Amendments to Russia’s double tax treaties with Switzerland and Luxembourg

Pepeliaev Group advises that the Russian Government has approved draft Protocols amending the Agreement between the Russian Federation and the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and the Agreement between the Russian Federation and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital.

Protocol to Agreement with Luxembourg

The text of the draft Protocol [1] that has been approved contains amendments to the Agreement with Luxemburg signed in 1993 and currently in force concerning, in particular, issues of:

- exchanging information on tax issues between the competent authorities of Russia and Luxembourg;

- limiting the application of benefits stipulated by the Agreement;

- taxing specific types of income, including income fr om shares as well as units in unit investment trusts.

The new version of the Agreement as amended by the draft Protocol will be supplemented by an article 26 which provides for the exchange of information between the tax authorities of Russia and Luxembourg. The new text of this article will provide that such an exchange of information is possible in relation to any taxes; in addition, it specifically states that it will not be possible to refuse to provide information “solely on the grounds that the information is at the disposal only of a bank or other financial institution, nominee holder, agent or trustee or that such information reveals the owners of a particular entity”.

Also in the Agreement with Luxembourg, article 29 will be amended, as well as being renamed “Limitation of benefits”. The new text will stipulate that taxpayers may not apply exemptions to any tax benefits if it is established that one of the principal reasons for the creation or existence of a taxpayer was to obtain benefits under this Agreement.
At the same time, the draft Protocol stipulates a reduced tax rate of 5% for dividends received by a tax resident of one state from sources in the other state. At the same time, it is additionally proposed to treat as dividends income, including that paid in the form of interest, which is subject to the same taxation as income from shares under the tax legislation of the state in question, as well as any payments in connection with units in unit investment trusts or similar collective forms of investment (save for those relating to real estate). In addition, it is proposed that payments relating to units in investment trusts created for investing in real estate will be treated as income in the state wh ere the particular real property is located. The same will apply to income from the disposal of shares in organisations 50% of the value of which is represented by such real property.

Protocol to Agreement with Switzerland

The Russian Government has also approved [2] the draft Protocol that is similar in nature and amends the Agreement between the Russian Federation and the Swiss Confederation on the avoidance of double taxation in respect of taxes on income and capital dated 15 November 1995.

Various provisions of the draft Protocol are also aimed at increasing the effectiveness of information exchange between the tax authorities of Russia and Switzerland. In particular, it is specifically stated that, to obtain information that has been requested, the “tax authorities of the Contracting State which has received the request, may, to perform the obligations established by this clause, apply compulsory measures to ensure the disclosure of information … regardless of … any provisions of the legislation of such Contracting State”.

At the same time, it is proposed to include in the text of the Agreement with Switzerland a specific article aimed at “combating conduit companies” [3]. The effect of this new provision will be to make it impossible to claim benefits under the Agreement with Switzerland if, for example, a Russian resident that is receiving income from sources in Switzerland pays that income to a third party which could not have claimed such a tax benefit had it received the income direct itself.

The draft Protocol with Switzerland also provides for a range of amendments to the taxation of types of income received by residents of one state from sources in the other state such as: dividends, interest, and income from a disposal of shares more than 50% of the value of which is represented by real estate in the country which is the source of the income. Like the Protocol with Luxembourg, the Protocol with Switzerland stipulates a number of other changes.

One aspect that may come to be an important feature of the Protocol with Switzerland is that the information exchange procedure it stipulates will apply to requests sent on or after the date on which the Protocol comes into force in relation to tax periods beginning on or after the first of January in the calendar year following the year in which the Protocol comes into force.

Comments and recommendations

After signature of the Protocols by the Parties (the Protocol to the Agreement with Switzerland was signed on 25 September 2011) the internal state procedures must be performed that are necessary to bring the Protocols into force (in Russia, this is ratification). The corresponding amendments will be applied in relation to tax periods that begin on or after 1 January of the calendar year following the year in which the Protocols came into force.

With regard to the expected changes, Pepeliaev Group’s experts recommend that Russian taxpayers who have business dealings with tax residents of Luxembourg and Switzerland check to what degree the amendments may affect the tax regime for transactions with those counterparties.

[1] The Russian Government’s Directive No. 1410-r dated 11 August 2011.

[2] The Russian Government’s Directive No. 1624-r dated 21 September 2011.

[3] The term ‘conduit’ is, in effect, a term used in relation to so-called ‘conduit companies’, which are examined in the Commentary on the articles of the Model Tax Convention on Income and Capital of the Organisation for Economic Co-operation and Development (OECD).

For further information, please contact:

in Moscow – Andrey Tereschenko, Partner, at: (495) 967-0007 or by a.tereschenko@pgplaw.ru; Vladimir Voinov, Senior Associate, at: (495) 967-0007 or by e-mail

in St Petersburg - Sergey Sosnovsky, Head of Tax Practice (St. Petersburg), at (812) 333-0717 or by e-mail