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For the attention of managers, finance directors and heads of companies’ finance and tax departments.
Pepeliaev Group advises that Federal Law No. 97-FZ dated 29 June 2012, which makes various amendments to tax and banking legislation, has been officially published.
The bulk of the amendments that this law provides for are of a technical nature, clarifying specific wording in the Russian Tax Code including in relation to the use of electronic documents when interacting with the tax authorities. At the same time, there are certain changes to which taxpayers should pay particular attention.
Firstly, amendments have been made to the tax regime in relation to interest income on the debt obligations of Russian companies to foreign special purpose vehicles (SPVs) in cases when such foreign companies have placed obligations (so-called ‘Eurobonds’) into circulation and have then loaned to the Russian companies funds from the placing of such obligations. These amendments are the legislature’s response to the position of the Russian Finance Ministry, set out in its letter No. 03-08-13/1, dated 30 December 2011, in which it was proposed that such SPVs should not be regarded as the actual (‘beneficial’) owner of the interest income received. In practice, the Finance Ministry’s approach has led to it being necessary to withhold income tax each time that interest is paid. To this end, the above amendments to the Tax Code provide for it to be possible for such interest income not to be taxable at source in Russia if it relates to a relationship that arose with regard to the placing of bonds issued before 1 January 2014.
Secondly, article 86 of the Tax Code has been amended. The amendments allow tax authorities to request and obtain from banks information relating to the bank accounts of individuals who are not individual entrepreneurs further to a request from an authorised body of a foreign state in the cases stipulated by international treaties of the Russian Federation. Provision is also made for similar amendments in the new text of article 26 of the Federal Law On banks and banking activity, which came into force on 2 July 2012.
What this means for taxpayers
The amendments that have been adopted are one of the manifestations of the state’s legal policy in the area of tax. This policy aims to counter the improper use of tax exemptions stipulated by double taxation treaties. The legislature, in granting merely a postponement in taxing interest on Eurobonds, has in essence agreed with the Finance Ministry’s position on interpreting international tax treaties. In relation to this, it would make sense for taxpayers who undertake business of a cross-border nature to reassess the tax risks of applying particular provisions of double taxation treaties.
How we can help
The experts in Pepeliaev Group’s tax practice will help in assessing tax risks in applying double taxation treaties, taking into account the developments from the decisions of the tax authorities and the courts.
For further information, please contact:
in Moscow – Andrey Nikonov, Senior Partner, at: (495) 967-0007 or by e-mail; 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) 640-60-10 or by e-mail
