International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Russia amends double tax treaties and reacts to COVID-19 obstacles

Sponsored by

sponsored-firms-kpmg.png
Russia has introduced a range of significant international and domestic tax policies since March.

Dmitry Garaev and Olga Wollny of KPMG Russia discuss how the results of Russia’s initial economic response to COVID-19, and discuss how the burden seems to be increasing on foreign investors.

As COVID-19 has spread across the world and the international community has braced itself for economic recession, Russia has been far from idle. Alongside other countries, various measures to support citizens and businesses – including certain tax breaks – have been announced and promptly adopted via respective legislation. In the few months since entering into law, the first results can already be observed. 

COVID-19 relief measures cater to SMEs

The pandemic has been a devastating blow to most businesses, but small and medium-sized enterprises (SMEs) have been hit especially hard. In view of this, the tax breaks implemented by Russia were mostly aimed at offering tax relief to SMEs. The measures include suspending fiscal audits, extending tax reporting and tax payment deadlines, and offering property and land tax incentives for lessors. SMEs operating in the so-called ‘most affected industries’ were also relieved from certain tax payments (except for VAT and personal income tax) for the second quarter of 2020. 

Certain categories of large taxpayers, the so-called entities ‘operating in the most affected industries’ (including air and auto transportation, tourism and non-food retail business), along with strategic, systemic and city-forming entities, have also received the opportunity to apply for extensions to their tax payment deadlines, taking into consideration the effect that the pandemic has had on their financial figures.

Nevertheless, the benefit from these tax breaks is ambiguous. Naturally, given the significant contraction in cash inflows, any extension to tax payment deadlines feels like a breath of fresh air. However, more targeted measures – such as tax relief – depend on various formal criteria (like the officially declared code of the company denoting its main type of economic activity; it being listed on the SMEs register, etc.) which do not always keep up with the rapidly changing business environments in which firms operate. Another drawback is that allocation of the tax breaks depends on the state’s understanding of the ‘most affected industries’ and does not consider any individual company’s decline in revenue or cash flows. 

Double tax treaty trouble

Moreover, at a time when the government is on the one hand trying to support Russian companies, it, on the other hand, seems to be increasing the tax burden on foreign investors. One of the measures announced in relation to this concerns alterations to the double tax treaties with Cyprus, Malta and Luxembourg. If the amendments are made, all dividend and interest payments made from Russia to these jurisdictions would be subject to the withholding of 15% income tax. 

Malta and Russia were not able to agree on amicable amendments, and Russia has begun unliterally terminating the double tax treaty. Negotiations with Cyprus and Luxembourg are still under way. One can predict that the government may also seek to renegotiate its double tax treaties with other jurisdictions as well, such as the Netherlands, Singapore and Hong Kong SAR.

The bottom line is, as prompt as Russia was in reacting to the COVID-19 outbreak and its implications, the state’s domestic tax policy initiatives have been characterised by their moderation, while some have been controversial. Russia’s international tax policy, however, has been more or less straight-forward. The outcome of this policy’s moves remains to be seen.

Dmitry Garaev

E: dgaraev@kpmg.ru

Olga Wollny

E: owollny@kpmg.ru

more across site & bottom lb ros

More from across our site

Premier League football clubs are accused of avoiding paying up to £470 million in UK tax, while Malta is poised to overhaul its unique corporate tax system.
Bartosz Doroszuk of MDDP offers insights on Poland’s new tax legislation on shifted profits, as the implementation deadline looms nearer.
Four tax specialists preview the UK’s transfer pricing requirements, which come into effect on April 1.
The rise of the QDMTT will likely change how countries compete on tax and transfer pricing policy, but it may not reverse decades of falling corporate tax rates.
ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.