Act to break the tax treaty with the Netherlands. Avoiding a tax treaty. Leveling the benefits of structuring business ownership and management using foreign entities and obtaining tax advantages from this.
Putin signed a law to break the tax agreement with the Netherlands, Vedomosti reports.
A large Russian business was hit: Yandex, X5 (operates the Pyaterochka, Perekrestok and Karusel networks), Veon (the owner of Beeline), Svyaznoy and AvtoVAZ. On May 26, Russian President Vladimir Putin signed a law to break the double tax treaty with the Netherlands.
Due to the fact that significant payments of income of Russian origin are made through the Dutch judicial system, the Ministry of Finance of the Russian Federation entered into negotiations with the Ministry of Finance of the Netherlands to amend the agreement. The Russian side offered the Netherlands conditions similar to those agreed with Cyprus, Luxembourg and Malta. However, the Netherlands did not agree with the proposal of the Russian Federation and insisted on adding to the list of income taxed at reduced rates.
The existing tax agreement with the Netherlands provides for quite attractive tax conditions and allows you to withdraw profits from Russia, paying taxes at an effective rate of 2-3%. At the same time, the corresponding rate in Russia is several times higher (for example, for legal entities - 15% for dividends and 20% for interest).
In March of this year, Putin ordered a 15 percent tax on dividends and interest income transferred to accounts abroad. This required the revision of agreements with other countries in order to avoid double taxation. The President indicated that Russia would unilaterally withdraw from such agreements with countries with which it would not be possible to agree on an adjustment.
Elizaveta Razina, Senior Associate at the Vetrov and Partners law firm, will comment on how this may threaten Russian companies. In my opinion, the Russian Federation continues to consistently offset the benefits of structuring business ownership and management using foreign entities and obtaining tax advantages from this. If the latter is a key element, then a process of change and perhaps migration from one jurisdiction to another will begin. Otherwise, "the hedgehogs pricked themselves, but continued to eat the cactus."
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