Russia: Beneficial ownership concept, look-through approach for tax withholding

Russia: Beneficial ownership concept

Russian tax law provides a “beneficial ownership” concept that allows foreign companies to benefit from application of withholding tax rates under applicable income tax treaties.


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A foreign company, however, must provide documents confirming its beneficial ownership status to the Russian company (tax agent) that pays the Russian-sourced income. 

“Look-through” approach

A taxpayer, nevertheless, may apply a “look-through approach” (as introduced into Russian legislation, retroactively effective as of 1 January 2018). This approach allows the application of beneficial tax treaty rates with the beneficial owner’s resident jurisdiction—even if it is not the direct recipient of Russian-sourced income.

The practice of applying the look-through approach is still developing. There have been instances when the Russian tax authorities rejected a claim for a withholding tax rate pursuant to tax treaty provisions by the immediate recipient of the Russian-sourced income, and instead have applied a look-through approach to calculate the tax liability. This treatment has been upheld by courts that held in favor of the Russian tax authorities.

Based on current practice, Russian tax authorities often follow a formal approach when applying the beneficial ownership concept to holding and financing companies, since under Russian tax law, they are not obliged to identify the “real” beneficial owner. On this basis, Russian tax authorities have concluded there is an absence of independent entrepreneurial activity at the level of a foreign holding or financing company, and therefore have rejected the claimed status as a beneficial owner of the income and have denied the beneficial withholding tax rate under a treaty.

How to apply the look-through approach

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

The Russian tax agent must also obtain from the foreign company certain 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 beneficial owners of the income
  • From the foreign company that is the beneficial owner of the income—documents confirming that the company is the beneficial owner of the income, and a tax residency certificate

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

KPMG observation

There are Russian tax agents currently using the look-through approach, in particular when a Russian company’s direct shareholder is located in a jurisdiction with which Russia has no income tax treaty (such as the British Virgin Islands and the Cayman Islands). Entities possibly affected by the beneficial ownership rules may want to consider identifying if the look-through approach could be more beneficial.

Read a February 2020 report prepared by the KPMG member firm in Luxembourg

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