Regularization of Russian Private C lients’ Undeclared/Untaxed F unds

1. Regularization of Russian Private Clients’Undeclared/Untaxed Funds

2. Undeclared Funds vs. Undistributed Revenues

3. Current Reporting Obligations on Foreign Accounts General Rule:RF residents shall report to Russian tax authorities: on changing bank accounts/deposits details; on opening (closing) bank accounts/deposits abroad; on all transactions of foreign bank accounts (or deposits); During 1 month period During 1 month period • Residency status (for reporting purposes): • Is defined by the RF Currency Legislation; • Generally includes Russian citizens, except those who are away for no less than 1 year (uninterrupted stay outsider of Russia without crossing the border)

4. Current Rule: Dividends and Interest are Taxed Only if Actually Paid Foreign Legal Entity Foreign Jurisdictions: Cyprus, Malta, BVI Switzerland, etc. Withholding tax/ if any Dividends/Interests Personal income tax: 9% for dividends 13% for interests Russian Federation

5. Use of Capitalization Funds. Common Rules. • Tax rates for income received from transactions with securities in the RF: • 13% for the RF residents • 30% for non-residents

6. Use of Capitalization Funds. Specifics of Securities and Financial Instruments Taxation. • Personal income tax: • 13% for the RF residents • 30% for non-residents Actual expenses for acquisition of securities/financial instruments Market value of the securities/financial instruments Material gain I. Material gain Paid Personal income tax Expenses reducing personal income from sale II. • Tax base for securities transactions is the financial result: income from sale of securities after deduction expenses for their purchase. • Tax rate: 13% for the RF residents, 30% for non-residents; III.

7. Use of Life Insurance Products: Taxation only Upon Distributions Russian national Proceeds from insurance policy upon certain events (death, disability, elderly age, etc.) Funds transfer as payment for insuring life/property/etc. Income generated during the term of such insurance policy Foreign Insurance Company

8. Use of Life Insurance Products. • General Rules: • Income generated during the term of insurance policy is taxable at a rate of 13% as income received from foreign sources; • Insurance payments are taxable at a rate of 13% (para 2 and 3 of art. 208 of the RF Tax Code); Tax exemption is applied to the following payments (para 2 and 3 of art. 213.1 of the RF Tax Code) Insurance payments upon a certain age/period of the insured person or in other events if: the insurance payments are paid by the taxpayer insurance payments do not exceed the sum of his paid premiums; The difference between these amounts will be included in tax base. • Insurance payments upon events: • Death • Injury to health; and (or) • Reimbursement of medical expenses of the insured person (exception – payments for sanatorium treatment);

9. Dividends: Russian Tax upon payment from Cyprus CY Cyprus No Withholding Tax Dividends Russia 9% Personal income tax less WHT paid in Cyprus

10. Interest: Russian Tax upon Payment from Cyprus CY Cyprus No Withholding tax Interests Russia 13% Personal income tax

11. Currency Control Foreign Legal Entity ForeignJurisdiction Currency Transaction Currency Control: All transactions shall be made via Authorized banks Dividends Russia Otherwise Fine in the amount up to the sum of illegal currency transaction

12. Proposed CFC Legislation • The Russian Ministry of Finance is working on the draft tax law which would introduce concepts of CFC (Controlled Foreign Company) for tax purposes; • Potentially, such new CFC rules may require Russian companies and individuals to report and account for passive profits of their CFCs even if no distributions are made;

13. New Trends on Taxation of Off-shore Profits by Russian Tax Authority Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax

14. Key Events of De-offshorization Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax

15. Key Directions of Further De-offshorization

16. Recent/Pending Changes to Russian Legislation on Fighting Use of Off-shores

17. Control on Income Sources • For individuals there is no total control for their income sources on which assets were previously acquired: • See: Federal Law No. 116-FZ dated July 20, 1998 “On state control for compliance of large expenses to income factually received by individuals (did not come into force); • See: Art. 86.1., 86.2., 86.3. of the RF Tax Code came into force from January 1, 2000, but were cancelled from July 9, 2003; • PEPs expenses are under control from January 1, 2013 • See: Federal Law No. 230-FZ of December 3, 2012“On control for compliance of expenses of individualsoccupying state posts and other individuals to their levels of income” (came into force from January 1, 2013);

18. Federal Law No. 230-FZ of December 3, 2012 Came info force from January 1, 2013; Applies to transactions made from January 1, 2012; Main purpose: fighting corruption;

19. Key Persons Covered by Federal Law No. 230

20. Federal Law No. 230-FZ of December 3, 2012 The amount of transaction exceeds total income of PEP and his/her spouse for the last 3 years before transaction • Acquisition of assets: • Land plots • Other real estate • Vehicle • Securities • Shares Obligation of PEPs to inform on: Income sources His/her expenses Minor children's expenses Spouse’s expenses

21. Consequences for Non-compliance

22. Strengthening of Control for Financial Operations of Individuals Federal Law No. 134-FZ as of June 28, 2013 on Fighting of Illegal Financial Operations Bank Provision of Information on bank accounts of companies, entrepreneurs, individuals In relation to receiving information on individuals: consent of the higher tax authority is required On the basis of court decision Operative-investigation bodies Tax authorities

23. Tax Amnesty

24. Limitation Period for Tax Offences • Tax liability ceases in the following cases: • Payment of taxes; • Death of an individual taxpayer; • Liquidation of the taxpayer (legal entity); • Other cases provided by the law; • An individual can not be brought to responsibility (fines) for tax offences if 3 years expired before such decision left was made, beginning from: • the next day after the end of the tax period during which the offence was committed (effective for offences under Art. 120, 122 of the RF Tax Code); • the date of its commission (for all other offenses); • Within the framework of the field tax audit the reviewed period can not exceed 3 years from the date, when decision on the appointment of such audit was made (5 years for taxpayers participating in regional investment projects);

25. Relief of Tax Liability • The corrected tax return is submitted: • after deadline for such submission expired, but • before expiry of deadline for tax payment • Provided that the taxpayer did not know about: • discovery of tax underpayment by the tax authorities • the appointment of the field tax audit Relief of tax liability • 1. Provided that the taxpayer paid the underpaid taxes before he became aware of: • discovery of tax underpayment by the tax authorities • the appointment of the tax field audit • 2. Provided that the tax payer paid the underpaid taxes and such underpayment was not identified in course of the field tax audit • The amended tax return is submitted: • after deadlines for submission of tax return and for tax payment expired Relief of tax liability Relief of tax liability does not exclude implication of criminal liability.

26. The taxpayer can be released from criminal liability if a prescribed period of time passed since crime has been committed (p. 1 of art. 78 of the Criminal Code of the RF). Relief of Criminal Liability Two years after committing a Minor offense (maximum punishment does not exceed 3 years of imprisonment); Six years after committing an Average-gravity crime (maximum punishment does not exceed 5 years of imprisonment); Note: The tax offence is considered to be committed in case taxes are not paid in the time term established by the tax legislation

27. Relief of Criminal Liability Minor offenses Tax and duty evasion committed by an individual on a large scale* (art. 198 of the Criminal Code of the RF) Tax and duty evasion committed by organization on a large scale ** (p. 1 of art. 199 of the Criminal Code of the RF) Failure to fulfill the tax agent obligations on a large scale** (p. 1 of art. 199.1 of the Criminal Code of the RF) • *Large scale: • more than RUB 600 000 (USD 17,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable, • OR more than RUB 1,8 mln (USD 50,000); • **Large scale: • more than RUB 2 000 000 (USD 56,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable, • OR more than RUB 6 mln RUB (USD 166,000); The taxpayer who committed minor tax offence for the first time may be released from criminal liability in case of payment of all underpaid taxes and fines.

28. Relief of Criminal Liability (Continuation) Average-gravity crimes • Tax and duty evasion committed: • by a group of persons with prior agreement • on especially large scale* • (p. 2 of art. 199 of the Criminal Code of the RF) Failure to fulfill the tax agent obligations on especially large scale* (p. 2 of art. 199.1 of the Criminal Code of the RF) Concealment of funds or property of the legal entity or entrepreneur, at the expense of which taxes and duties are to be paid, on a large scale** (art. 199.2 of the Criminal Code of the RF) • *Especially Large scale: • more than RUB 10 mln. (USD 277,000) within 3 consecutive years, provided such tax underpayment exceeds 20% of due taxes payable, • OR more than RUB 30 mln (USD 833,000); • **Large scale: • More than RUB 1 500 000 (USD 42,000);

29. Limitation Period for Administrative Liabilityfor Tax Offences Administrative offences related to taxation and duties • Violation of time term for registration with the tax authorities • Violation of the time term for submission of a tax return • Failure to submit data necessary for tax control • Gross violation of accounting and submission of financial statements The taxpayer can not be brought to administrative liability for a tax offence after expiration of 1 year term from the date when the tax offence was committed (for long-lasting offences - from the date of discovery of the tax offence).

30. ThankYou For Attention!