A Controlled Foreign Company — Offshore Company: Identity or Autonomy?

Abstract

The Federal Law of November 24, 2014 No. 376-FZ "On Amendments to Parts One and Two of the Tax Code of the Russian Federation (with regard to taxation of profits of controlled foreign companies and foreign organizations proceeds)" adopted in the framework of the deoffshorization program caused the increase in the doctrinal discussions of this program. It aimed at reducing the outflow of capital abroad, to fight against the concealment of the proceeds of legal entities whose beneficiaries are Russian residents formally registered in offshore zones. It is worth noting that due to the name of the program, designated by the President of the Russian Federation at the end of 2013, the law in question became known as the "anti-offshore law" Such a wording provoked the formation of an erroneous opinion that the construction "controlled foreign company" introduced by this law is synonymous with the term "offshore company". The paper analyzes the doctrinal sources that reveal the concept and essence of the two phenomena (controlled by a foreign company and an offshore company), and scrutinizes their legal definitions. The paper provides not only the characteristics of both business entities, but also the features that make it possible to draw a clear line between these types of organizations. Thus, the author concludes that the companies under consideration have some autonomy, but, despite this fact, she still notes three important and significant conditions, the observance of which leads to the equivalence of a controlled foreign company and an offshore company.