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International Tax Partner Roustam Vakhitov comments anticipated increase of withholding tax rates in Russian double tax treaties

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On 25 March 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.

On 26 March 2020 the Government instructed the Ministry of Finance to review current Russian tax treaties and by 24 April 2020 deliver proposals for increasing dividend withholding tax rates.

On the same day the Ministry of Finance issued press-release indicating that double tax treaty with Cyprus and “other similar jurisdictions”.

According to Executive Order to the Government of 29 March 2020, by 25 December 2020 the Government should either accomplish renegotiation of selected double tax treaties or ensure termination of DTTs with countries where renegotiation was not successful.

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 Expertiza and Crowe Audex 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 follow these developments and keep you up-to-date. First webinar on this matter is scheduled on 3 April 2020 via https://crowecis.clickmeeting.com/russiataxtreaties

·         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 application of double tax treaty benefits in relevant cases and advise to remedy them when possible.

For more details please contact:

Nikolay Primorskiy, Deputy General Director, Crowe Expertiza

+7 (495) 721-3883, nikolay.primorskiy@crowerus.ru


Roustam Vakhitov, International Tax Partner, Crowe Expertiza

+3 164 082 6427, roustam.vakhitov@crowerus.ru


Ildar Khusnutdinov, Partner, Tax & Legal, Crowe Audex

+7 843 202 0762, ildar@crowe-audex.ru