KPMG: Russia wishes to increase withholding tax rates ...€¦ · Russia has traditionally taken a...
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© 2020 JSC “KPMG” . All rights reserved. Russia wishes to increase withholding tax rates under the DTT with the Netherlands The Russian Ministry of Finance confirmed to the Russian press that it sent a letter to the Dutch Ministry of Finance proposing that revisions be made to the current Double Tax Treaty (DTT) in order to increase the withholding income tax rates on dividends and interest to 15%. Cyprus, Malta and Luxembourg have already received similar letters. Russia has traditionally taken a stance that if the treaty partner does not accept its proposals to increase withholding income tax rates under the currently effective treaty, then Russia reserves the right to unilaterally withdraw from the DTT. The RF Ministry of Finance recently announced the potential revocation of its DTT with Cyprus; however, there were news in the press that the negotiations between Russia and Cyprus would continue in August. To revoke the DTT with the Netherlands, the RF Ministry of Finance should have sent a notice by 30 June of the current year. As such, even if the countries fail to reach a compromise and the Russian Federation goes ahead with revoking the DTT, the DTT will still apply in its current form in 2021. The Netherlands may not be the last country to receive such a letter from the RF Ministry of Finance. Background Actions 5 August 2020 Taking into account these developments, we recommend: — assessing the impact on your entity of the introduction of these new rates, or termination of the DTT. If necessary, consider opportunities to minimise any negative effects; — assessing whether, in the current situation, it is possible to pay dividends/interest Russia using the current reduced rates under the DTT (taking into account stringent beneficial owner of income requirements in Russia) or applying a “look-through” approach instead; — assessing the tax efficiency of shifting tax residency/ full redomiciliation of a Dutch holding company ultimately to Russia or another foreign jurisdiction (at present it may be difficult to choose an alternative foreign jurisdiction, since it is unclear which DTTs will ultimately be revised upon the request of Russia); — assessing the functional role of Dutch holding and subholding companies and determining whether they should be terminated e.g. by way of liquidation or a cross-border merger.
Transcript of KPMG: Russia wishes to increase withholding tax rates ...€¦ · Russia has traditionally taken a...
© 2020 JSC “KPMG”. All rights reserved.
Russia wishes to increase withholding tax rates under the DTT with the Netherlands
The Russian Ministry of Finance confirmed to the Russian press that it sent a letter to the Dutch Ministry of Finance proposing that revisions be made to the current Double Tax Treaty (DTT) in order to increase the withholding income tax rates on dividends and interest to 15%. Cyprus, Malta and Luxembourg have already received similar letters.
Russia has traditionally taken a stance that if the treaty partner does not accept its proposals to increase withholding income tax rates under the currently effective treaty, then Russia reserves the right to unilaterally withdraw from the DTT. The RF Ministry of Finance recently announced the potential revocation of its DTT with Cyprus; however, there were news in the press that the negotiations between Russia and Cyprus would continue in August.
To revoke the DTT with the Netherlands, the RF Ministry of Finance should have sent a notice by 30 June of the current year. As such, even if the countries fail to reach a compromise and the Russian Federation goes ahead with revoking the DTT, the DTT will still apply in its current form in 2021.
The Netherlands may not be the last country to receive such a letter from the RF Ministry of Finance.
Background Actions
5 August 2020
Taking into account these developments, we recommend:
— assessing the impact on your entity of the introduction of these new rates, or termination of the DTT. If necessary, consider opportunities to minimise any negative effects;
— assessing whether, in the current situation, it is possible to pay dividends/interest Russia using the current reduced rates under the DTT (taking into account stringent beneficial owner of income requirements in Russia) or applying a “look-through” approach instead;
— assessing the tax efficiency of shifting tax residency/full redomiciliation of a Dutch holding company ultimately to Russia or another foreign jurisdiction (at present it may be difficult to choose an alternative foreign jurisdiction, since it is unclear which DTTs will ultimately be revised upon the request of Russia);
— assessing the functional role of Dutch holding and subholding companies and determining whether they should be terminated e.g. by way of liquidation or a cross-border merger.
Contacts
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