2. Considering Discussion Draft on Action 3 BEPS:
Mechanism of CFC taxation;
Determination of taxable income of CFC;
Determination of taxable income of controlling person;
Period for determination of CFC’s and CP’s income;
International double taxation of CFC’s profit;
Pending issues on CFC rules in BRICS.
Стр. 2
Content
3. Deemed dividends / notional profit:
• Brazil – each CFC’s profit (subsidiaries / affiliates) shall
be included in a controlling person’s income proportionally
to ownership regardless of distribution;
• Russia – CFC profit shall equated to a CP’s income;
• India (draft) – taxable CFC income shall be included in
taxable income of CP proportionally;
• China – “deemed dividends” of CFC shall be included in
taxable income of CP proportionally;
• ZAF – CFC’s “net income” shall be included in CP’s
income proportionally.
Стр. 3
Mechanism of CFC taxation:
Deemed dividends vs. Fiscal consolidation
4. Brazil – profit of foreign subsidiaries shall be determined under accounting
rules of CFC;
Russia – CFC’s profit is determined: (1) under personal law, provided
financial statements are subject to statutory audit and a tax treaty is available;
(2) otherwise - under Ch. 25 Tax Code. See exemption of CFC’s profits under
Art. 25.13-1 Tax Code; de minimis rule 50/30/10 mln. RUR.
India (draft) – net profit under IFRS/IAS/GAAP of Indian accounting
standards «+» certain amounts «–» interim dividends «–» losses not being
accounted. Income is determined proportionally to the period of a company
has being treated as a CFC during the accounting period.
China – “deemed dividends” under CFC rules*. Active business income or
income less than 5 mln. CNY are usually exempt from CFC regime.
ZAF – CFC’s “net income” is determined in a way similar to determination of
gross income and capital gains of a resident taxpayer, except for certain
losses, interests, royalties and other payments, as well as some income, e.g.
income of “foreign business establishment”.
Стр. 4
Determination of CFC taxable income:
Full-inclusion vs. Partial-inclusion
5. Brazil – CP includes profit of each CFC in its balance sheet proportionally to
ownership and converts it into BRL on the date of balance sheet of CFC; until
2022 accounting results of all controlled subsidiaries that are attributable to
“active income” can be consolidated by the parent company;
Russia – CP’s income comprises profit of CFC in proportion of interest share
on the date of decision to distribute profit or at the end of accounting period of
CFC; CFC’s profit is reduced by profits accounted by other CPs where
participation is indirect;
India (draft) – CP includes taxable income of CFC in proportion to capital
value or voting share/interest (whatever is higher) and to number of days the
voting shares or capital or interest has been held by CP during the accounting
period of CFC and to number of days the company is regarded as CFC;
China – “deemed dividends” are included in a CP’s income in proportion to
period of shareholding and share of ownership;
ZAF – “net income” of CFC is included in CP’s income in proportion to
shareholding in CFC and period of shareholding.
Стр. 5
Determination of taxable income of controlling person:
Proportionality of period and share of ownership
6. Brazil – limited foreign tax credit is allowed with respect to tax actually
paid on CFC profit and in proportion to the ownership;
Russia – CFC’s profit tax in Russia is reduced by foreign tax on this
profit or Russian tax and Russian tax on CFC’s PE profit; certain
types of CFC’s profit are exempt under Tax Code; dividends and
distributions are deductible from CFC’s profit;
India (draft) – no tax deductions revealed; CFC;s profit may be
reduced according to accounting standards and rules;
China – no tax deductions revealed; deemed dividends shall be
reduced once the net profit is calculated*;
ZAF – double (foreign) tax relief is applicable in proportion to taxable
net income. Certain deductions from taxable income of CFC are
available.
Стр. 6
Tax deductions vs. Income deductions
7. Brazil – CFC’s profit is determined upon results of accounting period
of CFC; profit is included in CP’s income on 31 December;
Russia – CFC’s profit is determined either upon results of accounting
period of CFC or on 31 December (Ch. 25 of Tax Code); CFC’s profit
is included in CP’s profit on 31 December of the year, following the
year when the accounting period of CFC ends;
India (draft) – the attributable income shall be included in the total
income of the assessee for the financial year, the year in which the
accounting period of the company ends;
China – period is determined according to dividends rules*;
ZAF – net income is included: (1) on the last day of the foreign tax
year of that CFC which ends during that year of assessment; (2)
immediately before that foreign company ceased to be a CFC at any
stage during that year of assessment before the last day of the foreign
tax year of that CFC.
Стр. 7
Period for determination of CFC’s and CP’s income
8. Brazil:
o Supremo Tribunal Federal case DAU 2,588 10.04.2013 – CFC rules are
unconstitutional in regard of automatic application to foreign affiliated companies
situated outside a low-tax jurisdiction;
o Superior Tribunal de Justiça case Companhia Vale do Rio Doce v. Federal Union
24.04.2014 – CFC rules contradict to Art. 7 of DTTs with Belgium, Denmark and
Luxemburg.
Finland: Korkein Hallinto-Oikeus case A Oyj Abp 20.03.2002 – CFC rules do not
contradict to DTT with Belgium;
France: Conseil d'Etat Schneider case 28.06.2002 – CFC rules contradicts to Art.
7 of DTT with Switzerland;
Sweden: Högsta förvaltningsdomstolen case RÅ 2008 03.04.2008 – CFC rules
shall override DTT with Switzerland under lex posteriori rule;
Japan: Saikō-saibansho (Supreme Court) case 2008 (Gyo-hi) No. 91 29.10.2009
– CFC rules do not contradict to Art. 7 of DTT with Singapore as they do not
preclude Japan from taxing its own residents.
Стр. 8
International double taxation of CFC’s profit:
Conflict with Art. 7 of DTTs
9. Conflict with Art. 7 of DTTs;
Applicability of Art. 10 and 23 of DTTs to “deemed dividends”
attributed to CP;
Conflict between CFC and Transfer pricing;
Conflict between CFC and “beneficial owner” concept;
International Multiple taxation;
Gathering information about CFC;
Constitutionality of notional profit imputation and economical
basis for CFC taxation, etc.
Стр. 9
Pending issues of CFC in BRICS
10. Obrigado pela sua atenção!
Спасибо за внимание!
ध्यान देने के लिए धन्यवाद!
感謝您的關注！
Ngiyabonga ukulalela kwenu!
Стр. 10
