On December 4, 2020 the Russian Ministry of Finance announced that several rounds of negotiations with the Dutch Ministry of Finance to amend the existing Russian-Dutch double tax treaty (“DTT”) in terms of increasing the withholding tax to 15% in relation to dividends and interest were not crowned with success and that the procedure of preparation of a federal law on denunciation of the DTT has begun.
The concept of this federal law (not yet the draft law) is published for public discussion which shall last until December 17. As stated in the explanatory note thereto it is expected that the federal law will come into force in March 2021.
Article 31 of the DTT stipulates that the DTT can be denunciated by either contracting state by sending a notification at least six months before the end of a calendar year. In this case the DTT ceases to be effective for tax years and periods beginning after the end of the calendar year in which the notification of denunciation is given. Based on the wording of the DTT this would mean that the DTT can be denunciated not earlier than as of January 1, 2022.
In our alert earlier this year we have already briefly elaborated on Dutch tax consequences for dividend and interest payments in case of the DTT denunciation.
We notice that Russia also announced earlier this year that it considered to denunciate the tax treaty with Cyprus and that later on these countries did agree to change their tax treaty.
We will keep you updated about further developments, in the meantime, feel free to reach out to us should you have any questions or would like to exchange your thoughts.
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