Amendments to the double taxation avoidance agreement between the Russian Federation and Switzerland were ratified

27.09.2012

On 21st September 2012 the State Duma of the RF ratified amendments to the double taxation avoidance agreement between the Russian Federation and Switzerland signed on 15th November 1995.

The significant changes are the following:

1. cancelling of withholding tax in the form of interest for residents of the Russian Federation and Switzerland;

2. dividends are taxed only in one of the contracting states if a person who is really entitled to dividends is the pension fund, the Government of one of the states, its political subdivision or local authority, or concerning Russia – the Central Bank of the RF and concerning Switzerland – the Swiss National Bank;

3. taxation of payments on shares depends on the source of income of the mutual investment fund: if more than a half of income received from stocks - payments are qualified as dividends, if less – as interest;

4. Including of article on tax information exchange, however the automatic exchange is not provided: the procedure of information inquiry is developed in order to prevent inquiries of random character (fishing expeditions);

5. Introducing of the term “dummy scheme” the main goal of which is receiving of tax preferences provided by the agreement.

On the basis:

http://asozd2.duma.gov.ru/main.nsf/(SpravkaNew)?OpenAgent&RN=62930-6&02

Expert’s opinion

Introducing of the wide changes into the tax agreement between the Russian Federation and Switzerland is directed mainly at combating the abuse. That’s why the new term “dummy scheme” has been presented, in other words, conduit deal, aimed exceptionally at receiving directly or indirectly of all income by the person who is non-resident of the contracting states. Respectively, in case of ascertaining of the “dummy scheme” in relation to all kinds of dividends, interest, income from copyrights and licenses no tax preferences are applied.

In addition, in amendments the process of information exchange is described in details between the contracting states that is also directed at preventing of fraudulent activity. The tax authorities of the inquiring state should provide information identifying the person in relation to whom the inspection or investigation is operated, period of time for which information is required, type of information, goal of its provision, name and address of persons who probably could have such information.

Thus, the improvement of tax agreement is held in accordance with the recommendations of FATF (Financial Action Task Force) members of which are both the Russian Federation and Switzerland.

Akhmetova Julia ( Paralegal of Moscow office company Honest & Bright)