State Duma ratifies denouncement of tax agreement with Netherlands
MOSCOW. May 11 (Interfax) - The State Duma at a session on Tuesday voted to terminate the agreement on avoidance of double taxation with the Netherlands.
It was reported earlier that Russia had held several rounds of negotiations with the Finance Ministry of the Kingdom of the Netherlands on amending the agreement in terms of increasing the withholding tax rate on dividends and interest to 15%. Russia proposed terms corresponding to those already coordinated with Cyprus, Luxembourg, and Malta; however, the negotiations were unsuccessful.
"The existing tax agreement with the Netherlands envisages fairly attractive tax conditions and makes it possible to withdraw profit from Russia with tax payment at an effective rate of 2-3%, while the corresponding rate in Russia is far higher - for example, for legal entities, 15% on dividends and 20% on interest," the Finance Ministry said in a letter.
The ministry additionally said that while the agreement between Russia and the Netherlands had been in effect, many Russian companies had made use of this jurisdiction. "Significant resources in the form of interest and dividend payments have been withdrawn to the Netherlands. In 2017, the volume of such payments was over 457 billion rubles, in 2018 - over 412 billion rubles, and in 2019 - over 339 billion rubles."
Denunciation of the agreement could deal a blow to Yandex , the parent company of which is registered in Amsterdam. Telecoms holding VEON said that the denunciation could lead to reorganization of the company's corporate structure, since VEON is registered in the Netherlands. X5 Retail Group, which manages Pyaterochka and Perekrestok stores and is also registered in the Netherlands, said in late April that it did not plan to change its jurisdiction as of yet in connection with the planned denunciation. "I cannot provide any specifics at this point. We believe that there will nonetheless be some kind of special conditions for public companies like X5, Yandex. Therefore, we expect that the changes in legislation on double taxation will not affect public companies," X5's investor relations director, Andrei Vasin, said in late April.
Deputy Russian Finance Minister Alexei Sazanov, commenting earlier on the likelihood of problems arising for a number of Russian holdings in the case of denunciation, said: "We do not abandon our own."
"When an agreement is terminated, regulation remains at the level of the Tax Code of the Russian Federation. If there are currently certain conditions that are stipulated in an international agreement, then the same conditions can be stipulated in the Tax Code of the Russian Federation after it has been terminated," Sazanov said.
Amendments to the Tax Code that would resolve the problems for Russian holdings have yet to be submitted to the State Duma.
If Russia sends agreement on denunciation by June 30, 2021, it will cease to take effect from January 1, 2022.