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Question: On reducing the CFC profits by the amount of dividends paid for income tax purposes.

Answer:

The Department of Tax and Customs Policy considered a query on the application of certain provisions of the Russian Federation legislation on taxes and fees in terms of taxation of profits of controlled foreign companies and reports the following.

In accordance with the second paragraph of clause 1 of Article 25.15 of the Tax Code of the Russian Federation (hereinafter, the Code), the profit of a controlled foreign company is reduced by the amount of dividends paid by this foreign company in the calendar year following the year for which the financial statements are to be made pursuant to the personal law of such company, taking into account the interim dividends paid during the financial year for which these financial statements are prepared, taking into account the particulars provided for in Article 309.1 of the Code.

In this regard, a decrease in the profits of a controlled foreign company, stipulated by the second paragraph of clause 1 of Article 25.15 of the Code, is possible both through the distribution of profits for the year for which financial statements are prepared according to the personal law of such companies, and due to retained earnings of previous years (including those formed until 2015), taking into account the particulars provided for in Article 309.1 of the Code.

At the same time, we note that the amount of dividends paid, on which the profit of a controlled foreign company is to be reduced, should be specified in the financial statements of the controlled foreign company. In this regard, the amount of dividends paid, in addition to financial statements, is to be confirmed by copies of payment orders or cash documents for dividend payments, accounting records, financial statements, copies of decisions on payment of dividends, other documents stipulated by the business practices of the state of the location of the controlled foreign company.

This letter does not contain legal regulations, does not specify regulations and is not a regulatory legal act. Written explanations of the Ministry of Finance of Russia on the application of the legislation of the Russian Federation on taxes and fees are informational and explanatory in nature and do not prevent taxpayers from being guided by the rules of the legislation of the Russian Federation on taxes and fees in an understanding different from the interpretation given in this letter.

28 April 2017