Andrey Savitsky, PhD.Yekaterinburg, 5 June 2014

Tax Residence of Corporations and Application of CFC Regime: BRICS

Impact of Tax Residence for CFC Regime Application

1. Determination of controlling persons’ scope De facto and de jure tax resident may be regarded as

controlling person only (ZA: trusts and partnerships may also qualify as resident company)

2. Determination of CFC scope De facto and de jure non-residents may be regarded as

CFC (in case of body corporate, except for – Russia and ZA, where non-corporative body may qualify as a CFC)

Стр. 2

Tax Residence of Companies: BRICS

BRAZIL

Imposto de renda das pessoas jurídicas There is no legal definition of resident company (domiciled) in tax law;

Civil code “domicile” concept is used instead:

• Place of headquarter or place of main direction on the territory of Brazil;

• Place where permanent establishment is situated in Brazil – for legal persons whose headquarter of place of main direction is outside Brazil*

Стр. 3

Tax Residence of Companies: BRICS

RUSSIA

Corporate Income Tax There is no legal definition of tax residence for a company; de facto

“incorporation” criterion is used;

Ministry of Finance Bill: Russian tax resident company – is:

• Russian legal person;

• Foreign entity whose place of actual management is Russia;

• Foreign entity is recognized as tax resident under Double tax conventions.

Place of actual management is where: (1) BD’s meeting (other managing body) is usually held in Russia; (2) managing direction is usually effected in Russia; (3) chief (managing) officers operates in Russia with regard the entity (4) Additional criterions are applicable in case of collision*

Стр. 4

Tax Residence of Companies: BRICS

INDIA

Income Tax Act (1962) Tax resident company:

• Indian company (1) registered under Indian legislation; (2) has registered office in India;

• Foreign company, where the control and management of its affairs was situated wholly in India;

• Control and management – the power to take vital policy decisions as compared to routine daily operations.

Стр. 5

Tax Residence of Companies: BRICS

CHINA

Qi Ye Suo De Shui Fa (2007) Tax resident enterprise:

• an enterprise established or incorporated under the laws of China;

• an enterprise established under foreign laws or in a special region (e.g. Hong Kong, Macau), but whose place of effective management is in China.

• “Effective management” means the factual and effective exercise of the entire management and control of the production and business operations, personnel, finance, assets, etc. of an enterprise.

Стр. 6

Tax Residence of Companies: BRICS

ZAF

Income Tax Act (1962) Tax resident other than natural person:

• Any person (e.g. trusts, partnerships) incorporated in ZAF; or

• Any person (e.g. trusts, partnerships) whose place of effective management in ZAF.

• Effective management concept legally not defined.

SARS Interpretation Note 6 of 26 March 2002:

• Place where the company is managed on a regular or day-to-day basis by the directors or senior managers of the company, irrespective of where the overriding control is exercised, or where the BD meets;

• Determined on a case-by-case basis Стр. 7

Collision of Tax Residence for Companies: BRICS

Collision of national residence criterions for BRICS’ companies:

«Incorporation» vs. effective management

Effective management vs. factual management and control

Collision of “tie breaker rule”: Effective management vs. effective management

Mutual agreement procedure

Стр. 8

Collision of Tax Residence for Companies: BRICS

BRICS’ DTC “Tie breaker rule”: RUS – IND: (1) effective management; (2) head office; (3) MAP;

RUS – ZA: head office;

RUS – CHN: place of management;

RUS – BRA: effective management;

CHN – ZA: effective management;

CHN – IND: head office;

CHN – BRA: head office (i.e. effective management);

BRA – ZA: effective management;

BRA – IND: effective management;

IND – ZA: (1) effective management; (2) MAP.

Стр. 9

Collision of Tax Residence for Companies: BRICS

BRICS’ DTC “Tie breaker rule”:

Стр. 10

BRA RUS IND CHN ZA

BRAx EM EM HO (EM) EM

RUSEM x

EMHO

MAPPM HO

INDEM

EMHO

MAPx HO

EMMAP

CHNHO (EM) PM HO x EM

ZAEM HO

EMMAP

EM x

Conflicts of CFC Regimes: BRICS

Conflict of CFC and Articles of DTC;

Conflict of CFC and Transfer pricing;

Conflict of CFC and «beneficial owner» concept;

Multiple (economical) taxation at BRICS?

CFC may qualify as a resident company (e.g. in Russia)?

Gathering information on CFCs at BRICS?

Potential multilateral convention at BRICS?

Стр. 11

Conflicts of CFC Regimes: BRICS

Russian companies owning > 10% of subsidiaries situated in:

Brazil: Северсталь; Уралкалий; Уралхим; Силовые машины; Огилви&Мейзер; Навигационные технологии; УК Содружество;

India: АФК Система; Сибур Холдинг; ЮТэйр; Силовые машины; Ситроникс; Глобалстрой-Инжиниринг; ЧАЗ; Группа ТГВ; МЛ Групп;

China: ВСМПО-АВИСМА; ДВ пароходство; Трансконтейнер; Куйбышевазот; Ситроникс; Спецгазавтотранс;

ZAF: Северсталь; Норникель.Стр. 12

Conflicts of CFC Regimes: BRICS

Transit European jurisdictions: Cyprus: 109 companies owning > 10%;

Netherlands: 60 companies owning > 10%;

Switzerland: 41 companies owning > 10%;

Luxemburg: 32 companies owning > 10%;

Transit Offshore jurisdictions:

BVI – 28; Bermuda – 5; Bahamas – 2; Panama – 2; Marshall Isl. – 1; Malta – 3; Gibraltar – 2; Cayman Isl. – 1.

Ultimate Offshore jurisdictions (CFC) – 1 х 10?

Стр. 13