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Development of Legal Framework for Controlled Foreign Companies

ФИО студента: Ruslan Muratov

Руководитель: Elena Ryabova

Кампус/факультет: Faculty of Law

Программа: Financial, Tax and Customs Law (Master)

Год защиты: 2019

Appearance of the possibility of free movement of capital from one jurisdiction to another allowed companies incorporated in high taxation states to use low-tax or tax-free jurisdictions to conduct business and, in addition, to reduce a tax burden. One of the anti-avoidance measure is а controlled foreign companies rules, which make possible to spread the payment of dividends to the parent company, that is, to delay the payment of income that will be taxed in the state of tax residency of the parent company. In turn, states adopt CFC rules as an anti-avoidance measure, which may change due to different circumstances. CFC rules are aimed at identifying the actual tax liability of a taxpayer. However, there are situations when CFC rules are applied in a broad approach, that is, for example, a wide scope of persons will fall under the definition of “controlled foreign companies” or “controlling persons”, which may lead to the fact that the conditions for applying CFC rules may arise persons who do not exercise actual control over a foreign company. In this case, CFC rules may worsen a taxpayer’s position. In this regard, there is an abuse of the right of supervisory authorities on application of the anti-avoidance measure. To eliminate such situations, it is necessary to improve the CFC rules by limiting the scope of persons and a delineation of abuse of rights and lawful actions for applying CFC rules.

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