— Marina, tell us how the last few days before the deadline for filing tax returns for clients are going?

— The last few days are going, as always, very actively. Despite the fact that we start the filing campaign long before April 30 — usually in December of the previous year we already try to begin collecting and preparing documents — there are always clients who remember their tax obligations at the very last moment. In any case, we try to do everything within our power so that no penalties are imposed for missing the deadlines. This year this is especially relevant, as penalties for non-compliance with certain requirements have increased significantly.

— And what exactly must be filed by April 30 this year? Are there any specific features?

— Every year, April 30 is the last day for filing tax returns on income received in the previous year. Starting from this current 2021 year, by April 30 individuals must also file a notification of controlled foreign companies (CFCs) (previously the deadline was March 20), and together with such notification — the CFC financial statements and, in some cases, the audit report. Moreover, as of this year, the reports must be submitted regardless of whether the CFC has profit subject to taxation in Russia. This is a rather serious requirement, with high penalties for non-compliance. And finally, by April 30 there is still time to submit an application for recognition as a tax resident for the 2020 period under the “90-day rule.” So there is definitely more work to do.

— How much does the tax authority help in this matter — with information support, perhaps there are some simplified reporting procedures so that everyone can manage to file without penalties?

— It should be said that this year the tax authorities were especially active in reminding citizens of their obligations. In particular, a couple of months ago all owners of foreign companies received reminders from the tax authorities that they need to report and file a CFC notification. The Federal Tax Service also reminds taxpayers about filing tax returns in various ways — targeted calls, notices sent to citizens’ registered addresses, reminders in taxpayers’ personal accounts, as well as to registered email addresses. So we can see that the tax authorities are trying to help at least with information support.

As for simplifications, there are not as many this year as last year, but there are some: starting this year, a CFC notification can be filed electronically through the personal account. Since this format is being used for the first year, it is still imperfect and has its own drawbacks. In particular, if the dates of preparation of the CFC financial statements and audit coincide, the service does not allow you to submit the notification — that is, the dates must differ by at least one day (the audit must be later than the financial statements). Therefore, in most cases we try to arrange for the notification to be filed in person. But next year, I think the service will be improved and we will be able to use it to the full extent.

Another way to make “life with a CFC” easier is to switch to a special regime for paying a fixed tax of RUB 5 million per year. In this case, there is no need to provide financial statements, an audit report or other documents confirming the profit or loss of the foreign company — only a CFC notification needs to be filed. But this regime is far from suitable for everyone and not always appropriate, so before switching to it, it is necessary to analyze and calculate whether such a switch is advisable.

— Are the penalties really serious? If you fail to file or pay on time. There are surely always those who simply forgot or did not know that they received income.

— Of course, there are always those who did not manage to file in time. Penalties can vary greatly depending on the nature of the offense. Perhaps one of the most significant from this year is the penalty for failing to file a CFC notification — RUB 500,000 for each CFC.

A separate penalty is provided if information on the CFC was not provided at the tax authority’s request — RUB 1 million.

If the 3-NDFL tax return is not filed on time, the penalties are relatively small up to a certain point. In practice, it is possible to file the return after April 30 and minimize the late-filing penalty to RUB 1,000, provided that the tax itself is paid on time — by July 15.

If the tax payment deadline is missed (later than July 15), more substantial penalties apply — interest at 1/300 of the refinancing rate for each day of delay, as well as 20–40% for non-payment of tax (in practice, it is possible to avoid this penalty). For late filing of the return in this case, the penalty will be 5% of the unpaid tax amount for each full or partial month of delay from the date the tax return was filed, but in total no more than 30%.

— Accordingly, how does the tax authority learn about foreign income and CFCs? Does it use information obtained through automatic exchange? Do you have such cases on your team involving tax authority requests?

— There are many cases involving the use of information obtained through automatic exchange, and their number is constantly increasing. It all started in December 2020 — at that time, some foreign account holders received such peculiar “gifts” under the tree, with a notice that an on-site tax audit had been initiated against them for previous tax periods.

Recently, in addition to on-site audits, citizens have also increasingly been summoned to the tax authorities to give testimony regarding their property and income (including declared income). In our practice, the results of such interviews vary widely: in some cases, the tax authority postpones the testimony indefinitely without giving any explanation, while in others it continues to audit all of the taxpayer’s assets.

— What is your recommendation to clients who have faced a tax authority request based on automatic exchange data?

— The main recommendation is not to panic and not to take any rash action. If necessary, seek help from tax lawyers. We always support clients during desk tax audits and, if necessary, go with them to a tax authority interview and prepare all required explanations requested by the inspector. And, of course, we make sure that the tax authority does not exceed its powers — there are frequent cases where the Federal Tax Service requests information for periods for which the statute of limitations has already expired.