Forms of cash flow statements and reporting for cash flows in foreign accounts (deposits) have been changed

The Russian Government’s Resolution No. 528 dated 17 April 2020 has been published introducing changes in the rules for submitting cash flow statements by both organisations and individuals.

From now on, these rules will regulate reporting about cash flows in accounts (deposits) not only with foreign banks, but also with other financial market institutions. Such changes were introduced in the wake of amendments to article 12 of the Federal Law “On currency regulation and control” (which came into effect starting from 1 January 2020).

Provision has been made for new forms of cash flow statements. Specifically, the procedure has been worked through for reflecting information regarding multi-currency accounts; and it has been stipulated that a taxpayer’s number should be indicated that has been assigned to a bank or a financial market institution in a foreign state.

The forms of the statements provide for cash funds only to be reflected.

Formerly, the Russian Federal Tax Service explained that the cash value of other financial assets (specifically, securities) might be indicated in the statements. Such an approach was contradictory for a number of reasons. Nevertheless, the previous forms of such statements referred to “funds” rather than “cash funds”. At present, the forms of statements clearly indicate “the balance of cash funds”, “cash funds credited” and “cash funds debited”. Consequently, the forms do not provide for a cash value of other financial assets to be reflected. The issue remains unregulated of the procedure for filling in the statements of accounts in which such assets are booked.

At the same time, the procedure for submitting the statements has been adjusted.

1. Changes in the procedure for organisations and individual entrepreneurs to submit statements

• Provision has been made for the submission of statements in electronic form via a telecommunications channel or a personal account. Formerly, statements could be submitted in hard copy only, and only individuals had the opportunity of filing their statements in electronic form.
• A tax authority may now send notice via a telecommunications channel or a taxpayer’s account requesting that an adjusted statement and duly executed documents should be submitted. Previously, such a notice could have been issued only against an acknowledgement or sent by post;
• Supporting documents must be submitted in the same form as the statement itself. Where supporting documents are submitted electronically they are presented in the form of electronic images (i.e. scanned documents) in accordance with the requirements of, and formats approved by, the Federal Tax Service;
• The requirement has been repealed that notarised documents and a notarised translation should be submitted. A notarised translation will be submitted at the request of a tax authority. However, documents should be nevertheless submitted attaching a translation that must be “duly certified in accordance with the requirements of Russian legislation”. The Rules do not clarify what is meant by such a translation;
• Following the amendments to article 12(7) of the Law on currency regulation, it has been clarified that statements should be submitted at the place of registration or at the place of registration as major taxpayers. The statutory instruments did not have such clarification for a long time, which at times triggered disputes with tax authorities.

The new reporting procedure is favourable in the context of the COVID-19 pandemic (if restrictive measures are preserved at the time when the new rules start to be applied). That it is now possible to submit statements electronically and that a taxpayer does not have to notarise copies and translations considerably simplifies the reporting procedure. However, the procedure has not been simplified to the extent that it could have been during the pandemic. It is still required to translate and certify a document, which may require the use of a translator's services. As an alternative in the case at hand, another path could have been followed which provided for the submission of documents during audits under currency legislation (article 23(5) of the Law on currency regulation), where translations are submitted only at the request of a tax authority. Nor do the Rules clarify specifically what translation can be recognised as duly certified translation, which, in practice, may lead to disputes with tax authorities and to fines. In the absence of clarifications on this matter, it would be safer if the person who certifies a translation was qualified as a translator.

2. Changes in the procedure for individuals to submit statements

• As in the case with organisations, supporting documents must be submitted in the same form as the statement itself;
• Supporting documents and information in a foreign language (if requested by a tax authority or if attached to a statement at the initiative of a taxpayer) must be submitted immediately with a translation which should be “duly certified in accordance with the requirements of Russian legislation”. A notarised translation, as in the case of organisations, will be submitted only at the request of a tax authority.

Previously, no requirement was stipulated for individuals that they should submit their statements together with a translation. A general provision of article 23(5) of the Law on currency regulation was applied regarding duly certified translations submitted at the request of a tax authority. Consequently, requirements for individuals with this respect have been made more difficult. Previously: supporting documents were submitted without a translation, and the tax authority, if needed, requested a duly certified translation; Now: supporting documents will be submitted together with a duly certified translation, and tax authority will request, if needed, a notarised translation.

When the changes come into effect

The Russian Government’s Resolution comes into effect starting from 29 April 2020.

It is stated on the website of the Federal Tax Service[1], that organisations and individual entrepreneurs submit their statements under the new rules, starting from the statement for Q2 2020, and individuals starting from the statement for 2020 (i.e. by 1 June 2021, or, if the account is closed, within a month after it is closed).

Such determination of the timeframes when the new rules start to be applied corresponds to the provision that regulations issued by authorities responsible for foreign currency regulation apply to relationships that arose after such regulations came into effect. As regards relationships that arose before this point, such regulations will apply only to the rights and obligations that arose after the regulations came into effect (article 4(3) of the Law on currency regulation).

What to think about and what to do

As the new rules do not regulate the procedure for filling in statements of accounts in which other financial assets (specifically, securities) are booked, the question again arises of how statements of accounts should be filled in, where no cash flows are technically possible, and of how statements should be completed in other situations where financial assets should be booked in an account.

The Federal Tax Service may issue clarifications on this matter in future. The approach may become predominant, for example, of notifications having in any case to be submitted with respect to all accounts, as the Law on currency regulation does not provide for any exceptions. As regards an account where no cash is booked, the statements should reflect zero values.

Given the changes that have been adopted we recommend that you once again weigh up all the circumstances and assess whether you have an obligation to submit notifications and statements of cash flows in accounts (deposits) opened with foreign banks and other financial market institutions, as well as how, in a particular situation, such statements should be filled in.

Help from your adviser

Pepeliaev Group’s specialists are ready to draft and submit to tax authorities your cash flow statements, notifications of accounts (deposits) being opened (closed, or their details being changed) and support you with identifying any risks concerning transactions in foreign accounts. We are also ready to represent taxpayers before tax authorities and provide any other necessary legal support.