New controversial court practice on the beneficial ownership of income concept
In recent months, the courts have issued a number of decisions on the abuse of double tax treaties (DTT), some in favour of the tax authorities and others in favour of taxpayers.
In this report, we will examine two court cases on the question of applying the reduced tax rate under the Russia-Cyprus DTT and, in particular, on the question of identifying the beneficial owner of income.
The first case concerns a dividend payment of RUB 300m on which the taxpayer was assessed an additional tax of RUB 30m as well as penalties and fines in the amount of about RUB 5,5m and RUB 750,000 respectively, because a Cypriot company involved in the deal was not deemed a beneficial owner of the income.
In the second case, the court examined the assessment of the 5% reduced rate on dividend income under the Russia-Cyprus DTT, but the dispute was different. The court applied a literal interpretation of the tax treaty’s provisions and ruled that compliance with the formal DTT requirements was sufficient grounds for applying the reduced tax rate.