The Russian Ministry of Finance recently sent a letter to the Dutch Ministry of Finance in which Russia expressed its preference to amend the tax treaty between the Netherlands and Russia (Tax Treaty) and among other to increase the minimum withholding tax rates on dividends from 5% to 15% for all cases and on interest from 0% to 15%.
Due to the economic connections between Russia and the Netherlands terminating the current Tax Treaty would cause a substantial economic impact and may therefore be a less likely option, although it cannot be fully excluded. In the below we briefly comment from the Dutch tax perspective on the possible outcomes of the negotiations.
In case the Tax Treaty will be amended allocating higher dividend withholding tax rates to the Netherlands, dividends distributed by Dutch companies to Russian companies or individuals would in principle be subject to 15%. Please note, however, that the domestic Dutch dividend withholding tax exemption may still apply considering that one of the conditions to apply it is that the recipient of the dividends is resident of a jurisdiction with which the Netherlands has concluded a tax treaty. In other words, if other conditions are also met, no Dutch dividend withholding tax on dividends to qualifying Russian companies would be due.
Interest and royalty
Under Dutch domestic law there are no withholding taxes on interest and royalties (with the exception of payments to tax havens, to be introduced next year), so for interest and royalties we would not expect any Dutch withholding taxes in practice neither in case the Tax Treaty is terminated nor in case of its amendment.
For completeness’ sake we note that it was expected that the Tax Treaty would effectively be amended from 1 January 2021 onwards once the Multilateral Instrument (MLI) would apply. The MLI is a legal mechanism to ensure that the anti-BEPS (i.e. Base Erosion and Profit Shifting) actions are deemed included in existing double tax treaties without the actual amendment thereof. Possible amendments or a termination of the Tax Treaty may lead to a different situation.
We will keep you posted about further developments and, in the meantime, please do not hesitate to contact us should you have any questions.
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