Contributed by Vladislav Donchenko, tax partner in “Lex Alliance” law firm, Moscow.

State Duma denounces tax agreement with the Netherlands

On May 19, 2021, the State Duma adopted a law denouncing the agreement concluded earlier with the Netherlands on the avoidance of double taxation and the prevention of tax evasion with respect to taxes on income and property.

The draft law was submitted to the State Duma by the Russian government after the Ministry of Finance failed to agree with the Dutch authorities on revising the tax agreement.

This means that from 2022, dividends paid to Dutch shareholders will be taxed at source at a 15% rate, and interest and royalties at 20% each. It will be impossible to apply methods of eliminating double taxation with respect to income of residents of Russia and the Netherlands.

On May 11, 2021, State Secretary of the Deputy Finance Minister Alexei Sazanov, speaking in the State Duma, said that the Russian Ministry of Finance would propose changes to tax agreements with Hong Kong, Singapore and Switzerland: three key jurisdictions are Switzerland, Hong Kong, Singapore. According to them, we will also propose to amend the agreements. This will cover more than 90% of payments to transit jurisdictions and additionally replenish the treasury of the Russian Federation."

Progressive tax on dividends paid to offshore shareholders

In his message to the Federal Assembly, Russian President Vladimir Putin announced the introduction of a progressive tax rate for companies transferring dividends to low-tax jurisdictions. At the same time, Putin noted that the authorities intend to "encourage those who invest dividends in the development of their industries." Russian parliamentarians have already begun work on a relevant bill.

Russian Prime Minister Mikhail Mishustin supported the president and, speaking in the State Duma with a report on the work of the government in 2020, said that progressive tax rates should be introduced for companies that aggressively withdraw profits from Russia.

The bill is planned to be submitted to the State Duma after May - June 2021. If adopted, it will enter into force in 2022.

How we can help you

Analysis of current international group of companies, which include Dutch and Russian members, to identify possible ways of restructuring, risks analysis related to the new WHT rates and MLI application.

Developing of restructuring options to increase tax efficiency of the business structure taking into consideration future risk of WHT rates changes (Switzerland, Hong Kong and Singapore) and application of MLI convention to other double tax treaties.

We would be happy to discuss this information with you to assess the impact of the new changes on your group structures.

Dated: []