The adoption of a list of jurisdictions that do not send country reports to the Russian Federation will make it possible to demand them from Russian companies

The Federal Tax Service (FTS) has compiled a list of 22 countries and territories that do not fulfill their obligations to automatically exchange country reports – that is, financial, tax and other information on the activities of international holdings with subsidiaries in the Russian Federation. The list includes, in particular, Germany, France, Cyprus and the Netherlands. The latest blacklist not only records the sanctions-induced difficulties in obtaining international tax information – with its appearance, tax authorities, under the threat of currently increasing fines, will be able to demand country reports directly from Russian subsidiaries of international groups of companies.

The Federal Tax Service has published a draft order approving the list of countries that systematically fail to fulfill obligations for the automatic exchange of country reports. It is proposed to include 22 jurisdictions in such a blacklist: these are Australia, Austria, Belgium, Bermuda, Germany, Greece, Denmark, Ireland, Spain, Italy, Cyprus, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovenia, Finland, France, Sweden, Japan.

Russia joined the exchange of country reports in 2017. The process assumes that the parent organization of an international group of companies (MGK, annual revenue of more than €750 million) provides data on the financial, tax and other indicators of the group to the tax authority of the state of which it is a resident. He, in turn, shares this information with the tax authorities of the countries in which other group members are located.

The list of jurisdictions with which the Russian Federation must conduct such an exchange contains 67 countries and 8 territories. Now it is proposed to identify from it those who do not fulfill their auto exchange obligations. However, the blacklist does not simply record the already known difficulties in obtaining international tax information caused by sanctions – according to the Tax Code of the Russian Federation, if the parent organization of an international company is located in a country included in the list of jurisdictions that allow systematic failure to fulfill auto exchange obligations, the Federal Tax Service sends a request for the provision of a country-specific report already the Russian “daughter” of such a holding.

Let us note that previously a number of “unfriendly” countries have already announced their refusal to exchange tax information with the Russian Federation. This is what Germany and Latvia did, for example (the latter, however, was not included in the black list proposed by the Federal Tax Service for some reason).

De facto, the number of countries with which there is no information exchange is noticeably wider than the list presented by the Federal Tax Service – for example, the authorities of the United States, Great Britain and Switzerland publicly stated their refusal to exchange tax information. But they were not included in the list due to the fact that today they are not countries with which Russia should carry out such an exchange (the USA did not join the auto exchange with the Russian Federation at all, and the UK and Switzerland were excluded from the list in 2022 in response to the refusal cooperate in this area). At the same time, as Yulia Shepeleva, deputy head of the Federal Tax Service, previously noted, some “unfriendly” countries still continue to exchange information (she did not name them, however, so that “the partners would not have problems”).

Dmitry Kulakov, partner of the tax and legal department of DRT, explains that country reports allow tax authorities to obtain information about the economic activities of the MGC, as well as the distribution of income, profits and taxes paid between the countries of presence. Based on such data, risks of transfer pricing or possible shifting of profits to low-tax jurisdictions are identified.

“It is logical that the order was developed in connection with the existing difficulties in the exchange of country reports: in the new realities, the Federal Tax Service shifts the burden of collecting a significant amount of information on a foreign circuit onto Russian taxpayers,” says Olga Pletneva, partner of the tax and legal consulting department at Kept. For the Federal Tax Service, adds Dmitry Kulakov, this practice will not be new – for example, since the United States did not join the auto exchange, Russian subsidiaries of American multi-generational companies regularly receive requests from the Federal Tax Service to submit reports.

As Natalia Kozlova, a partner in the TeDo transfer pricing department, notes, the formation of a list “is very much in the trend of amendments to the Tax Code in terms of tightening control over foreign trade transactions” (see “Kommersant” on November 3; last week they were approved by the State Duma in the second reading ). In particular, the amendments significantly increase penalties for failure to submit a country report. Now, the expert says, Russian subsidiaries of MGCs do not have to submit them at the request of the Federal Tax Service if the information was submitted by the parent or authorized company to foreign tax authorities and, accordingly, can be obtained as part of an automatic exchange – but in practice, when the exchange process is very complicated, the Federal Tax Service cannot receive it. “With the introduction of a list of countries that allow systematic failure to fulfill auto exchange obligations, the Federal Tax Service has legislative grounds to apply for a country report to a Russian subsidiary, which, in case of refusal, may be subject to a fine (its amount increases from 100 thousand rubles to 1 million rubles),” she adds.

As a result, Olga Pletneva believes, Russian companies will have an additional administrative burden – even if the parent company has a ready-made country report, it will have to be reworked to meet the requirements of the Tax Code of the Russian Federation (due to a number of differences from foreign requirements). “At the same time, the fact of requesting a country report from a Russian company does not necessarily mean an increase in the number of inspections: although the Federal Tax Service uses the information received, including to make a decision on starting an inspection, essentially the tax office received exactly the same information before, but from the parent companies of the group “says the expert.

Evgenia Kryuchkova