At the end of last year, 2023, the Russian Ministry of Finance decided to launch a hunt for Russians who had lost their tax resident status. At the same time, according to the Ministry of Finance’s plan, the search would not be carried out by government officials themselves. The immediate hunters would be banks and other financial market organizations.
But how will they know that a person has not lived in the territory of the Russian Federation for a year? The answer is quite simple — your phone or laptop will help, since geolocation will be the main target.
MORE DETAILS:
On 26 December 2023, the Ministry of Finance published a draft Resolution of the Russian Federation introducing amendments to the Regulation approved by Resolution of the Government of the Russian Federation No. 693 dated 16 June 2018 “On the implementation of international automatic exchange of financial information with competent authorities of foreign states (territories)” (the “Regulation”).
The new Regulation provides that if a financial market organization (a bank, broker, etc.) identifies a client’s regular use of the financial market organization’s services via the internet, including a mobile application, predominantly from foreign states, as established using technical means of determining the client’s location (including geolocation by internet network address, geolocation by cellular networks, satellite geolocation), it must request the required information from the client, including information about that person’s tax residency.
If such information is not provided, the financial market organization is entitled to refuse to enter into a new agreement with such person or to carry out transactions performed for the benefit of or at the instruction of such client under a previously concluded agreement, or unilaterally terminate a previously concluded agreement in the manner предусмотренном by Russian law.
WHAT DOES THIS MEAN?
At present, the draft is at the discussion stage and imposes no obligations on financial market organizations.
However, if adopted, banks and other financial institutions will be required to request confirmation of tax resident status not only when entering into an agreement with a client, but also in the event of regular use of banking services from the territory of foreign states. This fact will be established using geolocation:
by IP;
by the location of the last registration on cellular towers;
by satellite geolocation.
Banks will be required to submit the information obtained to the Russian tax authorities.
If this draft is adopted, tax authorities will have more opportunities to obtain information about a person’s current tax residency status, including loss of Russian tax residency. If such a fact is established, most income from Russian sources will be subject to tax at a rate of 30% and without the possibility of applying tax deductions.
