Russia is renegotiating double tax treaties with Cyprus, Luxembourg, Malta and the Netherlands.
On 11 September, 2020 Russia and Cyprus signed a protocol to amend the respective tax treaty. Renegotiation with the treaties with Hong Kong and Switzerland are currently planned.
Russia is urging for a withholding tax rate of 15% to be applied to most dividend and interest payments to residents of these countries. This change will have an impact on holding, financing and other structures with Russian assets.
The question arises how to obtain an effective credit for such withholding taxes or how to avoid them in the first place. Royalties remain not subject to tax in Russia.
The Russian Ministry of Finance has publicly stated Luxembourg and Malta agreed to the proposed changes.
Under the current Dutch dividend withholding tax Act, the desired amendment of the treaty would not affect a qualifying Russian shareholder because Dutch dividend withholding tax exemption can be relied upon. It remains to be seen whether the Netherlands would agree with such one-sided adjustment. The parliamentary process is to be followed and more importantly possible changes such be studied.
It is possible Russia and the Netherlands could agree for the amendments to take effect in 2021. The new requirements introduced by the Multilateral Instrument (e.g. the principal purpose test, the minimum shareholding period of one year for dividends etc.) are expected to surface in the renegotiated treaty.