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Amendment of Double Tax Treaty

 Amendment of Double Tax Treaty
20 Dec 2011

On 21 November 2011, Russia and Luxembourg signed a Protocol, which amends the Double Tax Treaty (DTT) they concluded on 28 June 1993. Most of the amendments are positive and improve the competitive position of Luxembourg towards other European jurisdictions that are used in practice as a platform to hold investments in Russia. Taxand Luxembourg and Taxand Russia discuss the fundamentals of the Protocol and how the amendments will affect multinationals.

Taxation of dividends reduced
The Protocol introduces a reduction from 10% to 5% of the maximum withholding tax (WHT) rate applied to dividend distributions. The maximum 5% WHT rate will now apply if the beneficial owner holds a direct shareholding of 10% and (both criteria are required) has invested at least EUR 80.000 in the subsidiary located in the other state.

Definition of dividend income amended
The dividend definition is amended by the Protocol. It will now also include payments made in the form of interest to the extent the interest is treated as a dividend ("revenus d'actions") for tax purposes in the source country. The aim of this amendment is mostly to deal with situations where an interest payment has been re-qualified into a hidden dividend distribution in the source country.

Real estate investment structures
Tax treatment of capital gains on the sale of shares in real estate companies amended
A new paragraph is introduced in the capital gain article regarding real estate companies: the sale of shares in real estate companies will now be taxable in the country, in which the real estate is situated.

Tax treatment of capital gains on the sale of units in real estate investment funds
In a similar way, the capital gains realised upon the sale of units in a real estate investment fund will be considered as real estate income and thus, will be taxed in the country in which the real estate is situated.

Taxand Luxembourg and Taxand Russia provide a further analysis of the limitation on benefits and look at other changes

Taxand's Take

The changes introduced are quite positive and will make Luxembourg a more attractive investment platform for holding investments in Russia. Some changes introduced will need to be carefully monitored and real estate structures in particular will have to be reviewed carefully. Finally, the limitation of benefit clause will introduce a degree of legal uncertainty that will not contribute to increasing the flows of capital and services between both countries, but only time will tell how aggressively this article will be invoked.

Your Taxand contacts for further queries are:
Paul Chambers at
T. +352 26 940 364

Samantha Nonnenkamp
T. +352 26 940 235

Taxand's Take Author