Residents of the Russian Federation Сan Оbtain the Rights of Shareholders and Participants in Russian Legal Entities Through Controlled Foreign Companies

The Federation Council is considering a Federal Law “On Amendments to Part Two of the Tax Code of the Russian Federation (on Certain Measures of Tax Support)” (the “Law”), proposing significant changes to tax legislation. Thus, the provisions of the Law introduced new rules in the regulation of relations between controlled foreign companies (“CFC”) and controlling persons.

According to the Law, Russian legal entities and individuals will be able to obtain the rights of a shareholder (participant) in Russian companies through their CFCs and exercise them until 31 December 2022.

At the same time, for the controlling person to obtain such rights, the following conditions must be met:

• the controlling person who notified the tax authority about the CFC for the tax period of 2021¹;
• the controlling person owns more than 50% of the participation in the CFC²;
• A CFC commits harmful actions/omissions in relation to a Russian organization or a controlling person ³;
• The CFC is registered on the territory of an unfriendly state⁴.

If all the above conditions are met, the controlling person will be able to apply for the exercise of the rights of a shareholder (participant) to the Federal Tax Service, which must be considered within 10 days⁵. The recommended form of application is available on the website of the Federal Tax Service. If such an application is satisfied, the Russian company will have to publish in the EFRSFDUL⁶ data on the controlling person who exercises the rights of its shareholder or participant instead of the CFC⁷.

Also, the Law provides for restrictions on the exercise by the Russian controlling person of his rights as a shareholder (participant). So, it will be impossible to vote on the following issues:

• on the amendment of the charter of the organization and approval in a new edition⁸;
• on the reorganization and liquidation of the organization⁹;
• on the increase/decrease of the authorized capital, except for mandatory cases provided for by law¹⁰;
• on the early termination of the powers of members of the management bodies of the organization elected before the application is satisfied¹¹;
• about the consolidation of shares¹²;
• participation in financial and industrial groups, associations, and other associations of commercial organizations¹³.

In addition, the controlling person cannot make transactions on the alienation of shares (stakes) of a Russian organization¹⁴, distribute the profits of the LLC¹⁵ and pay dividends on the shares of the JSC in favor of the CFC¹⁶ until 31 December 2022.

¹ paragraph 19 of article 4 of the Law
² paragraph 1 of article 3 of the Law
³ paragraph 2 of article 3 of the Law
⁴ paragraph 1 of article 3 of the Law
⁵ paragraph 8 of article 3 of the Law
⁶ https://fedresurs.ru/
⁷ paragraph 12 of article 3 of the Law
⁸ subparagraph 1 of paragraph 16 of article 3 of the Law
⁹ subparagraph 2 of paragraph 16 of article 3 of the Law
¹⁰ subparagraph 3 of paragraph 16 of article 3 of the Law
¹¹ subparagraph 4 of paragraph 16 of article 3 of the Law
¹² subparagraph 5 of paragraph 16 of article 3 of the Law
¹³ subparagraph 6 of paragraph 16 of article 3 of the Law
¹⁴ paragraph 18 of article 3 of the Law
¹⁵ subparagraph 1 of paragraph 19 of article 3 of the Law
¹⁶ subparagraph 2 of paragraph 19 of article 3 of the Law