Tax Flash Reports

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Purchase of eurobonds – MinFin stands up for taxpayers

In our July Tax Flash, we reported on unexpected developments of the court practice regarding the purchase of eurobonds on the secondary market. The tax authorities believe that accumulated coupon income included in the eurobond price is in essence an interest income from sources in the Russian Federation and a Russian buyer must withhold tax on it. The Moscow Arbitrazh Court agreed with them twice (see the cases of Gazprombank and Khanty-Mansiysk bank Otkritie). These court rulings sparked an active public discussion, and the Minfin considered it necessary to issue its clarifications. After the Minfin has expressly stated its position, it is possible that similar claims will not be brought against other Russian buyers of eurobonds. It is reasonable to wait for next courts’ rulings on the existing disputes to assess tax risks associated with the purchase of eurobonds from foreign counterparties.

Reorganisation: Tax Planning Options are narrowed

On 5 August 2016 a public discussion of a bill that reduces tax saving options upon reorganisation was initiated at the Federal Portal of Draft Laws and Regulations. According to the bill, the amendments come into effect one month after their publication as a law, but not earlier than the first day of VAT and income tax periods. Public discussion will continue until 1 September 2016.

Amendments to the Law on Trade

The Federal Law introducing amendments to the Law on Trade was published on 4 July. It sets a cap on all fees paid by food suppliers to retailers (including promotion fees) at 5% of total purchase price, and reduces the maximum allowed payment period for retailers buying food products. These amendments came into effect on 15 July 2016 and apply to all agreements starting from that day. The “old” agreements should be aligned with the new requirements by 1 January 2017.

Purchasing eurobonds from foreign entities on the secondary market: unexpected court practice developments

Please be informed about the recent negative court decision relating to Russian withholding tax payable in case of purchase of Eurobonds by Russian entities on the secondary market. The court ruled out that interest income, which is paid as a part of purchase price of eurobonds, issued by foreign companies in the interest of Russian companies, is deemed Russian source income of the relevant seller, i.e. the Russian company acquiring such eurobonds is supposed to withhold income tax at source.

Russian FTS shortens the “blacklist”

On 14 July 2016, the Russian Federal Tax Service (FTS) published a draft order introducing the new version of so-called “blacklist” of those countries or jurisdictions that do not share tax information with the Russian Federation, which was approved by FTS Order No. ММВ‑7-17/117@ of 4 March 2016.