Netherlands: Update on tax treaty negotiations with Russia
Netherlands: Tax treaty negotiations with Russia
According to reports, negotiations between Russia and the Netherlands for amendments to the existing income tax treaty between the two countries have reached an impasse.
It is being reported that the treaty negotiators for the Netherlands rejected an initial proposal made by the Russian Ministry of Finance, and that Russia subsequently offered several additional conditions that would significantly improve the position of the Netherlands compared to the initial proposal.
In August 2020, the Russian Ministry of Finance indicated its desire to amend certain provisions of the income tax treaty—specifically for an increase in the maximum withholding tax rate on dividends and interest payments. Under the current income tax treaty, a reduced withholding tax rate of 5% applies to certain qualifying dividend payments, and no withholding tax applies with regard to interest payments. Russian proposed a change to limit application of these benefits and to increase the maximum withholding tax rate for dividends and interest to 15%. There would be several exceptions to the increased withholding tax rates, but these exceptions would only be applied in specific cases (e.g., for publicly listed companies and certain types of financing arrangements).
The proposed treaty measures could affect Dutch residents investing in Russia, by making investment more expensive. While the Russian proposal includes an exception for publicly listed companies, a significant part of Dutch investments in Russia are from non-listed private sector businesses (such as family-owned businesses) or from the headquarters of foreign multinational companies with an economic presence in the Netherlands to which the exception would not apply.
In response to the rejection of Russia’s proposal by the Dutch authorities, the Russian authorities offered to expand the exception to include private businesses, provided that the ultimate beneficial owners of these businesses would also be Dutch tax residents. There are reports that the Netherlands is seeking to maintain the current treaty provisions in an effort to benefit real estate companies. Provisions in the current tax treaty prohibit Russia from taxing Dutch residents when selling legal entities with a significant share of real estate in their assets.
Read a November 2020 report prepared by the KPMG member firm in the Netherlands
© 2022 KPMG LLP, a Delaware limited liability partnership 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.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. 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 endeavor 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. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.