Anticipated increase of withholding tax rates in Russian double tax treaties


Anticipated increase of withholding tax rates in Russian double tax treaties

6.png Yesterday Russian President Vladimir Putin addressed the nation and announced several anti-crisis measures including reduction of social security contribution etc. At the same time, he announced that dividend and interest withholding tax rates in double tax treaties should be raised from current 0%-5% to 15% and double tax treaties with counties not willing to accept the change should be terminated.

While technical-wise renegotiation of double tax treaties may be a lengthy procedure, switching from direct application of DTT benefits to a refund system may result in a pretty much similar outcome.

It has been reported that the Prime-Minister instructed the Ministry of Finance to undertake first steps in respect of renegotiation of Russian double tax treaties within a month. It might well be that double tax treaties with Cyprus, Luxembourg, the Netherlands and Switzerland often used for through-bound structuring for investment into Russia will be affected in first place.

It has been reported that Russia may additionally propose to add Simplified Limitation of Benefits clause to these DTTs, which effectively means denial of tax treaty benefits to companies owned by more than 50% by non-residents
of a respective jurisdiction in absence of active operational activity and/or clear non-tax reason
for structuring investments through respective country.

Foreign investors and recipients of (anticipated) income from Russian sources are strongly advised to communicate their advisors to evaluate the impact of the above on their tax position and assess further steps.

How Crowe in Russia can help you and your clients? 

•We can assess current structures and advise on adjustments of procedures and compliance processes to maintain tax efficiency and compliance with new requirements;

•We will closely follow these developments and update you on necessary steps
to undertake in particular cases;

•Considering the high possibility of closer attention to payments and distributions made prior to and shortly after this announcement we suggest assess the risks of challenge of applicationof double tax treaty benefits in relevant cases and advise to remedy them when possible.

For more details please contact:

Ildar Husnutdinov

Partner, Tax and Legal
Consulting Crowe Audex         

+7 843 202 0762 

Roustam Vakhitov

Partner Crowe Expertiza

+3 164 082 6427