Attn.: NSD's Clients
Please be advised that the Russian Ministry of Finance's response (Letter Ref. 03-08-05/13040 dated 20 February 2021) to NSD's inquiry regarding the possibility to apply the tax rates under DTTs and the tax rate of 20% under sub-paragraph 1, paragraph 2 of Article 284 of the Russian Tax Code to payments of interest income on government securities of the Russian Federation, government securities of regions of the Russian Federation, or municipal securities to foreign nominee holders of such securities in favour of non-Russian organizations (legal entities) and collective investment schemes has been posted on NSD's web site, in the 'Tax Management' section.
In addition to the Ministry's response posted on the web site, please find below NSD's comments.
It follows from the Ministry's response that:
1. A foreign nominee holder discloses to the withholding agent certain information required by Articles 214.6 and 310.1 of the Russian Tax Code with respect to organizations and individuals entitled to exercise rights attached to the relevant securities (beneficial owners of such securities), in circumstances where the securities depository acting as withholding agent is required to calculate and withhold PERSONAL INCOME TAX on interest income payable to the foreign nominee holder on the securities held in the latter's securities account.
At the same time, it is emphasized in the Ministry's response that pursuant to sub-paragraph 7, paragraph 2 of Article 310 of the Russian Tax Code, the withholding agent shall neither calculate, nor withhold tax on interest income on government securities of the Russian Federation, government securities of regions of the Russian Federation, or municipal securities, which is payable to non-Russian organizations.
Accordingly, NSD acting as withholding agent, may neither calculate, nor withhold tax on interest income on government securities of the Russian Federation, government securities of regions of the Russian Federation, or municipal securities, which is payable to non-Russian organizations, in circumstances where a foreign nominee holder discloses, in aggregate disclosure, a legal entity as a person entitled to exercise rights attached to such securities (beneficial owner of such securities).
This means that a reference to a tax rate other than the zero tax rate in disclosed information on organizations entitled to exercise rights attached to government securities of the Russian Federation, government securities of regions of the Russian Federation, or municipal securities (beneficial owners of such securities) is incorrect and cannot be accepted by the withholding agent.
In circumstances where aggregate disclosure contains incorrect information, income on relevant securities is taxed at the tax rate set by paragraph 4.2 of Article 284 of the Russian Tax Code, i.e., also at the rate of 30% pursuant to paragraph 9 of Article 310.1 of the Russian Tax Code.
2. As regards taxation of income on the said securities where such income is paid by a foreign nominee holder to a non-Russian fund, it is required to take account of the provisions of Article 7 of the Russian Tax Code concerning a beneficial owner of the income.
This means that where a non-Russian investment fund that, in accordance with the laws of the jurisdiction of its incorporation, is treated as a collective investment scheme is not recognized as a beneficial owner of the income on the relevant securities for the purposes of paragraph 8 of Article 310.1 of the Russian Tax Code, participants of (investors in) the non-Russian investment fund shall be recognized as beneficial owners of the income, by reference to their respective participatory interests.
If you have any questions related to this communication, please contact your account managers by telephone: +7 495 956-27-90/91