Further revision of Russian DTTs

Negotiations with the first three countries resulted in amendments which entered into force starting from 2021. However, the Netherlands rejected the DTT amendments, and there were tough negotiations with a negative outcome: Russia denounced its DTT with the Netherlands, which is now set to expire in 2022. Further candidates for revision could be Switzerland, Hong Kong and Singapore, as DTTs with these countries have mostly been used by Russian businesses in cross-border structuring in the past.

DTTs with Cyprus, Malta and Luxembourg were revised in a similar way: both dividend and interest payments thereunder must be taxed at source with a rate of 15%. However, there are several exemptions:

1. a reduced 5% rate on:

• dividends paid to 1. insurance institutes, pension funds; 2. public companies with at least 15% of the voting shares in free float and directly holding at least 15% of the capital of the payor during the year; 3. governments, their political subdivisions, central banks, local state authorities.
• interest paid to public companies with at least 15% of the voting shares in free float and directly holding at least 15% of the capital of the payor during the year.

2. Tax exemption for interest 1. in relation to Eurobonds, public state and corporate bonds, or paid to 2. insurance institutes, pension funds; 3. governments, their political subdivisions, central banks, local state authorities; 4. banks.

By abolishing incentives instead of improving anti-tax-avoidance rules, Russia has chosen an easy and unpopular, but at the same time rather effcient, way of combatting tax base erosion.

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