Changes to the rules for individuals on reporting to tax authorities of accounts (deposits) with foreign banks outside the Russian Federation
Today both Russian legal and individuals may open accounts (deposits) with foreign banks outside the Russian Federation.
As a reminder, it was not until 1992 that it became possible for individuals to open accounts (deposits) with banks outside Russia. If fact, it is only in 2001 that Russian individuals were offered an opportunity to have account/accounts with banks outside Russia. Before that these individuals were not allowed to open such accounts without permission, which was very hard to obtain, of the Russian Central Bank. Since 2001, the account opening process for Russian individuals has involved two stages: opening an account with a bank outside the Russian Federation and notifying/reporting the account to tax authorities.
In fairness it must be noted that it is actually impossible to know whether a Russian natural person has an account with a bank outside the Russian Federation unless he/she reports the account to tax authorities. To be able to obtain such information, tax or other authorities must make an explicitly formulated enquiry about a specific person to respective authorities of a foreign country. Indeed, there have been a few cases when tax authorities obtain information about accounts with banks outside Russia, which Russian individuals have failed to report.
The obligation for resident legal and individuals1 to notify tax authorities of opened (closed) accounts (deposits) and change in the details of accounts (deposits) held with foreign banks outside the Russian Federation is set forth in Article 12, Part 2 of Federal Law No. 173-FZ of 10 December 2003 “On Currency Regulation and Control” (hereinafter – the Law). Notification must be filed to the tax authority at the place of tax registration in the Russian Federation not later than one month from the date of respective opening (closure) of accounts (deposits) or change in the details of accounts (deposits). The notification form was approved by Federal Tax Service Order No. MMV-7-6/457@ dated 21 September 2010 “On the Approval of Notification Forms on Opening (Closing), Changes in the Details of Accounts (Deposits) with Foreign Bank Outside the Russian Federation, and Accounts Held with Foreign Bank Outside the Russian Federation”.
Besides, Article 12, Part 7 thereof determines the obligation for resident legal entities (save for diplomatic missions, consulates of the Russian Federation and other official missions of the Russian Federation, which are situated outside the Russian Federation, as well as permanent missions of the Russian Federation to international or intergovernmental organizations) to file reports on credit and debit operations on the accounts (deposits) in question to the tax authority at the place of tax registration of such legal entities. Since 1 January 2015 under Federal Law No. 218-FZ of 21.07.2014 “On Amendments to the Specific Legislative Acts the Russian Federation” the obligation applies to individuals too.
The reporting procedure for legal entities is set forth in Russian Government Executive Order No. 819 of 28 December 2005, under which residents within 30 days from the end of each quarter shall file to the tax authority a report in two counterparts prepared in accordance with the form specified in the addendum thereto, as well as submit bank documents (bank statements or other documents issued by the bank in accordance with the requirements of the legislation of the bank’s home country) which confirm the reported data. In addition, a special report with bank confirmation documents must be filed for each account.
The report must contain the resident data (including type of economic activity, form of incorporation), the name of a bank with which the account was opened, domicile, host country, account number, currency, account opening and closure date, information (date and number) of the bank account contract, opening balance, the amount credited to the account in the accounting period (in total and with a breakdown by type of operations), the amount debited from the account in the accounting period (in total and with a breakdown by type of operations), closing balance. A Russian version must be attached to documents in a foreign language, which must be notarized in accordance with the requirements of the Russian legislation.
Where the tax authority reveals that the resident’s report contains misstatements, is incomplete, as well as the resident has failed to attach bank confirmation documents or submitted unduly executed bank confirmation documents, the tax authority within five working days after the date when the report and bank confirmation documents are received shall notify the resident in written that a corrected (refined) report and/or duly executed bank confirmation documents are to be submitted. The respective documents must be submitted to the tax authority within 10 working days from the date when such a notification is received.
Russian Government Executive Order No. 819 of 28 December 2005 approved for a reporting form on credit and debit operations on accounts maintained by legal entities.
Neither a reporting form on credit and debit operations on accounts held with banks outside the Russian Federation nor reporting procedure for resident individuals were approved as of 30 April 2015, resident individuals may inform tax authorities on credit and debit operations on their accounts with banks outside the Russian Federation, but no such obligation arises until a reporting form and reporting procedure is approved by a Russian Government Executive Order, as noted in the section “Tax legislation news” on the official website of the Russian Federal Tax Service2. To date (as of today, 10 August 2015), neither a reporting form on credit and debit operations on accounts with banks outside the Russian Federation nor a reporting procedure for individuals has been introduced, which implies that there is no obligation in force for individuals to report on credit and debit operations on their accounts with foreign banks. Note that this approach is supported in section “Individuals” on the Federal Tax Service official webside3, which only contains information about reporting account/accounts with foreign bank/banks.
Article 15.25, Parts 2, 2.1 of the Administrative Offences Code of the Russian Federation prescribe penalties on individuals, public officials, legal entities for failing to notify or late notification, as well as informal notification by a resident to the tax authority of an opened (closed) account (deposit) or change in the details of the account.
Residents are subject to the following penalties for failing to notify the tax authority: Rb4,000 to Rb5,000 for individuals, by contrast: Rb40,000 to Rb50,000 for public officials, Rb800,000 to Rb1m for legal entities.
Late notification and/or unduly submission of notification are subject to the penalties as follows: Rb1,000 to Rb1,500 for individuals; Rb5,000 tо Rb10,000 for public officials; Rb50,000 to Rb100,000 for legal entities.
Only public officials and legal entities may be held liable for failing to comply with the established procedure (Part 6 thereof), late submission (Parts 6.1, 6.2, 6.3 thereof) of reports on credit and debit operations on accounts (deposits) held with banks outside the Russian Federation with attached bank confirmation documents, the established procedure for submission of confirmation documents.
Failure to comply with the established reporting procedure are subject to the following penalties: Rb 4,000 to Rb 5,000 for public officials, Rb 40,000 to Rb 50,000 for legal entities.
Consequently, today individuals are only may be held liable for failing to notify or breaching the obligation to notify the tax authority of opened (closed) accounts held with banks outside the Russian Federation. They may not be held liable for failing to comply with or breaching the procedure for reporting to the tax authority on credit and debit operations on accounts held with banks outside the Russian Federation.
Hence despite that the obligation for individuals to file a report on credit and debit operations on accounts has been introduced on a par with legal entities, no provision for a monitoring and enhancement mechanism has been made, because neither a reporting form nor liability for failing to comply with or breaching the obligation are in place. However, it seems only a matter of time before a respective form and reporting procedure are developed and adopted, and hence now is the time for individuals to decide on whether it’s worth having an account with bank/banks outside the Russian Federation. Meeting the reporting requirements incurs new substantial expenses, as noted in the article “Currency: the logic of overregulation” published on 10 August 2015 in the business daily Vedomosti4. A decision, for example, not to file a respective report should take into account Russia’s plan to join in 2018 the multilateral agreement on automatic exchange of financial account information as part of the OECD Common Reporting Standard for automatic exchange of tax information which provides for exchange of information including accounts (deposits). Information on accounts, credit and debit operations on accounts will become available for tax authorities as part of automatic exchange of information and hence such information will be available on a wide-scale basis for tax authorities.
Yelena Velikova, senior researcher, Gaidar Institute’s Tax System Development Department
1 Currency residents, not tax residents. These terms have different definitions.2 http://www.nalog.ru/rn77/news/tax_doc_news/5542162/3 http://www.nalog.ru/rn77/fl/4 Sinelnikov-Murylev S., Trunin P., Levashenko A. “Currency: the logic of overregulation” // Vedomosti, 10 August 2015.