Russian-Netherlands tax treaty denunciation: restructuring options for international companies

Overview

Russia has signed a law denouncing the double taxation treaty (DTT) with the Netherlands. The Russian Ministry of Foreign Affairs notified the Netherlands about the adoption of the relevant law and denunciation of the treaty. Thus, the tax agreement between Russia and the Netherlands will terminate on January 01, 2022.

The following exemptions and reduced rates under the tax treaty will no longer be applicable:

 

• Dividends - the termination of the DTT will affect large holdings with parent companies located in the Netherlands, as dividend payments will be taxed at the rate stipulated by the RTC (15%). New circumstances will significantly complicate reinvestment of funds and their redistribution within the group
• Interest - if the Dutch company has an actual right to income, the money paid by Russian borrowers will be taxed at source at the rate of 20%
• Royalties - after the termination of the DTT, all payments classified as royalties will be taxed at the rate of 20% tax at source

 

Separate exemptions for profit of CFCs will no longer apply for other income, such as income from the sale of shares in a company with more than 50% of its assets consisting of immovable property located in Russia, or interest income on circulating bonds.

Corporate restructuring

Many multinationals use a Dutch company to structure their business in EMEA or directly in Russia and CIS. Usually the Dutch company acts as a holding or management company and is not a key company in the group.

Taking into account the increasing tax obligations for any income distributed from Russia to the Netherlands, it is advised to assess if the current corporate structure is efficient from a business perspective. In all cases when the business goal of keeping the Dutch structure to manage Russian business is not sufficient anymore, we advise corporate restructuring that will improve both the management structure and tax efficiency of the Russian part of the business.

Depending on your current group structure, corporate restructuring can take place in the following forms:

1. Liquidation of a Dutch company with distribution of Russian subsidiary shares to the mother company.
2. Merger of a Dutch company with another group company in the EU.
3. Establishment of another parent company in the EU and sale of Russian subsidiary shares to this company.

We are happy to discuss your group structure end elaborate a tailored tax and corporate decision for you.