All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Russia: Russia signs up to MLI: key changes adopted

intl-updates-small.jpg
grinko.jpg

Alexander Grinko

On June 7 2017, Russia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profits Shifting (the MLI).

Russia notified the OECD that it wishes 66 of its current double tax treaties (DTTs), signed with other countries, to be covered by the MLI. The only exceptions are those agreements with countries that are not members of the OECD ad hoc group which developed the MLI, and the agreements with Sweden and Japan, both of which are currently being renegotiated and which should incorporate the MLI principles in the new resulting DTTs.

By signing the MLI, Russia has approved amendments to the preamble texts. These amendments give new purpose to the DTTs, stating the intention that double taxation be eliminated while at the same time avoiding the creation of situations in which non-taxation or reduced taxation through tax avoidance or evasion can occur (in particular, via treaty shopping).

The key changes to DTTs which the Russian Federation wishes to introduce are as follows:

  • Prevent treaty abuse by adopting the principal purpose test (PPT). This test implies that a DTT benefit cannot be granted for an item of income or capital if it is reasonable to conclude, regarding all relevant facts and circumstances, that the obtaining of the benefit was one of the principal purposes of the arrangement or transaction that resulted directly or indirectly in that benefit. Supplementing the PPT rule is the simplified limitation on benefits provision (LoB). This means that DTT benefits should be granted to qualified persons (i.e. to individuals, to entities which have their principal shares regularly traded on one or more recognised stock exchanges, to government authorities, and to others listed as qualified persons), and to others in the cases defined in the Convention.

  • Introduce an additional rule for dividend transfer transactions stating that exemptions from or limitations on taxation rates on dividends paid should be granted only when the ownership conditions described in a DTT's provisions are met throughout the entirety of a 365-day period. This would apply to the DTTs signed with Cyprus, Hong Kong, Luxembourg, the Netherlands, Singapore, and Switzerland.

  • Introduce an additional provision affecting capital gains from the alienation of shares and on the interest of entities that derive more than 50% of their value from immovable property to imply that the relevant value threshold should be met at any time during the 365-day period preceding alienation.

  • Introduce additional rules for mutual agreement procedures.

The issues covered by the MLI relate to the most controversial areas of taxation which most often cause disputes, and affect the taxation of a wide circle of companies, including the Russian subsidiaries of multinational companies.

The Russian Federation believes that, by signing the MLI, it will limit the withdrawal of profits from Russia, and increase the possibility that efforts can be coordinated to implement the OECD's plan to prevent base erosion and profit shifting.

Alexander Grinko (agrinko@kpmg.ru), Moscow

KPMG in Russia and the CIS

Tel: +7 (495) 937 44 77

Website: www.kpmg.ru

More from across our site

Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
12th annual awards announce winners
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree