On April 9, 2021 the Russian prime-minister signed Resolution #565 to approve the denunciation of the Russian-Dutch double tax treaty (DTT) and to submit the relevant draft federal law (Draft law) to the State Duma. One may conclude that the deadlock in the negotiations between the Netherlands and Russia was not resolved.
Regarding the timing, article 31 of the DTT governing the termination provides that each state may denounce the DTT at least six months before the end of the calendar year; in this case the DTT ceases to apply for tax periods beginning after the end of the calendar year in which the notification of denunciation is given. It should be noted that before the submission of such notification the Draft law shall be approved by both chambers of the Russian parliament and signed by the president. If all formalities are timely fulfilled and that the notification of denunciation would be given before July 1, 2021, the DTT will remain in force only until December 31, 2021.
Due to the economic connections between Russia and the Netherlands terminating the current DTT would cause a substantial economic impact on the relations between the states and in some cases may pose a risk of double taxation. Some of the major changes in corporate taxation will relate to (i) higher withholding tax rates on Russian outgoing payments of dividend, royalty and interest and (ii) imposition of tax on the capital gain income derived from sale of shares in real-estate companies not only in the state where the seller is the resident but also in the state where this company is located. Absence of the DTT would mean that there is no legal ground for carrying out mutual agreement procedures which can be essential for determination of tax residency, allocation of profits, and dealing with other uncertainties, all of which may lead to potential double taxation.
In the Netherlands, without a DTT dividends distributed by Dutch companies to Russian companies or individuals would in principle be subject to 15%. At this stage under Dutch domestic law there are no withholding taxes on interest and royalties (with the exception of payments to tax havens and hybrid situations), so for interest and royalties we would generally not expect any Dutch withholding taxes even after the termination of the DTT.
At a later stage we will provide a more detailed analysis of tax implications arising from the denunciation, in the meantime, please do not hesitate to contact us should you have any questions or wish to exchange some thoughts.
The Russian-Dutch double tax treaty goes through the last months of its application, unless a compromise will be found shortly. The possible denunciation may affect in one way or another a lot of existing structures. Already now we see our clients asking questions and taking time to analyse future business models.
We believe it is important to inform you about the possible consequences for your company in case of denunciation. That’s why BUREN is organizing a Webinar on Russian-Dutch Double Tax Treaty: What to do after July 1?’ on Thursday, 1 July 2021 from 10:00 to 11:00 CET.
If the notification of denunciation is given before July 1, 2021, the Russian-Dutch double tax treaty will remain in force only until 31 December 2021, so the situation should be clear at the time of the Webinar.
In this BUREN Webinar Peter van Dijk, partner | lawyer and tax lawyer at BUREN, and Paul Deloo, partner | civil law notary at BUREN, will briefly summarize Dutch tax implications in case the treaty will be terminated. They will also cover from Dutch tax and corporate law perspectives possible exit scenarios, including among other: liquidation, cross-border conversion, changing of the place of effective management and control. Elena Vakhtinskaya, lawyer at BUREN, will moderate the Webinar.
Interested? You can register for this Webinar by clicking the button below. The Webinar is free of charge.
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