At the end of March 2020, changes were announced to the double taxation policy in Russia. In line with the current political approach, dividends and interest from Russian sources are to be taxed at a rate of at least 15%. The Russian Ministry of Finance has been mandated by the Government to revise the existing double tax treaty (DTT) network and to develop proposed DTT changes for individual countries.
Status Quo of the Double Tax Treaties
At present, most double tax treaties concluded by Russia (subject to certain conditions) contain a reduced tax rate for dividends of 5% to 10% in the source country (Russia). For interest, in relation to several countries, a complete exemption from taxation in the source country (Russia) is provided. In order to implement the desired changes with the country concerned, the corresponding double tax treaty with Russia would in fact have to be renegotiated on these points.
DTT – Which countries are affected?
First and foremost, the planned measures are set to affect the ‘transit countries’, as they are known. These are the countries (e.g. Cyprus, Malta or Luxembourg) that are used to obtain DTT advantages between Russian UBOs and companies. Whether other countries will also be affected is still difficult to predict at this stage. The final list is due to be announced by December 2020.
Will there be any impact on Austria?
Austria is not currently on Russia’s DTT revision list; so, in principle, no significant changes are expected for Austria right now. The DTT was only recently revised through the mutually agreed Amending Protocol and aligned with the OECD Model Tax Convention.
Dividend taxation according to the DTT between Austria and Russia
With effect from 2020, the minimum capital requirement of TUSD 100 for the application of the reduced tax rate has been abolished, which means that the DTT between Austria and Russia currently provides for the following withholding taxes:
- 5% for distributions to legal entities holding a stake of at least 10%;
- 15% applies in all other cases.
Interest taxation according to the DTT between Austria and Russia
As the DTT stands, the source country has no right to tax interest paid to a person resident in another country. This applies regardless of whether the recipient of the interest payment(s) is a natural person or a legal entity. The interest is therefore only subject to taxation in the recipient’s country of residence.
Other changes in the DTT between Austria and Russia
In addition, the exchange of information between the two countries has been aligned with BEPS standards, and the anti-abuse provision has been contractually introduced in the form of the Principle Purpose Test clause. The PPT clause is intended to prevent the exploitation of treaty benefits if the primary purpose of a particular arrangement is to obtain treaty benefits.
At the moment, it is highly unlikely that there will be an increase in the withholding tax rate for dividends and interest for Austrian investors. If this situation changes, TPA will keep you informed.
If you have questions about the current DTTs with Russia, contact our experts!