Experts reported on prohibitions for foreign subsidiaries to pay taxes in Russia

Foreign companies face difficulties in liquidating branches in Russia, often the process drags on for months, business consultants said.Another problem is the ban on head offices from paying taxes to the Russian budget.

Many Russian branches of foreign companies and firms with foreign founders that have begun the liquidation procedure are faced with delaying this process for a long time due to interaction with the tax authorities. This was told by experts from the consulting company Business Solutions and Technologies (DRT, ex-Deloitte) at a round table (RBC followed the broadcast).

Companies associated with foreigners experienced difficulties with the liquidation of a legal entity within the time frame stipulated by law even before the start of tough sanctions against Russia and the departure of foreign business. After that, the problem worsened: according to consultants, many liquidating companies have been in limbo since the beginning of March.

RBC sent a request to the Federal Tax Service.

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Tax Prohibition

One of the difficulties for branches and subsidiaries of foreign companies is related to the decision of the head office abroad not to pay taxes to the Russian budget (despite the fact that, for example, the US authorities allowed American-controlled companies to pay taxes in Russia until March 2023, despite sanctions against the Ministry of Finance ). Legal entities registered in Russia are not relieved of such an obligation, and for non-payment of taxes and failure to provide a tax return, their management is threatened with punishment up to criminal.

As noted in the DRT, such violations have become forced for a number of Russian "daughters" of foreign companies. “We have received numerous requests from foreign clients about what will happen if they stop paying taxes and filing declarations,” said Anton Zykov, DRT partner, head of the tax dispute resolution group.

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In a situation where the head office abroad prohibits paying taxes in Russia, the most painless way is to continue to file reports and declarations where the amounts of taxes are correctly calculated, advises Irina Barchuk, manager of the DRT tax dispute resolution group. In this case, according to her, the tax authority will be able to independently collect funds from the company's accounts.

The situation fundamentally changes if a declaration is not submitted. In this case, a fine will be charged for non-payment of taxes, and for failure to file a declaration. In addition, there are administrative and even criminal liability for the management of the branch, depending on the amount of arrears,” Barchuk warned.

However, in some cases, the termination of reporting may allow to accelerate the liquidation of a company in Russia, although this is an illegal way. Zykov cited as an example a situation where a foreign company headquartered in Southeast Asia took such an extreme path (he did not give the name of the company). Six months later, the tax authorities excluded the company from the Unified State Register of Legal Entities as an inactive organization. The method worked because the company had no physical assets, and creditors for receivables were intragroup, Zykov said. Her leader left for another country.

Tax audit as an obstacle

In one of the cases with a protracted liquidation, which Barchuk described, the process dragged on for many months due to an on-site tax audit.

A limited liability company (LLC) registered in Russia with a foreign founder began liquidation, taking one year for it - this is the maximum period allowed by law. However, almost immediately after the start of the liquidation process, an on-site tax audit began in the company. As a result, more than two years passed from the beginning of the audit to the entry into force of the decision based on its results.

The company's mistake was that after the start of the audit, it did not file an application to terminate the liquidation - this was done by the tax authority. When the organization decided to resume the liquidation procedure, it had to wait another six months - this is how long it should be from the moment of notification of the termination of the last liquidation. “We recommend that companies immediately apply to terminate the liquidation procedure if an on-site tax audit has begun in order to save time,” Barchuk said.

In 2022, Russia has a moratorium on scheduled business inspections, extended since the pandemic. However, the ban does not apply to field tax audits, the Ministry of Finance explained.

The general rules do not establish differences in the procedure for liquidating companies with and without foreign participation, but there is also a practical aspect, says Yury Aksenov, partner at Orchards law firm. “It is more difficult to hold a foreign participant liable for violations (for example, in terms of settlements with creditors or the budget). It can be located outside of Russia - this is fraught with material costs, it takes a long time or is impossible at all due to the lack of necessary international agreements, ”he explains. Therefore, the appointment of an on-site tax audit is a common practice in cases where the company that announced the liquidation in previous periods was active in business, the lawyer added: “And in modern conditions, tax control measures can be de facto aimed at protecting not only budgetary interests,

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Termination of accreditation of branches

Delays may also occur during the procedure for terminating the accreditation of a foreign branch. In contrast to the liquidation of a company, such a procedure, according to the law, takes ten working days after the submission of all necessary documents to the tax office. “In practice, we see that those terminations of accreditation that began at the beginning of the year continue to this day,” says Barchuk.

This is because the tax inspectorate begins to issue requirements for providing information about the work of the branch, and it takes time to verify the data.

In particular, the tax authority may ask for what purpose the branch was registered, ask for the parent company's statements, request information about the ultimate beneficiaries of the foreign company, clarify what functions the branch employees performed, which of the clients and partners of the parent company were in contact with, etc.

The purpose of the tax office is to check whether the branch really paid taxes correctly. Customer experience shows that communication with the tax authority often ends with the company paying the amount of the arrears, after which the inspection decides to approve the liquidation, the DRT said.

There are a lot of such liquidated branches, and the tax authorities are interested in paying additional taxes before they leave, Zykov noted. The way out for a company that wants to quickly cease to exist in Russia is to initiate a possible additional payment itself, without waiting for the requirements of the tax authorities.