The Russian government has made year-end amendments to its tax code, which includes significant changes to the beneficial ownership rules, EY has advised.
The changes states that separate beneficial ownership checks would be made for each dividend payment and/or group of payments under one agreement.
There is still uncertainty whether the look-through approach may be used where the immediate recipient of a payment is a resident of a country that does not have a tax treaty with Russia is eliminated by excluding the reference to the existence of a treaty. Regardless of this uncertainty, EY said, the look-through approach would apply for all income from sources in Russia, not just dividends.
It also would be applicable without reference to ownership shares, reducing the risk associated with non-proportional payments of income and dividends on preference shares.
Russia has also provided a new direct tax exemption for ‘looped’ ownership structures, covering situations where a Russian company pays dividends to a foreign company, while it is the beneficial owner of those dividends.
A Russian company must have had a participating interest of at least 50 percent in the foreign entity receiving the dividends for no less than a year for this exemption to apply. The provision may be based on the assumption that the source of the dividends and the beneficial owner are the same person, meaning there should be no economic gain.
The look-through approach would become available for ‘special entities’ which includes:
- State sovereign funds
- Companies whose shares and/or depositary receipts have been admitted for trading on Russian or certain foreign exchanges
- Companies with at least 50 percent Russian and/or foreign state participation
Additionally, Russia has made amendments regarding the restructuring, liquidation or withdrawal from the capital of a Russian company.
It is now stated in the country's tax code that income in excess of what a shareholder paid for shares should be treated as dividends, which could allow for a zero percent rate for Russian recipients and a 15 percent, rather than 20 percent, basic rate for foreign recipients.
Losses equated with non-sale expenses also now include a loss arising for a participant upon the liquidation of or departure/withdrawal from a company.
In terms of asset contributions, for the first time it is explicitly stated that shareholders are not liable to tax, including withholding tax, in the event of the return of their asset contributions.
Finally, income from assets and property rights received up to the contributed amount would now be excluded from the tax base in the event of a capital reduction, which would make it easier to claim relief in the case of voluntary capital reductions by foreign companies.
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