The Finance Ministry sent to the Netherlands proposal for revision of agreements on avoidance of double taxation to increase tax rates on dividends and interest to 15%, reported today the Ministry. This is the fourth such letter, sent after the announcement Vladimir Putin of the course to review the agreements on Russian conditions, relevant letters were Cyprus, Malta and Luxembourg. Experts believe that in this case (unlike the situation of Cyprus) before the rupture of the agreement will not come — not least because in the Netherlands there are structures with state participation and through this country produced large quantities of Eurobonds.Today the Russian Ministry of Finance announced the Netherlands notice of desire to renegotiate the bilateral agreement on the avoidance of double taxation (DTT).Recall, 25 March, Vladimir Putin made an appeal in connection with the epidemic in which the revision of such agreements has been named one of the measures able to support the weakened Russian economy. The President demanded that the payment of income in form of interest and dividends, stretching from Russia abroad, was subject to the same tax as domestically. In case of disagreement of the partners to reconsider the DTT was promised a unilateral withdrawal from the agreement. After that, the Ministry of Finance has notified Cyprus, Luxembourg and Malta the desire for change. In the case of Cyprus, the matter has already reached the official announcement of the denunciation of the agreement (see “Kommersant” on August 4).Director, tax and legal, KPMG in Russia and the CIS Alexander Tokarev noted that the Netherlands are often used for establishing holding and financing companies. This country has a favourable holding regime, which allows to exempt from taxation dividends received and income from the sale of shares of subsidiaries.Thus, according to him, in contrast to Cyprus in this country there is a tax on income at source of payment when distributing dividends further beneficial to shareholders. Therefore, the Netherlands is not often used to create holding companies directly by individuals—tax residents of the Russian Federation. The Netherlands also popular among foreign groups to invest in Russia. This category may suffer most of all at the revision of the DTT with the Netherlands.The expert notes that the agreements with Cyprus and the Netherlands are very similar. The key difference of the latter is the exemption from tax at source of payment in Russia income from sales of shares in companies with property in Russia. In the DTT with Cyprus, this rule ceased to operate from 2017. In this regard, the Dutch holding company is often used by groups whose assets are mainly represented by real estate in Russia.Partner, international taxation, company “Crowe Expertise” Rustam Vakhitov said that the notification of the Netherlands was to be expected, as the country meets the criteria, which, obviously, been out in Cyprus, Luxembourg and Malta. In addition, the Netherlands has produced large volumes of Eurobonds. “So breaking the agreement will increase the tax burden on these structures. While Russia has a number of Dutch businesses and the Ministry of Finance of the Netherlands, likely to protect their interests, objecting to a simple increase in the tax rate on dividends at the source, because this will simply increase the burden on Dutch businesses with the dividend flows from Russia”,— said the expert. In his opinion, given the relatively low economic dependence on the presence of Russian business in the country, the negotiating position of the Netherlands can be more sustainable in the case of the inflexibility of one or both parties to the negotiations may fail. In this case an alternative will be to maintain the current agreement or its termination. “Both options do not seem ideal from the standpoint of the interests of the parties and it is hoped that there will be a compromise solution”,— said “Kommersant” Rustam Vakhitov.Vadim Visloguzov, Tatyana Grishina
