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Cyprus, Russia Reach Double Tax Agreement Compromise

by Lorys Charalambous,, Cyprus

18 August 2020

Russia and Cyprus have announced that they have resolved a dispute concerning the two countries' double tax agreement.

Earlier this month, the Russian Ministry of Finance announced that it would terminate the Russia-Cyprus double tax agreement, after negotiations broke down on a revision to increase tax on cross-border dividends and interest income.

In an August 3 statement, the Russian Ministry of Finance disclosed it had been engaged in discussions with its Cypriot equivalent entity with a view to amending the pact to introduce withholding tax of 15 percent at source on dividends and interest income. The Russian Ministry disclosed that the Cypriot side put forward its own proposal, which was not accepted, with the Ministry considering it would result in continued erosion of the Russian tax base. It then announced that it would terminate the treaty.

Meetings were then scheduled between Cyprus and Russia for August 10-11, 2020. It was disclosed by both states on August 10, 2020, that the two countries had agreed a compromise.

A statement from the Cypriot Government said, in relation to withholding tax on interest and dividends, that: "The Cyprus side secured, among others, the reduction of the said withholding tax (to nil or five percent as appropriate) of regulated entities, such as pension funds and insurance undertakings as well as listed entities with specific characteristics. Additionally, exemption from the said withholding tax applies on interest payments from corporate bonds, government bonds, and Eurobonds. The Cypriot side has also secured the maintaining of zero withholding tax on royalty payments."

The Cypriot Government said a Protocol to the agreement would be signed in the fall, which would apply from January 1, 2021.

Russian Deputy Finance Minister Alexey Sazanov said in a Finance Ministry statement that Russia would no longer seek to terminate the agreement. He stated: "In the coming month, we also plan to complete negotiations with Luxembourg and Malta on the same terms as we offered Cyprus."

The Russian Ministry of Finance further stated: "Russia is also awaiting an official response from the Netherlands to directed proposals to revise the tax agreement in the coming weeks. If the Netherlands agrees to negotiate, they will be offered the same conditions as the Republic of Cyprus."

TAGS: Russia | Finance | tax | Malta | Netherlands | interest | insurance | Luxembourg | transfer pricing | withholding tax | Cyprus | dividends | BEPS

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