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Russia Clarifies Application of Currency Conversion Requirements for Carried Forward CFC Losses

The Russian Ministry of Finance has published Letter No. 03-12-11/2/67789 of 3 August 2020, which clarifies the currency conversion requirements for carried forward losses of controlled foreign companies (CFCs) under the CFC rules as amended up to 1 January 2018. In general, the rules provide that losses of a CFC determined according to its financial statements for a financial year may be carried forward indefinitely for offset in future years without restriction. Further, where the financial statements of the CFC are expressed in a foreign currency, the profit/loss must be converted into Russian rubles according to the average rate established by the Russian Central Bank for the year concerned.

For the purpose of carrying forward CFC losses, the letter clarifies that for financial years ended in 2018 and for subsequent years, losses must be converted into rubles based on the average rate mentioned above. For accumulated losses carried forward from previous years ended before 2018, the accumulated loss amount must be converted into rubles based on the exchange rate established by the Central Bank as on 31 December 2017. This applies only for the determination of the profits of a CFC for financial years ended in 2018 and for subsequent years and does not require the revision of the tax base or returns for previous years.

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