In June 2018 the first reading in the State Duma was passed by the Draft Law, which introduces a large number of changes in the Tax Code. Below we will focus on the most relevant provisions of this Draft Law.
1. Taxation of income upon exit or liquidation of a participant
The income received by the participant upon withdrawal from the company or at liquidation, exceeding its initial paid contribution should be considered a dividend for tax purposes. The lawmakers make appropriate amendments to Article 43, as well as to Article 284 of the Tax Code where the provisions allowing application of the 0% tax rate for received dividends are stipulated (strategic participation rules).
At the same time, it is proposed to amend Article 277 of the Tax Code, supplementing it with a provision according to which, upon the withdrawal of a participant, its revenues will be determined based on the market value of the received property (property rights) less the actually paid share. Currently, property (property rights) received both under withdrawal and liquidation, is accepted for tax accounting at the same market value.
2. Confirmation of the actual right to incomes
The Draft Law also introduces changes in Article 312 of the Tax Code, according to which in the situation where the recipient of dividends is not the actual owner of such dividends, but is: (i) an individual, (ii) a public company or (iii) a sovereign fund, for the purposes of using favorable provisions of the respective DTT it would be enough to receive from the mentioned above recipient only a written confirmation regarding their actual rights to dividends.
3. Taxation of return of assets contributions
Legislators propose amendments to Article 251 of the Tax Code, by way of adding paragraph 1 of this article with subparagraph 11.1, according to which an organization that is a participant (shareholder) of the company can receive funds from such company without any tax consequences within the amount of the assets contribution made to the subsidiary earlier in the form of cash. In addition, this rule will apply to foreign shareholders of Russian companies, which will allow to return assets contribution without withholding tax implications (corresponding changes will be made to Article 309 of the Tax Code).
4. Limitation of the amount of fines
Article 75 of the Tax Code proposes to introduce a clarification, according to which penalties for underpayment of tax can not exceed the amount of tax charges.
In addition to the above changes, the Draft Law also provides for a number of amendments to the Tax Code that could apply to a narrow circle of taxpayers. In our opinion, all the changes in the Tax Code introduced by this Draft Law will mostly have favorable consequences for all taxpayers.