Vladimir Putin Announcement 25/03/2020
Important changes are to be made to Russian law following President Vladimir Putin’s address to the nation made on 25th March 2020.
In light of the recent COVID-19 pandemic outbreak, there were the expected measures to support ‘at-risk’ groups in Russian society (e.g. families with young children and those on low incomes), as well as SMEs, through increases such as social support, unemployment benefits and various repayment ‘holidays’ relating to bank loans and mortgages. However, Putin surprisingly announced amendments which would affect changes to a great number of International Double Tax Treaties (DTT).
The Russian Federation is involved in over 80 DTTs, including those with the U.S., the UK and most European states. As per Putin’s announcement payments, in the form of interests and dividends leaving Russia and going to offshore jurisdictions, are to be subject to an ‘adequate tax’ according to Putin. The Russian President raises the issue that ‘currently two-thirds of such profits are subject to as little as 2% tax’. He encourages to make sure that this rate will now stand at 15%.
Mr. Putin commented that; “This will require an amendment of International Double Tax Treaties. If our international partners are not willing to amend such agreements, Russia will denounce such treaties unilaterally. We will start with those countries through which significant funds of Russian origin pass through”. Putin did not mention any specific jurisdictions in his statement.
There is no doubt that the said changes may significantly affect current legal and corporate structures utilised by Russian businesses in foreign countries with a particular focus on jurisdictions providing financial services.