Pepeliaev Group advises of an improvement of the position of taxpayers in court disputes relating to the application of beneficial rates under DTTs in the context of intra-group loans.
While the cases of SUEK-Kuzbass JSCand Kashirskiy Dvor – Severyanin JSC
are being prepared for reconsideration, the commercial (‘arbitration’) courts of Russia’s constituent entities are already supporting taxpayers in disputes relating to the application of beneficial rates under double taxation treaties (DTTs) when maximum interest under controlled debt is reclassified as dividends and the beneficial ownership of income is identified. Only within the last month, two court decisions have been issued which are positive for taxpayers: in the case of SUEK-Kuzbass JSC(the same company as referred to above, but in a case concerning another tax audit period) and in the case of StroyMarket LLC and HyperMarket LLC.
The specified cases are similar since they have to do with the applicability of beneficial rates under DTTs in cases when sister companies provide intra-group loans. However, there are some specific features.
When carrying out cross-border transactions, a Russian company, in order to be able to apply beneficial rates under a DTT, must request and obtain from the foreign entity not only a certificate of tax residence, but also documents confirming beneficial ownership of income. Otherwise, the Russian company risks being held liable for failing to perform the obligation of a tax agent.
In addition, consideration should be given to what constitutes the list of documents that confirm beneficial ownership of income.