Luxembourg Tax Alert 2020-01

Luxembourg Tax Alert 2020-01


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Beneficial ownership concept in Russia — look-through approach

On 1 January 2015, the beneficial owner (BO) concept was introduced into Russian tax legislation. Since 2017, to benefit from withholding tax (WHT) treaty rates, a foreign company must provide documents confirming its BO status to the Russian company (tax agent) that pays the Russian-sourced income. For more information, please see our BO concept in Russia tax alert.

“Look-through” approach

However, a taxpayer can apply the so-called look-through approach introduced into Russian legislation with retrospective effect as of 1 January 2018. This approach allows the application of beneficial tax treaty rates with the BO’s resident jurisdiction, even if they are not the direct recipient of Russian-sourced income.

The practice of applying the look-through approach is still developing. We are aware of cases when the Russian tax authorities rejected a WHT rate indicated in a tax treaty with the immediate recipient — and instead applied the look-through approach to calculate the tax liability. The court ruled in favor of the Russian tax authorities.

Based on current practice, Russian tax authorities often follow a formal approach when applying the BO concept to holding and financing companies, since based on Russian tax law provisions they are not obliged to identify the real BO. On this basis, Russian tax authorities conclude the absence of independent entrepreneurial activity at the level of a foreign holding and financing company — and therefore reject its status as a BO of income and decline the beneficial tax treaty’s WHT rate.

How to apply the look-through approach

The Russian company (WHT agent) must disclose the application of the look-through approach in the WHT return filed with the Russian tax authorities.

Furthermore, the Russian tax agent should obtain from foreign companies the following documents before the payment is made:

  • From foreign companies that are immediate recipients and intermediary companies in the distribution chain: a declaration confirming they are not the BOs of income.
  • From the foreign company that is the BO of the income:

(1) Documents confirming that this company is the BO of income[1]

(2) A tax residency certificate.


Applying the look-through approach does not create any obligation for the foreign company (BO) to submit any tax reporting to the Russian tax authorities or pay taxes to the Russian state budget.


Russian tax agents widely use the look-through approach currently, especially when a Russian company’s direct shareholder is located in a jurisdiction with which Russia has no tax treaty (e.g. the British Virgin Islands and the Cayman Islands). Taking this into account, we recommend a structural diagnostic based on the BO of income — and an analysis that identifies where the look-through approach could be more beneficial from a tax perspective or to gain a more solid justification for the Russian tax authorities.

[1] The Russian tax law does not provide an exhaustive list of these documents. Based on the current practice (that is subject to change), as a minimum, the foreign entity must issue a statement confirming that it considers itself the BO.

For more infomation please contact:

Alona Gavrylova
Manager, International tax, Russian desk
Phone: +352 22 51 51 5512

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2021 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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