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Impact of Double Taxation Treaty Between Russia & Switzerland
On 25 September 2011, the Double Taxation Treaty (DTT) between Russia and Switzerland was signed. The most important amendments to the DTT are enforcement of effective thin capitalisation rules, inclusion of information exchange protocol, reduction in withholding interest rates and exclusion of income tax on stocks.
Taxand Russia and Taxand Switzerland review details of the DTT and impact these changes will have on multinationals, including key benefits and pointers on what to watch out for.
Thin Capitalisation rules
The protocol establishes that the ruling on dividends and interest should not restrict the national Thin Capitalisation rules of each country. The protocol however does not establish that thin cap rules should not be restricted by the ruling on non-discrimination.
Exchange of Information
The protocol adds a new article about exchange of information. Financial offices should control domestic taxpayers at the request of the tax authority even if the control is ineffective for them. This will help to restrict tax benefits gained by residents of one of the agreement's countries, if a beneficial owner isn't a resident of the other.
No withholding taxes on interest paymentsBefore the new DTT was signed, with Switzerland, Russia could withhold interest at 10% (or 5% for banks). After the amendment, if the Swiss entity is a beneficial owner, no tax on any interest arising in Russia can be withheld.
Stock's trade taxation
In accordance with the changes in Russian tax legislation regarding stock selling that took place in June-July 2011, Russia and Switzerland will not tax income gained from selling stocks in a legal entity. This is subject to the condition that 50% of assets comprise immovable property, and that stock is traded on a stock-exchange or that the immovable property is a place of doing business.
The DTT between Russia and Switzerland makes important amendments to information exchange and thin cap rules, whilst also providing tax benefits to stock investors.
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