Moscow City International Business Center in Russia

Latest Developments on Beneficial Ownership in Russia

By Valeria Khmelevskaya, KBK Accounting

One of the major conditions currently necessary in Russia for application of the incentives provided by double taxation treaties (DTT) is the “actual right of the company to the income” obtained from the sources in Russia. This is the statutory naming for a beneficial ownership concept (BO) in Russia, which continues to develop and evolve after introduction into legislation in 2015.

An important part of this BO’s development are the letters of the Russian Federal Tax Service providing for instructions and clarifications for the local tax authorities. In Letter No. ED-4-13/15696@ from 08.08.2019 (Letter) the Federal Tax Service signals a new approach to holding companies obtaining income from Russian sources.

Previously, holding activities (investing and financing) have been considered by the Tax Service as activities not qualifying for independent entrepreneurial activities with the suffcient economic substance, so that this has led to the denial of DTT incentives in the majority of cases, merely because of the nature of the holdings.

According to the new, revised position, the tax authorities have to avoid using a formal approach when determining the “actual right to income” and, thus, the eligibility of a relevant holding company for DTT incentives. Furthermore, based on the Letter, conducting the activities mainly in the form of investments and financing of group of companies (holding companies) or interrelated, affliated companies, in itself does not indicate the absence of independent entrepreneurial activity and, therefore, the absence of the “actual right to income”. The mere indication of holding and/or investing activities among the business activities of a foreign recipient of income may not suffce for estimate on meeting the BO criteria. The Federal Tax Service recommends looking for an artificial nature in activities of the relevant foreign companies on a caseby- case basis, e.g., lack of independence of directors in decision making with respect to disposal of assets and of income received from Russian sources, etc., with respect to each concrete holding company. In other words, the current approach might be aimed at compliance with the MLI provisions which shall apply in Russia starting from 2021 and which foresee the application of principle purpose test as a precondition for the DTT incentives.

Valeria Khmelevskaya

Valeria Khmelevskaya

GGI member firm
KBK Accounting
Auditing & Accounting, Tax
Moscow, Russia
T: +7 495 662 33 30
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KBK Accounting is a reputable outsourcing firm and provider of a wide range of services, including tax accounting and bookkeeping, tax advisory, reporting and compliance, HR, and interim management.

Valeria Khmelevskayais a Partner, Lawyer, and Tax Consultant admitted to practice in Russia. She has over 20 years of experience of consulting in matters of Russian and international tax law. Ms. Khmelevskaya is also the Deputy Head of the Management Board and the Chair of the Committee for Taxes and Financial Reporting of the German-Russian Chamber of Commerce (AHK) and recommended attorney of the Austrian Foreign Trade Centre Moscow (Advantage Austria).

Published: International Taxation Newsletter, No. 12, Spring 2020 l Photo: byallasaa -


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