Starting January 1, 2017, businesses will face new reporting requirements. Last year Russia has adopted several laws that will effect financial organizations.

On May 12, 2016, at the Organisation for Economic Co-operation and Development’s (OECD) Forum on Tax Administration Russia signed the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (AEoI), therefore joining the OECD’s Common Reporting Standard. Although Russian tax authorities had already been able to collect tax information through the information exchange provisions contained in double taxation treaties, it was working rather on a request basis. Now, exchange of information of financial accounts will occur automatically on an annual basis, with first exchange planned in 2018. Certainly due diligence of pre-existing accounts would be required. By September 30, 2018, financial organizations must send their reports on identified foreign taxpayers to the Federal Tax Service for further inclusion in the global database data exchange. 

Many Russian financial organizations had already become familiar with the procedure through successful handling of FATCA (in a scarce methodical documentation and barely sufficient legislative support). FATCA stands for the Foreign Account Tax Compliance Act. It is a 2010 United States federal law to counter tax evasion in the US, introduced by the Internal Revenue Service (IRS) and the US Department of Treasury. Purpose of FATCA is to foster better tax compliance: it prevents US Persons (a resident of the US or an organization created under the law of the US) from using financial organizations outside of US to avoid taxes on their income. 

Russia has not yet signed inter-governmental agreement relating to FATCA compliance, but introduction of a law concerning reporting such information had taken place. In June, 2014, a Federal Law №173-FZ “On the specifics of the financial transactions with foreign individuals and legal entities” was signed. This law had loosely defined the procedure of transfer of information to foreign tax authorities for Russian financial institutions. According to the Law, Russian financial institutions are now entrusted with the duty to identify the persons for whom it is necessary to provide information to foreign tax authorities and to report such persons to the authorized state body of the Russian Federation and to foreign tax authorities (latter is only permitted after the consent of the client). The law prohibits provision of financial services to those who do not give permission for information to be sent to such tax authorities. 

If your organization has made a commitment to being fully FATCA compliant, you must, on an annual basis, report information on financial accounts held directly or indirectly by US Persons. Therefore, review of existing customer base to confirm the FATCA statuses of customers should be done, and where necessary, you should contact customers for further information and documentation. Creation of a special database of the information on US taxpayers is required; reports that are to be sent to tax authorities (both Russian and foreign) should be in a certain format; monitoring of transactions of bank customers, subject to the FATCA requirements is also a requirement. In certain circumstances and where financial organizations fail to provide the appropriate documentation IRS might apply 30% US withholding tax on certain types of transactions. 

If you are looking for laws concerning FATCA in other countries of CIS region, please contact us directly at risksmitigation.com

AZIZ BAGADIROV,  M.P.Adm. (MSU, HSE)