Russia to scrap tax agreement with Netherlands as proposed approach fails to combat capital outflows

Russian lawmakers initiated denouncing a tax agreement with the Netherlands. The deal was designed to avoid double taxation, but so far negotiations have come to a deadlock.

Russia’s finance ministry proposed new terms similar to those agreed with Cyprus, Malta and Luxembourg. Under the new terms Russia is planning to increase withholding tax on dividends and interest for Russia-focused companies registered in the Netherlands to 15 percent.

“The existing agreement allows significant capital outflows, as the firms registered in the Netherlands are subject to a real tax rate of only 2-3 percent,” the ministry said.

At the same time, the equal tax for companies registered in Russia makes 15 percent on dividends and 20 percent for interest payments, according to the lawmakers.

The tax maneuver allowed by the current legislation reportedly helped many corporations move funds away from Russia. In 2017 alone, those funds reached 457 billion rubles ($6.17 billion) with 1.2 trillion rubles outflows within the previous three years.

In March, President Vladimir Putin suggested a tax be levied on interest and dividend payments leaving Russia to combat offshoring as the country battles low oil prices and the Covid-19 pandemic.

Earlier this year, Russia signed amendments to Double Tax Agreements with Malta, Cyprus and Luxembourg. The new tax treaties are set to come into force on January 1 2021.

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