Russia - Netherlands DTAA terminated by January 1 2022, will it be replaced?

Further to our blog on January 19, 2021, the Russian government approved a proposal for the termination of the Netherlands - Russia DTAA (1996) on 9 April 2021. On 26 May 2021, the President of Russia signed Law No. 139-FZ, ratifying the denunciation of the Netherlands - Russia Income and Capital Tax Treaty (1996). The termination may take effect on 1 January 2022 (however, negotiations may influence this). It is expected that negotiations will continue, however, unclear whether there will be a new amended treaty will be put in place by 1 January 2022.

28 May. '21 Patrick T.F. Schrievers

Dutch family-owned companies and regional headquarters of multinational enterprises (“MNEs”) may be faced with increased withholding taxes on interest and dividend payments from Russia (of up to 15%). Currently, capital gains derived by a Dutch company from alienation of shares in Russian companies deriving more than 50% of their value directly or indirectly from immovable property situated in Russia are exempted from tax in Russia. We expect that this provision (which is beneficiary to the existing Netherlands – Russia DTAA compared to other DTAA’s) will be amended during the negotiations with Russia. Hence, Dutch companies owning Russian real estate may be faced with additional (exit) taxes upon transferring shares in Russian real estate companies.

Proposed amendments and recent developments

Russia has initiated (according to various news outlets) amendments to the Netherlands – Russia DTAA. It has been proposed (based on the limited information available thus far) to increase the withholding tax rates on interest and dividend payments from 0% to 15% and from 5% to 15%, respectively. As a result, the proposed amendments will treat, for instance, individuals and companies alike for dividend withholding tax purposes. Along with this we expect that the capital gains provisions will be amended. The taxation rights on the alienation of shares in real estate companies should belong to the country where the immovable property is located. This amendment mirrors the OECD Model Tax Convention and existing Russian DTAA’s.

Patrick T.F. Schrievers

Patrick T.F. Schrievers is a tax lawyer and member of the Dutch Association of Tax Advisers (NOB) and the International Fiscal Association (IFA).

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