The letter of FNS of Russia of 08.06.2016 N SD-4-3/10165 @ "About the order of application of regulations of the Agreement on avoidance of double taxation with the Government of the Kingdom of the Netherlands, regarding dividends"
The Federal Tax Service directs for data and use in work the letter of the Ministry of Finance of the Russian Federation of 26.05.2016 N 03-08-13/30458 about application of regulations of the Agreement between the Government of the Russian Federation and the Government of the Kingdom of the Netherlands about avoidance of double taxation and prevention of evasion from the taxation concerning taxes on the income and property of 16.12.1996 regarding the order of the taxation of dividends in the case when events of the Russian company were brought as the contribution to authorized capital of the Netherlands organization.
State councilor of the Russian Federation 3 classes D.C.Sateen
MINISTRY OF FINANCE OF THE RUSSIAN FEDERATION
of May 26, 2016 N 03-08-13/30458
The Ministry of Finance of the Russian Federation in connection with the letter on application of regulations of the Agreement between the Government of the Russian Federation and the Government of the Kingdom of the Netherlands on avoidance of double taxation and prevention of evasion from the taxation concerning taxes on the income and property of December 16, 1996 (further - the Agreement) regarding the order of the taxation of dividends in the case when events of the Russian company were brought as the contribution to authorized capital of the Netherlands organization, reports the following.
According to provisions of points 1 and 2 of article 10 of the Agreement the dividends paid by the company which is the resident of one Contracting State, to the resident of other Contracting State can be assessed with taxes in this other State. However such dividends can be also assessed with the tax in that Contracting State in which the company paying dividends is the resident, and according to the legislation of this State but if the recipient has the actual right to dividends, the collectable tax shall not exceed:
a) 5% of total amount of dividends if the actual owner of dividends is the company (other, than partnership) which direct participation in the capital of the company paying dividends makes not less than 25% and which invested in it not less than 75 thousand ECU or the equivalent amount in national currency of Contracting States;
b) 15% of total amount of dividends in all other cases.
Thus the shares expressed in agreements on avoidance of double taxation in ECU (in particular, in the agreement with the Netherlands), are recalculated in euro in the ratio 1:1.
Determination of the absolute size of share and the amount of investments for the purpose of application "of the subparagraph an" of point 2 of article 10 of the Agreement is performed taking into account provisions of point VI of the Protocol to the Agreement.
By the specified point of the Protocol it is provided that to define, whether the condition about the minimum investment contribution in the amount of 75 thousand ECU is satisfied, the contribution estimated at the time of investment, and also investments which are earlier made or withdrawn afterwards is considered.
The term "direct participation" means that share in the capital in the amount of 25 percent shall belong directly the company for benefit of which dividends, without shares of its subsidiary and other dependent companies are paid.
It is meant investment into the capital of the company as stock acquisition at primary or the subsequent issues, and at share purchase in security market or directly at their previous owner. Thus "invested concept in it" assumes implementation of investment by directly actual recipient of dividends.
Thus, in the case when events of the Russian organization are brought by the third party as the contribution to authorized capital of the Netherlands company, it is necessary to consider that investment by the Netherlands company into the Russian company paying dividends was not performed.
Considering the above, at payment of dividends to the Netherlands company in the case when shares of the Russian company it were received as the contribution to authorized capital, the Russian company performing function of the tax agent is guided by provisions "of the subparagraph b" of point 2 of article 10 of the Agreement and applies to such income of the Netherlands company the rate of 15%.