Russia To Tax Controlled Foreign Companies

by Tatiana Smolenska, Tax-news.com, Moscow

09 April 2001

According to reports in the Russian press last week, the Russian government is set to make amendments to the country's Tax Code under which foreign companies managed and controlled from Russia will pay the same profit tax as Russian companies. News of the prospective change was broken by Russian First Deputy Finance Minister, Sergey Shatalov, at a briefing last Thursday, whilst premier Mikhail Kasyanov told the Russian cabinet that amendments would "bring profit tax law in line with the existing European standards".

The government hopes that the State Duma will have passed the draft law relating to taxation by the beginning of the summer, and that the legislation will have been carried through by the end of this year. Shatalov said that the draft law "has an anti-offshore orientation".

Shatalov added that the draft law will define which taxpayers will pay the profit tax. At present many companies which were created abroad but which are actually managed and controlled from Russia and are operating in Russia, do not pay the profit tax, which is a significant tax within Russia's Tax Code. The prime minister reckoned that last year, profit tax accounted for a hefty 30 per cent of all tax revenues obtained.

Russian taxes, both in terms of the number of taxes as well as the amount taxed, are generally cited by foreign companies as the leading challenges to doing business in the country and the Russian government has been continually striving to increase tax revenues from businesses operating in the country, including foreign companies. The latest government announcement will not be welcome news.

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