Further Revision of Russian DTTs

By Valeria Khmelevskaya, KBK Accounting

Beginning in 2020 Russia initiated negotiations to amend the incentives on dividend and interest payments set forth in Double Taxation Treaties (DTTs) with so-called “transit jurisdictions”. Cyprus, Malta, Luxembourg, and Netherlands were offered the option to either agree to amend their DTTs or face the consequences of Russia’s withdrawal from these agreements.

Negotiations with the first three countries resulted in amendments which entered into force starting from 2021. However, the Netherlands rejected the DTT amendments, and there were tough negotiations with a negative outcome: Russia denounced its DTT with the Netherlands, which is now set to expire in 2022. Further candidates for revision could be Switzerland, Hong Kong and Singapore, as DTTs with these countries have mostly been used by Russian businesses in cross-border structuring in the past.

DTTs with Cyprus, Malta and Luxembourg were revised in a similar way: both dividend and interest payments thereunder must be taxed at source with a rate of 15%. However, there are several exemptions:

1. a reduced 5% rate on:

• dividends paid to 1. insurance institutes, pension funds; 2. public companies with at least 15% of the voting shares in free float and directly holding at least 15% of the capital of the payor during the year; 3. governments, their political subdivisions, central banks, local state authorities.
• interest paid to public companies with at least 15% of the voting shares in free float and directly holding at least 15% of the capital of the payor during the year.

2. Tax exemption for interest 1. in relation to Eurobonds, public state and corporate bonds, or paid to 2. insurance institutes, pension funds; 3. governments, their political subdivisions, central banks, local state authorities; 4. banks.

By abolishing incentives instead of improving anti-tax-avoidance rules, Russia has chosen an easy and unpopular, but at the same time rather effcient, way of combatting tax base erosion

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. 15, Autumn 2021 l Photo: yulenochekk - stock.adobe.com