The Ministry of Finance proposed to prohibit the withdrawal of dividends to offshore companies without taxes
In the developed amendments to the Tax code, the Ministry of Finance has previously invested a norm that will not allow you to withdraw dividends to offshore companies without paying taxes from them, “Vedomosti” newspaper writes. A representative of the Ministry said that the bill has not yet been considered by the government, it is being publicly discussed and agreed with other departments. The publication notes that now there is a scheme under which a foreign entity can declare that the actual recipient of income is a Russian company, and then Russian rates will be applied to it, including a zero tax rate on dividends. To implement the scheme, 50% of the subsidiary company must belong to a Russian company for at least a year.
To work in today's conditions, there is no need to break this scheme, since companies already save on taxes by using standard double taxation agreements. However, the Russian authorities have already started the procedure for reviewing agreements with low-tax jurisdictions. Moscow intends to increase the rates on dividends and interest in them to 15%. With those "tax havens" that do not agree to the increase, Russia will terminate the agreement, and the tax on dividends for them will rise by the same 15%.
When tax rates rise, it will be profitable for companies to use schemes with Russian subsidiary company, and some companies are already using them. The draft amendments to the Tax code, which have already been published for public discussion on the website of draft legal acts, exclude the possibility of using a zero rate for dividends paid to a foreign company if the actual recipients are tax residents of Russia.
A representative of the Ministry of Finance explained to the publication that the amendments were developed in accordance with the direction set by President Vladimir Putin to protect the national tax base. According to him, this trend is also set by the OECD plan to combat the erosion of the tax base.
On March 25, Putin ordered to cancel preferential tax rates "for those who withdraw their income in the form of dividends to foreign accounts." After the tax increase, it will be less profitable to maintain not only offshore companies, but all foreign companies, the lawyers stated. Cyprus was the first target, but the rate increase will also affect other transit jurisdictions. Probably, the agreements with the Netherlands, Luxembourg, Singapore, possibly with Malta and Switzerland will be changed in the same way, the experts interviewed by “RBC” noted.
Already on April 3, Russia sent a letter to the government of Cyprus to raise tax rates for the payment of dividends and interest in a bilateral agreement on the avoidance of double taxation. It was signed by Deputy Finance Minister Alexey Sazanov. It followed that Russia offered Cyprus to extend the maximum rate of 15% to all companies without exception.
“RBC” then interviewed tax experts who agreed that raising the tax rate on dividends in transit jurisdictions to 15% would reduce tax savings for many holding and financial companies to zero. This applies primarily to Cyprus and other transit jurisdictions that are used to artificially withdraw capital from the country. However, the measure will affect not only those who evade taxes — the tax burden on honest businesses will also increase, experts warned.
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To work in today's conditions, there is no need to break this scheme, since companies already save on taxes by using standard double taxation agreements. However, the Russian authorities have already started the procedure for reviewing agreements with low-tax jurisdictions. Moscow intends to increase the rates on dividends and interest in them to 15%. With those "tax havens" that do not agree to the increase, Russia will terminate the agreement, and the tax on dividends for them will rise by the same 15%.
When tax rates rise, it will be profitable for companies to use schemes with Russian subsidiary company, and some companies are already using them. The draft amendments to the Tax code, which have already been published for public discussion on the website of draft legal acts, exclude the possibility of using a zero rate for dividends paid to a foreign company if the actual recipients are tax residents of Russia.
A representative of the Ministry of Finance explained to the publication that the amendments were developed in accordance with the direction set by President Vladimir Putin to protect the national tax base. According to him, this trend is also set by the OECD plan to combat the erosion of the tax base.
On March 25, Putin ordered to cancel preferential tax rates "for those who withdraw their income in the form of dividends to foreign accounts." After the tax increase, it will be less profitable to maintain not only offshore companies, but all foreign companies, the lawyers stated. Cyprus was the first target, but the rate increase will also affect other transit jurisdictions. Probably, the agreements with the Netherlands, Luxembourg, Singapore, possibly with Malta and Switzerland will be changed in the same way, the experts interviewed by “RBC” noted.
Already on April 3, Russia sent a letter to the government of Cyprus to raise tax rates for the payment of dividends and interest in a bilateral agreement on the avoidance of double taxation. It was signed by Deputy Finance Minister Alexey Sazanov. It followed that Russia offered Cyprus to extend the maximum rate of 15% to all companies without exception.
“RBC” then interviewed tax experts who agreed that raising the tax rate on dividends in transit jurisdictions to 15% would reduce tax savings for many holding and financial companies to zero. This applies primarily to Cyprus and other transit jurisdictions that are used to artificially withdraw capital from the country. However, the measure will affect not only those who evade taxes — the tax burden on honest businesses will also increase, experts warned.
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