Russia’s accession to the Global Tax Initiative Pillar 2, aimed at combating offshore and blurring the tax base, will lead to a total revision of all current agreements with other countries to avoid double taxation, stated in a conversation with “Vedomosti” Deputy Finance Minister Alexei Sazanov. The implementation of the reform will allow Russian authorities to collect more taxes from foreign companies.
Pillar 1 and Pillar 2 fiscal initiatives (TWO-PILLAR SOLUTION) prepared an organization of economic cooperation and development (OECD) and submitted final document on July 1. The agreement reflects the consolidated position of 131 countries, including Russia. One of the major changes in international tax relations will be an increase in the tax rate from the source to pay abroad, royalties and a number of other similar payments, with the exception of dividends, up to nine percent. It is assumed that new rules will begin to act in 2023.
According to the deputy head of the Ministry of Finance, Russia will increase revenues to the budget after the introduction of these innovations, since agreements concluded agreements on the avoidance of double taxation (Synov), and they exempt the mentioned payments from taxes within the country. If Pillar 2 is implemented in the format of a multilateral convention, then, most likely, the rate on all bilateral agreements will increase automatically, Sazanov believes. However, an option is also possible that Russia will have to revise the conditions of each specific agreement separately. According to the Deputy Minister, this alternative will extend the process, although the end result as a whole will not change.
Partner of the consulting company PWC Mikhail Filivov said that Satin between Russia and the main mass of offshore and so implies tax from the source at least nine percent. With the most popular countries with special conditions of doing business – Cyprus, Malta, Luxembourg, Switzerland – the Russian authorities have already concluded new, more profitable agreements or discuss their renewal. According to Filin, this part of the tax reform is more affected by international businesses, such as IT companies that receive royalty-free products for know-how or licenses, and in their home jurisdictions are subject to low tax.
At the end of November, the Sazanov deputy minister also stated that after joining Two-Pillar Solution, the Ministry of Finance is going to abandon the idea of a decline in income tax up to five percent for residents of the so-called “Russian offshore” – special administrative districts (SAR) in Kaliningrad and Vladivostok . These benefits contradict the parameters of an international agreement and can compromise the country, explained the partner of the Audit and consulting company Ey Marina Belyakova.