After having pressed Cyprus, Malta and Luxembourg to renegotiate their Double Taxation Treaties (DTT) for a withholding tax rate of 15% to be applied to most dividend and interest payments, Russia failed to reach a similar agreement with the Netherlands and is now threatening to denounce the Russian-Dutch DTT.
The DTT termination between Russia and the Netherlands would result in:
- Upturn of the tax burden for Dutch residents (20% for interest and royalty payments and 15% for dividends);
- Difficulties with getting a foreign tax credit (no foreign tax credit would be granted to natural persons and legal entities in regard to dividend income, getting a foreign tax credit for further passive income would require extended documentation obligations);
- Increase of tax obligations for Russian companies and natural persons, as Dutch tax reliefs would cease to apply vice versa
Last week the Ministry of Finance of the Russian Federation announced the initiation of a draft law regarding DTT termination. Given the existing denunciation procedure (notification should be done at least 6 months prior the termination year), the new taxation reality might become effective as from 2022. Therefore, taxpayers would still have one more year to consider the effects on their business and restructuring possibilities.
Furthermore, there is still a chance both countries will come to a mutual agreement. The same announcements were published earlier after the negotiations with Malta ended in deadlock. However the parties finally managed to find a compromise and the Russian-Malta DTT was revised. The day after this announcement the Russian Ministry of Finance confirmed they were still ready to find a compromise with the Netherlands and did not fully exclude further rounds of negotiations.
We will keep you updated on the topic and will be glad to provide further information upon request.
