Impact of the Russian CFC Law on Inbound Foreign Investors

Tue Nov 25 10:52:02 EST 2014
By Dr. Vladimir Starkov

Recently, the Russian authorities amended the country's Tax Code to revise provisions that govern taxation of controlled foreign companies ("CFCs"). These amendments were signed into law by President Putin on 25 November 2014, and the law numbered 376-FZ takes effect starting on 1 January 2015.

This paper, by NERA Vice President Dr. Vladimir Starkov, examines the impacts that the Russian CFC legislation will have on inbound foreign investors. Although the main objective of the legislation is taxing income of the Russian nationals accumulated in CFCs, the law has some important consequences for the foreign direct investors in Russia and may affect some of the most widespread practices used by multinational corporations (MNCs) for doing business in that country. Dr. Starkov advises that MNCs with operations in Russia may want to re-examine the viability of their holding structures for the Russian operating companies, as well as viability of other global arrangements such as centralized IP holding, provision of centralized services, etc. and determine the best way forward. MNCs should also prepare for compliance with the disclosure requirements embedded in the law.