Tax Residence of Corporations and Application of CFC Regime : BRICS

1. Tax Residence of Corporations and Application of CFC Regime: BRICS Andrey Savitsky, PhD. Yekaterinburg, 5 June 2014

2. Impact of Tax Residence for CFC Regime Application 1. Determination of controlling persons’ scope De factoand 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 factoand de jure non-residents may be regarded as CFC (in case of body corporate, except for – Russia andZA, where non-corporative body may qualify as a CFC) Стр. 2

3. 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 headquarteror 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. Collision of Tax Residence for Companies: BRICS BRICS’ DTC “Tie breaker rule”: Стр. 10

11. 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 atBRICS? CFC may qualify as a resident company (e.g. in Russia)? Gathering information on CFCs at BRICS? Potential multilateral convention at BRICS? Стр. 11

12. 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

13. 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