Amsterdam. Photo: Stijn Te Strake/Unsplash

The Netherlands did not agree to the proposal of Russia to revise the tax agreement - to increase tax rates for dividends and interest on loans. And Russia did not support the proposals of the Dutch authorities to maintain separate “channels to withdraw money from the country,” the Russian Ministry of Finance said. And he published a bill on denunciation of an agreement to avoid double taxation with the Netherlands.

The Ministry of Finance proposed the same conditions for the revision of the agreement as other countries with which he had already managed to agree (Cyprus, Malta, Luxembourg): to increase to 15% dividends and interest tax. But to maintain a preferential 5%rate for dividends, if they are received by a public company, subject to two conditions, says a federal official:

At least 15% of the shares should be in free circulation;
The share in the company paying dividends is at least 15%.

The Netherlands wanted to get additional benefits for a large business who invested in Russia, says a person familiar with the course of discussion. VTIMES expect answers to representatives of the Ministry of Finance of both countries.

The breakdown of the agreement is a disaster, unanimous consultants and employees of Russian companies are unanimous. Business working through the Netherlands threatens not only a sharp increase in the tax burden, but also double taxation. The Netherlands are popular with Russian business, but, unlike Cyprus, have not been used for many years to transfer capital to offshore and back to Russia. The scheme was once used - the so -called Dutch sandwich, said the senior lawyer of Herbert Smith Freehills Sergey Eremin: dividends at the preferential rate are sent to the Netherlands, where the tax is not paid, from there to the Netherlands Antilles and further to other offshores. But this scheme, according to him, died more than 10 years ago.

And still it was profitable to work through the Netherlands - the agreement allows you to reduce taxes from paid dividends and interest on loans to 5 and 0% from 15 and 20%, respectively. According to the Ministry of Finance, only in 2017, the Russian business paid more than 450 billion rubles to the Netherlands. dividends and interest, and over the previous three years - over 1.2 trillion rubles.

A large, including public, Russian business, as well as foreign investors who invested in Russia through holding companies, will suffer the most strongly from the gap of the agreement. American business, for example, is used to working with Russia through its European offices, usually located in the Netherlands. Many Russian companies are registered there - the head companies X5 Retail Group and Yandex (Yandex); The Russian Svyaznoy group is owned by the Dutch Svyaznoy NV will also suffer Dutch banks that finance the Russian business. Representatives of the X5 Retail Group, Yandex, Svyaznoy and ING did not respond to VTIMES requests.

What threatens the gap of the agreement

The load on the royalties paid to the Netherlands will grow sharply. Increasing in the agreement the tax rates from royalties were proposed, and without an agreement they will grow from 0 to 20%. The owners of patents and trademarks will suffer, which transmit them under license agreements.
A business, the financing of which went through the Netherlands - taxes with interest on loans will grow at once to 20%, and not up to 15%, as when revising the agreement.
Russian companies that receive dividends from Dutch daughters will not be able to use the preferential zero rate (it is used if the Russian company has more than 50% of the “daughter” for more than a year) and will have to pay a tax of 13%.
The load on Russian business investing abroad through Dutch holdings will grow. Under Dutch law, you do not need to pay tax from dividends paid to another country if a reduced tax rate on dividends is established in the tax agreement, says Natalya Kuznetsova partner. But if the agreement is terminated, the rate will grow to 15%. That is, the Dutch structures of Russian business will pay additional tax when paying dividends to Russia, and not to the Russian budget.
Business risks encountering double taxation. Even if there is no agreement, the tax withheld in Russia is likely to be set off, but only partially. Under some transactions - financing, licensed payments - the tax burden can grow multiple, the tax of 20% can block all the profit in the transaction even when the tax was set in the Netherlands, the partner of the Crowe Expertise Rustam Vakhitov warns.
Russian tax residents will suffer, who receive a salary in the Netherlands or own real estate there: when it is sold, you will have to pay tax in both countries. Russia does not provide unilateral elimination of double taxation for individuals, says Vakhitov.

What can be done

Transfer the holding structure to another country. For example, in Hungary, where a comfortable tax regime applies, and the agreement with Russia remains profitable (the tax rate on dividends is 10%, on interest - 5%) or popular Switzerland (bets - 5 and 0%, respectively). However, Russia can offer to revise the agreement and Switzerland, said Deputy Prime Minister Alexei Overchuk in August, but such a letter was never sent. There are those who are looking for a place to move, look closely at other jurisdictions, but such companies leave no fear that, having changed jurisdiction once, you may have to face the same problem again, Kuznetsova says. After all, the Russian Ministry of Finance has not published a list of countries with which he will revise.

But

Moving from the Netherlands is not easy. Even holding companies risk encountering a demand to pay for the exit - the difference between the market value of the asset at the time of the change of jurisdiction and its balance sheet.

To take advantage of the through approach: to admit that the real recipient of income from Russia is a different person, and then other bets will be valid. If this turns out to be a Russian company, then it will be possible to apply a zero preferential rate.

But

The preferential zero rate with a “end -to -end approach” will be canceled in 2024. In addition, when the agreement is expanded, Russia can include the Netherlands in the list of offshores, which will immediately deprive the possibility of applying a zero rate.

Transfer a foreign structure to Russian offshore (special administrative areas in Primorye and Kaliningrad, SAR).

But

Not all companies are ready to seriously consider moving to Sary. In addition, it is impossible to directly move to the SAR from the Netherlands, first you need to transfer the structure, for example, to Luxembourg, and these are additional expenses. The change in the jurisdiction of the company operating in the Netherlands is possible only to EU countries, so you will have to make an intermediate stop.

Perhaps information about the denunciation of the agreement is an attempt by the Ministry of Finance to persuade the Netherlands to accept his terms, said KPMG partner Alexander Tokarev. During negotiations with Cyprus and Malta, the Ministry of Finance already acted like that, and as a result, the countries took the position of Russia, he recalls. But the Dutch economy depends on the Russian significantly less than Cyprus, and the Russian Ministry of Finance in this case is not such a strong negotiation position, Tokarev concludes. The Dutch economy is less dependent on the tax agreement, and the possibility of its gap as an argument in negotiations is less effective, the Vakhitov agrees, therefore, the probability of breaking the agreement is higher than in the case of Cyprus. To break the agreement, the Russian authorities must warn about this at least six months before the end of the year, that is, if the agreement is terminated, then not earlier than 2022

The Ministry of Finance is ready for a tax disaster - VTIMES