The main changes affect provisions on exchange of information and procedures for their application and were composed in accordance with article 26 of the OECD Model Convention. According to the protocol, the Russian authorities may now request information from the Swiss tax authorities. Such a request should contain: the identity of the person under investigation; the period that is of interest; the type and form of the requested information; the tax purpose of the request; and the name and address of the entity that supposedly has the information. Even bank, professional, and audit secrets are now available to the tax authorities.

The documents that are received as a result of such a request do not require legalization or an apostille and may be used as evidence in court and for dealings with administrative authorities.

However, information of a general nature is prohibited from being requested, i.e. the tax authorities do not have the right to request information that is unrelated to a specific taxpayer’s business activities.

 

Taxation of interest

 

The agreement between Switzerland and Russia currently establishes a 10 percent withholding tax rate on interest payable to companies and 5 percent, on interest payable to banks. This makes Switzerland a less attractive jurisdiction for financial companies in comparison with countries like the Netherlands, Luxembourg, and Cyprus. Nevertheless, the protocol introduces an exemption from withholding income tax on interest payable to beneficial owners of income.

 

Anti conduits

 

A provision targeting tax benefits under conduit arrangements (in particular arrangements established to receive the double-tax treaty tax benefits for dividends, interest and royalties) was introduced in the protocol. However this provision does not clearly describe procedures for keeping companies from unjustly receiving these benefits. Competent authorities, under a mutual agreement procedure, establish cases or circumstances that can be used to determine whether the main purpose of a conduit arrangement’s structure is to obtain benefits under the treaty. The article also does not provide for mechanisms protecting taxpayers. This ambiguity could create differences in the tax authorities’ and tax payers’ interpretations of the protocol’s provisions.

 

Taxation of companies whose assets are mostly immovable property

 

 

Like the protocol to the agreement with Cyprus, the new protocol permits taxation of gains from transfer shares in a Russian company when the shares amount to more than 50 percent of the company’s asset value. Companies whose assets are comprised of more than 50 percent of immovable property that is used for their business activities are excluded.

 

The protocol’s entrance into force

 

Currently, the protocol has been signed but has not been ratified. Before it enters into force, the country-parties must complete a series of procedures at the national level. The most likely date for the protocol’s entrance into force is 1 January 2013.