Double taxation due to termination of tax treaty between Russia and the Netherlands
Russia has terminated the tax treaty with the Netherlands, as of 1 January 2022. From that moment onwards, double taxation of companies and individuals in the Netherlands and Russia may occur. If this applies to your situation, we advise you to contact your Baker Tilly tax advisor.
Purpose of tax treaties
In a tax treaty, two countries agree upon which country may levy taxes on certain items of income. The aim is to prevent income from being taxed by both countries, leading to double taxation. This can be illustrated by the following two examples.
- A woman living in the Netherlands is employed by a Dutch company, and works both in the Netherlands and in Russia. The tax treaty determines what part of the income can be taxed in the Netherlands and what part can be taxed in Russia.
- A Russian company owns real estate in the Netherlands. The treaty determines that income from real estate can only be taxed in the country in which the real estate is located. In this example, the Netherlands.
The tax treaty provisions on interest, royalties, and dividends
With regard to interest, royalties, and dividends, it is often agreed that both countries may levy taxes. The source country (the country from which the payment is made) may typically only levy a limited percentage. It is also often agreed that the country in which this income is received, will take into account the tax already levied in the source country (for example by means of an exemption or a credit).
- The current tax treaty between Russia and the Netherlands states that, in principle, only the country in which the recipient (more precisely: the beneficial owner) is a resident, may levy taxes on interest and royalties.
- With regard to dividends, it has been agreed in the treaty between Russia and the Netherlands, that the source country may levy a limited percentage. Depending on the circumstances, this is either 5% or 15%. The recipient country also has a right to levy taxes. The Netherlands may apply its participation exemption. In that case, dividend payments from a Russian subsidiary to its Dutch parent company are (in principle) not taxed in the Netherlands.
Impact of the termination of the tax treaty
As of 1 January 2022, the treaty between Russia and the Netherlands will expire. This may lead to double taxation. For example, once the tax treaty is terminated, a royalty payment by a Russian subsidiary to its Dutch parent company may be subject to Russian withholding tax. The Netherlands can levy corporate income tax on this income and might not take into account the Russian tax already paid.
In some cases, the Dutch Decree for the prevention of double taxation (Besluit voorkoming dubbele belasting 2001) may offer (partial) prevention of double taxation.
Do you, or does your company, work/operate in both the Netherlands and Russia? Or do you currently make use of the tax treaty between Russia and the Netherlands? Please contact your Baker Tilly tax advisor. Together, we can analyse the consequences as of 2022, and determine how you can mitigate any negative effects.