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Russia: The latest trends in the beneficial ownership concept


Alexander Tokarev

Ivan Nasonov

In 2015, the 'beneficial owner of income' concept was introduced into the Russian Tax Code. Since 2017, foreign companies claiming treaty benefits in Russia are obliged to provide the Russian companies paying them income with documentary proof of their status as beneficial owners of this income.

The beneficial ownership concept has become a major tool in the Russian tax authorities' arsenal to combat tax avoidance and raise fiscal revenues. In the past 2 and a half years, there have been numerous court cases regarding application of the concept (most of them won by the tax authorities), as well as several clarifications issued by competent authorities shedding light on different aspects of the concept.

The Federal Tax Service recently summarised existing court practice and clarifications, issuing an official letter (# CA-4-7/9270@, May 17 2017, hereinafter the "Letter"). The Letter contains guidelines for the tax authorities on application of the beneficial ownership concept. Below we have drawn your attention to the key points in the Letter:

  • The Letter sets out the criteria for confirming that a foreign company is the beneficial owner of Russian-sourced income: independence of directors in decision-making, power to dispose of the received income, genuine business activities, sufficient substance (office, personnel), and there must be no obligations to transfer the Russian-sourced income onwards (no back-to-back payments). The Letter stresses that the tax authorities should assess the economic activity of the group in the foreign jurisdiction as a whole, not only the transactions under audit;

  • The following sources of information may be used by the tax authorities when assessing beneficial ownership: financial statements of the company, commercial databases, publicly accessible foreign company registries, and information from public sources (e.g. Wikipedia, Forbes magazine);

  • The beneficial ownership concept should apply to all types of income (in addition to dividends, interest, and royalties), including rental payments, penalties for violating a contract, capital gains from the sale of immovable property, or shares in property-rich companies;

  • The tax authorities should determine only whether the immediate recipient of Russia-sourced income is the beneficial owner, i.e. they are not obliged to investigate who the beneficial owner of that income is if the immediate recipient cannot be treated as such. Taxpayers have the right to claim that another company is in fact the beneficial owner by applying the look-through approach if the immediate recipient of income fails the beneficial ownership test.

Therefore, a Russian withholding agent should analyse whether a foreign recipient of Russia-sourced income is indeed the beneficial owner thereof based on the above, and then obtain the necessary documentary proof (a confirmation letter as well as other supporting documents (a 'defence' file)).

Generally, the Letter has provided clarity to both the tax authorities and taxpayers, helping them to correctly, and in a balanced way, apply the beneficial ownership concept. There are, however, still many issues requiring further guidance from the Federal Tax Service, in particular those related to specific transactions (Eurobond structures, international lease arrangements, payments to third party entities) and application of the look-through approach in non-standard cases.

Alexander Tokarev ( and Ivan Nasonov (

KPMG Russia and CIS


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