the Russian business, working with offshore companies in Cyprus, threatens not just the sharp rise in the tax burden, but also double taxation.
Talks about changing the tax agreement with that country is at an impasse and it may be terminated, told “Vedomosti” Federal official and a number of consultants who know about it from officials.
Cyprus is the most popular among Russian business low-tax jurisdiction, through which capital is transferred to offshore and back to Russia. According to the Bank, in 2019, Russia has invested in a Cyprus company of $14.5 billion and received $8.1 billion of direct investment. The agreement with Cyprus allows you to reduce the taxes paid abroad dividends and interest on loans to 5 and 0% with 15 and 20%, respectively.
the Cyprus Ministry of Finance has not yet agreed to revise the agreement, said the source “Vedomosti”. According to one of the consultants, Cyprus has proposed to maintain rates, tightening control over foreign entities of the Russian business, to the technical layer could not save on taxes. Russian Ministry of Finance has received confirmation that its proposals are considered, there is no turning back and, in the coming months if negotiations reach a deadlock, Russia will be forced in the autumn to initiate the adoption of laws on denunciation of the agreement, says the Ministry spokesman. The representative of the Cypriot Ministry of Finance did not respond to a request “Vedomosti”.
will Sharply increase the burden on payable Cyprus royalty. To improve the agreement the tax rates on royalties were not offered, but without an agreement they will be 20%. Affected owners of the patents and trademarks that are now pass them through licensing agreements, says the Director of the Department of tax and legal KPMG in Russia and the CIS Alexander Tokarev. However, abundant judicial practice shows that often royalties are disguised dividends to foreign parent companies.
will suffer and the business funding which has gone through Cyprus, because the severance agreement taxes interest on loans will rise to 20%, 15%, says Deloitte partner Natalia Kuznetsova. At the organization of financing through Cyprus such taxes are not included in the structure of the transaction and, most likely, will become an additional burden for Russian borrowers and foreign creditors. Will also increase costs for businesses engaged in transportation, and companies that rent court rent. The presence of foreign companies often for them necessarily, but if now from such income in Russia does not need to pay tax, without agreement, they will be taxed at rates of 10 and 20%, respectively, Tokarev explains. A Russian company, receiving from the Cypriot subsidiaries dividends not can enjoy preferential zero rate (if the Russian company more than a year owns more than 50% of Cyprus) and will have to pay tax on such dividends at 13%, says PwC partner Ekaterina Lazorina.
For some companies and people breaking the agreement will result in double taxation. In this case, interest and royalties in addition to the Russian tax would have to pay in Cyprus the tax at the rate of 12.5%, but the dividend tax in Cyprus will not be paid, says Kuznetsova. In addition, for royalties and interest are able to use special tax regimes and lowering the effective interest rate, she said, and even if there is agreement, in principle, the tax deducted in Russia, most likely, it will be possible to read some part.
the Russians, who sent the money to Cyprus brokerage firms, upon receipt of income to pay tax on it do not have to, says partner Ronlaw Paul Romanenko. But, he said, may suffer Russian tax residents who receive a salary in Cyprus or own property in Cyprus — during the sale you will have to pay tax in both countries.
for Example, if in response, Cyprus will cease to be divided with Russia, tax information, Tokarev explains. due this may increase the tax burden on owners of controlled foreign companies (CFC) in Cyprus, warns Lazorina. If the effective rate at which CFC pays tax abroad, slightly lower than in Russia (not less than 75% average rate), to pay the tax in Russia is not necessary. But if the CFC is working in the country from the blacklist of tax to pay the tax would have in any case. In addition, it will increase and control the operations of companies from the point of view of transfer pricing both for business from an offshore jurisdiction, says Lazorina.
For business news will not come as a surprise, says partner “PUC examination” Rustam Vakhitov, the company counted such an option. But the Russian and international groups interested to preserve the agreement, otherwise the country will become less attractive for cross — border business to pay into the country dividends and interest will be more expensive, he explains.
the Business began to think about how to preserve benefits in the payment of dividends, immediately after Putin’s statement. One option was the use of “cross-cutting” approach. For this foreign structure should declare that the actual recipient of dividend income is not she, but another person, for example a Russian company. And then you can use Russian rates — for example, 13% personal income tax 0% on dividends (the Ministry of Finance has already prepared amendments that deny the company the opportunity, to try this benefit with the cross-cutting approach).
the Agreement with the most popular legalindictee can be revised or terminated, says EY partner Marina Belyakova. Already in the queue — agreement with Malta and Luxembourg. The lease can also be terminated if countries do not agree on the proposed changes to the reply of the representative of the Ministry of Finance. In the future, the business will have to take a policy decision to fully transfer to Russia or to apply end-to-end approach, concludes Belyakov.
In preparing the material participated Svetlana Yastrebova.
