Changes to the List of Countries with Which the Federal Tax Service Carries Out the Automatic Exchange of Country-by-Country Reports

On 4 July 2022 the Federal Tax Service (FTS) published Order No. YeD-7−17/449@ of 27 May 2022, which approves the list of countries with whose tax authorities the FTS automatically exchanges country-by-country reports on an annual basis pursuant to the Multilateral Competent Authority Agreement on the Automatic Exchange of Country-by-Country Reports ("MCAA CbCR").

The Order expands the list of countries to include:

• Azerbaijan
• Bahrain
• Kazakhstan
• Oman and
• Turkey, as well as
• the territories of Gibraltar and Macau.

At the same time, the following countries have been excluded from the list: The United Kingdom of Great Britain and Northern Ireland ("the UK") and individual administrative units thereof:

• The Isle of Man and
• The Channel Islands: Guernsey and Jersey.

We should also point out that the USA, Canada and a number of other countries are also absent from the list.

What are the implications?

From the effective date of the FTS Order, the automatic exchange of CbC reports filed with the Federal Tax Service by parent companies of Russian multinational enterprise groups (MNE groups) no longer takes place with the tax authorities of the UK and individual administrative units thereof.
It should be noted that, on 17 March 2022, the UK and individual administrative units thereof likewise suspended the exchange with the Federal Tax Service of CbC reports filed by parent companies of MNE groups in those jurisdictions.

Russian MNE groups

From the effective date of the Order, members of Russian MNE groups that are tax residents of the UK and/or individual administrative units thereof will be obliged to file CbC reports for 2021 with the tax authorities of those jurisdictions by the end of 2022 under the "secondary filing mechanism".

We also remind readers that member companies of MNE groups are required in the current calendar year to submit a notification of participation in an MNE group ("MNE Group Notification") with the tax authorities for:
1.the 2021 calendar year:

• by 1 January 2023 in the Isle of Man and
• by 30 November 2022 in Guernsey

2.the 2022 calendar year:

• by 31 December 2022 in the UK and Jersey.

Failure to file CbC information (CbC Report and MNE Group Notification) within the prescribed time limit or the filing of inaccurate information in those countries is penalised by fines of:

• from 300 and 3,000 pounds sterling respectively plus additional charges for each day overdue.
• up to 20,000 pounds sterling for failure to file without good reason in Guernsey.

Foreign MNE groups

The Federal Tax Service can, in the same way as foreign tax authorities, likewise send requests for CbC reports for the 2021 calendar year to Russian members of foreign MNE groups (with parent companies in the UK, Guernsey, Jersey and/or the Isle of Man) under the "secondary filing mechanism".

When a request is received from the Federal Tax Service, the CbC report must be submitted electronically in XML format no later than three months after the date of the request.

Under the Russian Tax Code, failure to file a CbC report within the stated deadline or submission of a CbC report containing inaccurate information will result in the imposition of a 100,000 rouble fine.

Failure to submit a CbC report or inaccurate reporting may also draw additional attention from the Federal Tax Service towards intra-group transactions with foreign members of the MNE group and may potentially prompt the Federal Tax Service to order TP audits or general tax audits, as well as earning the company a reputation as a "bad-faith" taxpayer.

How can B1 help?

In light of the publication of the Order, B1 can provide the following types of support:

• Preparing and assisting with the filing of an MNE Group Notification with the tax authorities of the UK, the Isle of Man and the Channel Islands (Guernsey and Jersey) as well as with the tax authorities of other countries;
• Preparing a CbC report in XML format in accordance with the requirements of the UK, the Isle of Man and the Channel Islands (Guernsey and Jersey)
• Preparing a CbC report in XML format in accordance with Russian requirements; and
• Filing a CbC report produced in XML format with the Federal Tax Service on the taxpayer’s behalf and assisting with the filing of reports with tax authorities of foreign jurisdictions with which automatic exchange does not take place.