Business will be able to send dividends abroad tax-free for another three years. We are talking about the so-called "end-to-end approach", when a Russian company pays dividends to a foreign company, and the latter tells the tax authorities that the payments are actually in favor of another legal entity in Russia. And if the company that pays the dividends is at least half owned by the recipient for a year, the rate on such payments is 0%. According to RBC, the Ministry of Finance decided to leave the scheme in force until 2024, although earlier it threatened to ban it next year.
Who would benefit from such a maneuver? Mikhail Begunov, Managing Partner at Tax Compliance, told Kommersant FM that the measure has clearly lobbied for big business and will try to do it again in three years: "The "end-to-end approach" is used quite often, and it is relevant for big business, companies with foreign presence is not in offshore jurisdictions. Our business is built in such a way that many large players, in order to protect themselves, create foreign companies that own more than 50% of the shares of the Russian enterprise. And when businessmen in Russia receive dividends, they have the right to use the 0% rate.
When it was announced that the rate would be raised to 13%, of course, many quite respected Russian companies were against it. I think that the business community was brought in to defer this payment at least somehow. As for the volume, I think that the rate was raised from 0% to 13% for a reason.
And from the fact that it was immediately lobbied until 2024, many have exhaled and will think about how to rebuild their foreign business concept. I think the lobbying fights will now be postponed to 2024. But then again, the postponement only applies to foreign companies that are not on the black list. If we are talking about some offshore stories, the 13% rate will also apply".
The "end-to-end scheme" has become increasingly popular in recent years, especially as other ways of reducing taxes on dividends have often been difficult for tax officials. But even if the "through scheme" disappears in 2024, companies are unlikely to give up, there are other ways to optimize, said Olga Tsohorova, a lawyer, a specialist in international taxation: "In principle, it is quite difficult over the past few years to apply the preferential tax rates provided by international agreements, as their use is blocked by various concepts, including the classic right to income.
Including the fact that the foreign company has employees, fixed assets, some operating activities. In addition, due to the fact that we are now talking about changes in tax treaty rates and the possible termination of international tax treaties with a number of jurisdictions - mostly frightening Cyprus - it would often be more effective to admit who actually stands at the end of the structure, and apply the rates that apply to the person actually receiving income on the territory of the Russian Federation.
There are two stages in terminating the "cross-cutting approach". The first one - for a number of foreign international holding companies and those who have independently recognized themselves as Russian tax residents from the black list, the "through approach" is abolished in 2021. The second stage is the year 2024. Well, everyone is likely to apply the rate of 13% or 15% further. Perhaps someone will be able to create a company that will meet the criteria provided for the actual right to income. That is, it will be a foreign enterprise that will have an office, employees, it will be engaged in full-scale operational activities. It is possible that someone will go to other jurisdictions. Basically, there are mechanisms, but the devil lies in details.
The blacklist of jurisdictions with which the "end-to-end scheme" will not operate includes offshore jurisdictions that have not joined the automatic exchange of information with Russian tax authorities. The standard tax rate for dividends is 13% for residents and 15% for non-residents.
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