payment, that is with situations when a taxpayer has actually earned income, but for some reasons (they may be both lawful and unlawful) decided not to receive to its operating account and, as a consequence, not to pay the tax, but decided to save the received income or to reinvest it. Third, the legislation on Controlled Foreign Companies covers future periods and extends to the acts of a taxpayer that appeared starting from 01.01.2015 and will be performed by this taxpayer earlier. An finally, the fact of filing the declaration on amnesty in no way affects the necessity to perform the duties arising from the legislation on Controlled Foreign Companies.
And what’s about legislation on amnesty? Unlike the Law on Controlled Foreign Companies, the Law on amnesty:
And, what is most important, filing the declaration within the framework of amnesty can not in any way affect the obligation of the taxpayer to observe the requirements of the legislation on Controlled Foreign Companies.
Thus, the taxpayer shall remember one thing: if it has a foreign or controlled foreign company, it has to file the respective notices. If such foreign company has any undistributed profits, the taxpayer has to increase its tax base for the amount of such undistributed profits. If the taxpayer showed its Controlled Foreign Company in the declaration on amnesty, it has in any way to perform the duties mentioned above. And whether to file the declaration within the framework of amnesty or not is the personal matter of any person. This depends on the circumstances and the extent of comfort, which the taxpayer enjoys at the thought of information disclosure.
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