The consequences of the double tax treaty (hereinafter – the “DTT”) denunciation include increase of tax burden in respect of passive income paid in favour of Dutch residents.
On May 11, 2021, the State Duma of the RF adopted the Federal Law No. 1147902-7 “On the Denunciation of the Agreement between the Government of the Russian Federation and the Government of the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Property” (hereinafter – the “Law”) on termination of the DTT and sent it to the Federation Council.
If the Law is adopted and Russia passes a notice of denunciation by July 1, 2021, then the DTT will cease to be effective for the tax years and periods starting from January 1, 2022.
The consequences of the DTT denunciation include the application of the Russian profit tax rates established by the Tax Code of the RF in respect of passive income paid in favour of Dutch residents (in particular, income in the form of dividends, interest, royalties, capital gains related to the sale of shares of Russian companies, where more than 50% of assets are real estate located on the territory of Russia), i.e. an increase in the rates of profit tax withheld in Russia at the source of payment by tax agents from the aforementioned incomes.
How SCHNEIDER GROUP can help
SCHNEIDER GROUP tax experts are ready to assess the tax consequences of the DTT denunciation and consider ways to minimise the negative tax effect on your business.