Finance Ministry will revise bill on additional tax payments for subsidiaries of foreign parent companies
The draft law introducing a 15% minimum level of taxation on the profits of multinational holding companies will be reworked in the autumn, but it will certainly be completed, Deputy Finance Minister Alexei Sazanov told on a conference of the Association of European Businesses.
The Russian tax system does not have a concept of corporate groups for taxation purposes, the deputy minister reminded the audience. Therefore the Finance Ministry's proposed rules provide for the effective rate of profit tax to be calculated at individual company level rather than for the group as a whole.
"If businesses provide specific examples where the lack of such consolidation could lead to an unfair taxation level for certain multinational corporate groups whose tax burden in Russia will exceed 15%, we are ready to discuss possible solutions. So far, we have not received any such examples from businesses," Sazanov said.
In late May, the Finance Ministry presented a bill that would allow for a 15% effective tax rate on the profits of Russian subsidiaries of foreign multinationals, provided the parent company is registered in a country that applies the OECD's international rules on taxation of multinationals. These rules – the GloBE Rules – are a key element of Pillar 2, one of the two pillars of the ongoing OECD tax reforms.
In its draft law, the ministry proposed that underpaid tax (if, for example, the effective tax burden on profits is less than 15% due to rebates) should be levied on each Russian subsidiary of a foreign corporation separately.
The Russian Chamber of Commerce and Industry (CCI) criticised this point, arguing that this approach "leads to an excessive increase in the tax burden, as it does not involve 'levelling' the effective rate by consolidating the results".
A hypothetical example: if one subsidiary in Russia applies the standard income tax rate of 25% and the other applies 0% (after tax rebates), the effective jurisdictional rate would be 12.5% (assuming that the profits of the two companies are the same). In this case, the multinational in Russia will pay an additional 2.5%. If the calculation is made for each subsidiary, as the current version of the draft law suggests, then the group will pay an additional 15% on the profit of the company that applies the zero rate, so the effective tax rate of this multinational corporation in Russia will be 20%.