A notification on a controlled foreign company (CFC) must also be submitted in the process of its liquidation

A Russian tax authority held a citizen (a tax resident of the Russian Federation) liable for failure to submit notifications on controlled foreign companies (CFCs). The courts upheld the legality of imposing a fine for each offense under clause 1 article 129.6 of the Tax Code of the Russian Federation (TC RF). After that, the citizen tried to challenge the constitutionality of a number of provisions of the Tax Code[1]. In the applicant's opinion, the challenged provisions do not comply with the Russian Constitution, as they allow to recognize an individual as a controlling foreign company if the latter is in the process of liquidation.

The Constitutional Court of the Russian Federation did not accept the complaint for consideration, having found no violation of the applicant's constitutional rights in the challenged provisions. In its reasoning, the Russian Constitutional Court[2] stated:

“For taxpayers recognized as tax residents of the Russian Federation, the Tax Code of the Russian Federation provides for the obligation to notify the tax authority of controlled foreign companies, the controlling persons of which they are by virtue of objective criteria (in particular, the size of the shareholding). The envisaged legal mechanism of such notifications, as well as the procedure for recognizing taxpayers as controlling persons, is aimed at providing the tax authority with reliable information on taxpayers' participation in foreign companies and thus at establishing the circumstances affecting the actual amount of tax liabilities of tax residents of the Russian Federation.

The liquidation procedures in respect of a CFC do not exclude the emergence of tax liabilities of the person controlling the company in accordance with the requirements of the Russian tax legislation”.

[1] clauses 1, 3 and 7 of Article 25.13 and clauses 1-3, 5-8 of Article 25.14 of the TC RF
[2] Resolution of the Constitutional Court of the Russian Federation No. 2207-O of September 28, 2023