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Russia To Terminate Cyprus Double Tax Agreement

by Mary Swire,, Hong Kong

07 August 2020

The Russian Ministry of Finance has announced that it will seek to terminate the country's double tax agreement with Cyprus, 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 that was not accepted, with the Ministry considering it would result in continued erosion of the Russian tax base.

The Ministry said they would "facilitate tax-free withdrawal from the territory of the Russian Federation through Cyprus jurisdiction of significant financial resources of Russian origin."

The Ministry said termination of the agreement will deliver on calls from Russian President Vladimir Putin to ensure that payments of income overseas to low-tax territories should be taxed at least at a 15 percent rate.

The Ministry said: "The existing tax agreement with Cyprus provides very attractive conditions in terms of taxation. The rate for the payment of dividends to Cyprus can be reduced to five or 10 percent, and interest on loans to zero percent. This is more than two times less than the corresponding rate in Russia (13-15 percent)."

"The Ministry of Finance proposed to colleagues in Cyprus to raise rates to 15 percent on both dividends and interest, but the negotiations were unsuccessful: the partners tried to dilute the effect of the initiative for the Russian treasury as much as possible with various exceptions. The Russian department was forced to begin the procedure for submitting a federal law on denunciation to the State Duma."

TAGS: Russia | Finance | tax | interest | law | transfer pricing | withholding tax | Cyprus | dividends | BEPS

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