Keeping a Latin American subsidiary's books under control from Russia

What is happening

A year ago a Russian company set up a subsidiary in Mexico. The local accountant sends reports in Spanish, and the Moscow office cannot tell whether they match the money invested or when the CFC notification is due.

The Brazilian subsidiary has changed accountants, and the new figures differ from the old ones. The Russian shareholder needs to understand why before filing anything with the Federal Tax Service (FNS).

A Russian group has opened an account with a Chilean bank to receive payments from customers. The Moscow accounting team must file cash flow reports, but statements and supporting documents arrive late and in the wrong format.

What the law says

• The subsidiary's books and tax returns are kept under local law and filed with local authorities (for example, Receita Federal in Brazil, SAT in Mexico, SII in Chile, DIAN in Colombia, SUNAT in Peru). This work is done by the local accountant.
• A Russian company holding more than 10% in a foreign organisation must notify the tax authority within three months of acquiring or changing the stake (Article 23(3.1)(1) and Article 25.14(3) of the Tax Code).
• A controlling person is a shareholder with more than 25%, or more than 10% where Russian residents together hold more than 50% (Article 25.13(3) of the Tax Code). An organisation files the CFC notification by 20 March of the year following the period in which the CFC's profit is recognised (Article 25.14(2) of the Tax Code). Whether the CFC's profit is exempt (Article 25.13-1 of the Tax Code) must be checked for each country.
• A resident must notify the tax authority of opening, closing or changing the details of a foreign bank account within one month, and a legal entity must file cash flow reports with supporting documents (Article 12 of Federal Law No. 173-FZ of 10.12.2003 on Currency Regulation and Currency Control).
• Failure to file participation and CFC notifications is subject to liability under Article 129.6 of the Tax Code.

What we do

• Together with you, we brief the local accountant: which reports the Russian shareholder needs, in what form and by when. We work with the accountant you have already chosen or help you choose one.
• We review the reports from the Russian shareholder's perspective: do capital, loans and intra-group settlements match the Russian books?
• We determine whether the local company is a CFC and prepare the CFC notification and the notification of participation in a foreign organisation.
• We collect foreign account data from the local accountant and the bank and prepare the notifications and cash flow reports under Article 12 of Law No. 173-FZ.
• We reconcile intra-group payments (capital contributions, loans, dividends, service fees) with the currency control documents at the Russian bank.
• We translate key documents and figures from Spanish; documents in Portuguese are translated with the help of a translator.
• We keep a single calendar of Russian and local deadlines; questions about local taxes go to the local accountant and their answers are recorded in writing.

What we will need from you

• The ownership chart of the subsidiary and the stakes of Russian shareholders.
• The local accountant's contact details and your consent for us to exchange documents with them.
• Local financial statements and foreign bank statements for the period.
• Contracts and payment documents for settlements between the Russian and the local company.