Title V of the TC on the date of Moldova’s accession to the European Union will be supplemented with a new Chapter 113, which includes rules on controlled foreign companies (CFCs). It transposes into Moldovan tax legislation the provisions of EU Directive 2016/1164.
The aim of the directive is to establish common rules to combat tax evasion by preventing aggressive tax planning by companies that affects the functioning of the EU internal market. The introduction of the rules on CFCs is aimed at taxing profits transferred by groups of companies to their subsidiaries operating in lower tax jurisdictions. They prescribe the redistribution of profits of a foreign subsidiary domiciled in a low-tax country to its parent company, which is obliged to tax these profits in the country of residence.
The draft prescribes a number of new provisions. Thus, a controlled foreign company is any legal entity or permanent establishment that has the status of a tax resident or is registered in a foreign country. At the same time, it must cumulatively meet a number of conditions with respect to the amount of participation interests, capital and the right to receive profits, as well as the amount of profit tax payable in the country where it is registered.
At the same time, the draft establishes rules for the distribution of income, rules to prevent double taxation, submission of information on controlled foreign companies and sanctions in case of failure to provide information.
