A new blacklist from the Federal Tax Service

The Federal Tax Service of the Russian Federation has provided the updated list of countries with which it is difficult to exchange information for the application of various tax control mechanisms (hereinafter – List). The document entered into force on 22 January 2024.

The List includes the following states and one territory, namely:

1. Australia	4. Cyprus	7. France	10. Ireland	13. Luxembourg	16. Poland	19. Slovenia	22. Bermuda
2. Austria	5. Denmark	8. Germany	11. Italy	14. Netherlands	17. Portugal	20. Spain
3. Belgium	6. Finland	9. Greece	12. Japan	15. Norway	18. Romania	21. Sweden

Earlier we wrote about the expansion of the list of offshore zones, which affects the application of the rules on controlled foreign companies, as well as the rules on transfer pricing control (hereinafter – TP).

Another addition in terms of control over intra-group settlements and formation of tax bases is the expansion of the list of jurisdictions that do not exchange country-by-country reports.

It should be noted that such reports are prepared by international groups of companies (hereinafter – IGC) whose aggregate income exceeded EUR 750 million in the reporting year.

Potential consequences for companies’ activities

This change, together with the amendments to the Tax Code of the Russian Federation governing country-by-country reporting and the penalties we wrote about earlier, increases the administration burden. Nevertheless, efficient organisation of the process and established relationships between group offices make the task feasible.

In addition to the labour-intensive process of filing country-by-country reporting, which requires special software, the problem is also seen in a possible scenario in which the international part of the group to which the taxpayer belongs may not be willing to disclose to the Federal Tax Service of Russia information about the situation in other legal entities of the IGC. Such cases have been repeatedly encountered in practice.

The solution to this problem is in systematic work to explain the need to comply with Russian legislation, pointing to a substantial fine for failure to file a notification on participation in the IGC, which increased to RUB 500 thousand, as well as a fine for failure to file a country-by-country report based on a request from the tax authority in the amount of RUB 1 million. It should also be noted that the deadline for filing a notification of participation in the IGC is 8 months from the end of the group's last financial year, while the deadline for filing a country-by-country report is 12 months or 3 months from the date of receipt of a request from the tax authority.

Alternatively, the responsibility for preparing the country-by-country report can be shifted to a compromise jurisdiction that is not on the List, thereby avoiding a tax law violation. In this case, the problem is solved without the need to prepare the report again.