On 25 March 2020, the President of the Russian Federation stated the need to revise the Double Taxation Treaties (hereinafter - "DTTs"). According to the President, all payments of interest and dividends abroad "should be taxed adequately”. Furthermore, the President proposed to increase the tax rate on income transferred abroad up to 15 per cent.
After international negotiations the DTT between the Russian Federation and the Republic of Cyprus was amended (the Protocol of 8 September 2020). As a result, the withholding tax rate was increased up to 15 per cent for dividend and interest income. In addition, the Protocol defined exceptions when a reduced rate of 5 per cent is applied.
DTTs with Malta (the Protocol of 1 October 2020) and Luxembourg (the Protocol of 6 November 2020) were revised in a similar manner. The amendments entered into force on 23 March 2021 and 5 March 2021, respectively.
Though the Government of the Russian Federation managed to agree on the amendments to DTTs with the countries mentioned above, the negotiations with the Netherlands to apply similar conditions were not that successful. On 12 April 2021 a bill on denunciation of the DTT with the Netherlands was published on the official lawmaking portal (https://sozd.duma.gov.ru/bill/1147902-7). Later at the plenary session on 11 May the State Duma of the Russian Federation passed a bill on denunciation of the DTT with the Netherlands. On 19 May the Council of Federation approved this bill, and on 26 May the President signed the approved bill. If the Russian side sends to the Dutch side a notification of the DTT denunciation before 30 June 2021, the DTT will expire on 1 January 2022.
Apart from this, on 11 May 2021 the Deputy head of the Ministry of Finance of the Russian Federation, Alexey Sazanov, announced that the next step in the chain of revisions of the DTTs will be the review of tax agreements with Singapore, Hong Kong and Switzerland.
Such increase in tax rates will have a serious impact on business related to the countries mentioned above. The actions of the Russian authorities are a clear example of the deoffshorisation policy and are aimed at transferring business into the Russian Federation. Denunciation of a DTT can lead to a number of negative consequences, such as reduction of investment and dividends, problems with determining tax residency, double taxation, etc.
If you have any questions and need further explanations regarding denunciation of DTTs you can fill the form below. Mazars’ Tax team will be happy to help.
Feel free to ask us a question