The current tax agreement with Cyprus be terminated, said Monday the Russian Ministry of Finance. A month and a half of negotiations that started after the decision of Vladimir Putin on the revision of agreements on avoidance of double taxation for the return of Russian capital into the country, to no avail. The Cypriot Finance Ministry said that the announcement by the Russian colleagues about the denunciation came as a surprise. Experts believe that the decision of the Russian authorities will increase the interest generated in the Russian Federation special administrative regions (SAR). They believe that after a pause Russia and Cyprus to conclude a new tax agreement in other circumstances.The Ministry of Finance, citing Deputy Finance Minister Alexei Sazanov said Monday that in June and July, negotiations were held with Cypriot colleagues on the revision of agreements to avoid double taxation (DTT) between Russia and Cyprus “so that from January 1 next year, the majority of interest payments and dividends from Russia to Cyprus would be taxed at source at the rate of 15%.” “Unfortunately, today we have to admit that the talks have failed. So today we are launching the process of denunciation of the agreement on avoidance of double taxation between Russia and Cyprus,”— announced the Ministry of Finance.The Agency expects that now the restructuring of holding structures via Cyprus will become unprofitable and used his business about to go back to Russia. “We are going to improve the legislation in the part of the administrative districts in order to make the jurisdiction more attractive for the translation respectively of the structures holding Russia back,” promised the Finance Ministry.Recall, March 25, Vladimir Putin said that all payments of income, interest and dividends, stretching from Russia abroad, in offshore jurisdictions should be subject to adequate tax — not less than 15% (as charged to natural persons-non-residents in Russia). He instructed to adjust the agreement for avoidance of double taxation with some countries, starting with those through which significant resources of Russian origin (excluding Cyprus, the Ministry of Finance of the Russian Federation has informed on desire to amend tax Treaty Luxembourg and Malta).Operating agreement allowing for payment of dividends to Cyprus to reduce the tax rate on them to 5% or 10%, and the interest on the loans to 0%. It is more than two times less than the corresponding rate in Russia (13-15%). The Ministry referring to the assessment that the agreement on Cyprus were withdrawn from Russia in 2018 and 1.4 trillion and in 2019 — to 1.9 trillion rubles, the Finance Ministry invited colleagues in Cyprus to raise rates to 15% as dividend and interest, however negotiations have not crowned success.The Ministry of FINA��owls of Cyprus “RIA Novosti” reported that he had not received notification of the Russian Ministry of Finance on the launch of the procedure of denunciation of the agreement,— it believes that this decision will have negative consequences for both countries. “We don’t know anything about the plans to break the agreement. We are waiting for. From my point of view, there is no reason for the termination of the agreement. We had an exchange of electronic messages, we are very optimistic”,— said the representative of the Ministry of Finance of Cyprus. According to her, in the event of cancellation of this agreement, the taxation will be regulated arbitrarily by different tax authorities — and this will not help investor confidence.”On the other hand, given the number of rounds of negotiations between the Finance Ministry expected some progress, that is, the preservation of the double tax Treaty with a substantial limitation of the list of persons that will be eligible for benefits. In this regard, such a finale would be a surprise to the business community,” he said.According to the expert, special administrative regions (SAR) have recently become more attractive for Russian business, but not everyone is accepted the decision on redomiciliation in Russia. The denunciation of double tax Treaty with Cyprus, further fuels interest in SAR. “However, we must wait for implementation of the activities planned in the roadmap approved by the government. First and foremost, this concerns the expansion of the list of persons who will be able to use a five percent rate of tax on income at source of payment in Russia on dividends to nonresidents. Unfortunately, this rule can use only public international holding company, whose number is very limited,” says Alexander Tokarev. According to him, hardly moving from Cyprus to Syria will give significant inflow of tax revenues to the Russian budget. “If we’re talking about holding companies, then the main point will be to be able to distribute tax free dividends from Russian subsidiaries in a holding company registered in the SAR. If the payment is in favor of the Cyprus holding company tax would have arisen in Russia at the rate of 5% or even 15%. Thus, ATS can afford to reduce the tax burden”,— the expert concludes. However, he suggests that perhaps the denunciation of the agreement is of a technical nature. “Negotiations with Cyprus was held over a long period of time, it cannot be excluded that the new conditions will be specified in the new agreement. Likely to make a large number of edits in the same document the parties deemed it inappropriate,” said Alexander Tokarev.According to him, the tax on dividends from Russia to Cyprus at a rate of 15% or through a cross-cutting approach 13% for personal income tax (rates do not apply when the recipient of the income in Cyprus, and to the final beneficiary in Russia — after the statement that the real beneficiary is not a Cyprus intermediate holding company) the majority pays for a long time. “Those few business groups that has created a real activity on the island and used 5 percent tax on dividends, the distribution of the amounts of previous periods will be able to do even at the rate of 5% this year — in the next few years dividends will likely be a little bit, and who knows what will become by that time, with tax agreements with other countries,— said the expert.— Given the domestic benefits, the possibility of applying the 0% rate on dividends when the payment of the Cypriot company with the Russian holding over him, and the planned exemption from taxation of controlled foreign companies, upon payment of five million of the flat tax in Russia, Cyprus remains an attractive jurisdiction for many, and with a modified tax agreement”.In this case, said Rustam Vakhitov, the termination of the agreement will make unavailable the exemption from taxation in Russia, of payments in the structures of Eurobonds, the use of a Cypriot sub-holdings will also be less attractive in terms of tax efficiency. The absence of a tax Treaty will greatly reduce the value of Cypriot element in the Russian structures, and it may indeed lead to mass migration business. “The Cypriot side is likely to understand and the choice between no agreement and a modified document it is wise to choose a modified — even if it is less attractive than the current”— concludes the expert.Tatyana Grishina, Vadim Visloguzova all available programs in the world “gold” passports and vyschitat next
