Extension of List of Offshore-States

On 1 July 2023, Order No. 86N of the Ministry of Finance which approved a new list of offshore jurisdictions took effect. For businesses from offshore jurisdictions (“Offshore Businesses”) and their contractual partners certain special rules apply.

Added to the new list are the countries which are officially named as “unfriendly” countries (some European countries, among which are Belgium, Great Britain, Germany, Greece, Hungary, Italy, Spain, Latvia, Lithuania, the Netherlands, Poland, Portugal, France, the Czech Republic, Estonia, as well as the USA, Canada, Japan and a number of other states and territories).

Please find below a description of the most important special rules for Offshore Businesses and their contractual partners

1. Changes in transfer pricing compliance (TP-compliance)

Transactions with Offshore Businesses will be equated to controlled transactions for TP purposes, if the amount of income from them for 1 calendar year exceeds RUB 120 million. It does not play a role whether the parties to the transactions are interdependent companies or not. The Russian parties to a controlled transaction have to meet the requirements to:

• Notify of controlled transactions with Offshore Businesses,
• Prepare marketability justifications for the prices applied in such cases, in particular, to prepare TP documentation.

2. Other changes

• SMEs, companies with foreign participation from relevant jurisdictions may be removed from the SME register after 10 July and as a result will not be able to apply preferential rates for social contributions, as well as other benefits.

• The following tax exemptions will no further apply to:

–   Receipt of dividends from Offshore Businesses

–   Sale of shares in Offshore Businesses, if owned for more than 5 years

–   Gratuitous transfer of property / property rights by Offshore Businesses

–   Profits of so called controlled foreign companies from jurisdiction of Offshore Businesses which are considered as active holding and sub-holding companies.

Obviously, this measure is a response to the inclusion of Russia in the EU blacklist. At the same time, the suspension of the Double Taxation Treaty, about which we informed you earlier, is still in question.