Russia and Switzerland sign a Protocol to their Double Tax Treaty.


Legal Update No. 274. 

Goltsblat BLP advises that a Protocol amending the Double Tax Treaty between the Russian Federation and Switzerland in relation to income and capital taxes, dated 15 November 1995, was signed on 24 September 2011. The amendments follow the trends provided for by the Model Agreement of the Russian Federation on avoidance of double taxation established by Resolution of the Government of the Russian Federation No. 84 dated 24 February 2010 and, in many respects, are similar to other amendments to international tax treaties of the Russian Federation recently under discussion, including that between Cyprus and Luxembourg. 

The most essential changes introduced by the Protocol include the following:

  • No withholding tax will be charged on interest

According to the Protocol, any interest arising in a contracting state and paid to a resident of the other contracting state will be exempt from withholding tax. This will increase quite considerably the appeal of financial structures through Switzerland compared to the existing regime requiring 5% tax to be withheld on interest payments to banks and 10%  - on payments to other lenders.

At the same time, the Protocol will permit national thin capitalisation rules to be applied, allowing parts of excess interest paid on loans from shareholders and their affiliates to be classified as dividends.  The mechanism for allowing for application of the rules differs, however, from that used in the previous protocol to the treaty between Russia and Cyprus.  For instance, the Protocol does not amend the definitions of “interest” and “dividend” but it does include a clause directly stating that the provisions of the Treaty do not preclude application of the national legislation in this respect.

  • Changes in the tax regime for unit trusts

The amendments to a number of articles of the Treaty provide a more detailed classification of payments on units for withholding tax purposes. The Protocol thus establishes that payments on units of real estate unit trusts and unit investment trusts are regarded as dividends when 50% of the income of the trust comes from shares and as interest, if this is not the case.  It should be noted that, under the Protocol, income from real estate unit trusts will not be subject to the article on income from immovable property allowing to tax such income in the country where the real estate is located, as compared to the approach used in the protocols to the treaties between the Russian Federation and Cyprus and Luxembourg.  

  • Tax will be charged on sale of shares in companies with more than 50% of the assets relating to real estate

The Protocol provides for the right to deduct withholding tax on income from sale of shares in a company with more than 50% of the assets consisting, directly or indirectly, of immovable property in the contracting state. This rule will not apply to income from shares quoted on registered stock exchanges or where the immovable property making up 50% of the assets of said company is used as its place of business.

  • A new procedure for exchanging information between competent authorities has been introduced

The Treaty has been supplemented with an article on exchange of information, the wording of which complies with the relevant text of the Model Tax Convention of Organisation of Economic Cooperation and Development (OECD) with respect to taxes on income and capital.  Information may be exchanged on taxes covered by the Treaty and on value added taxes, insofar as the taxation thereunder is not contrary to the Treaty. It is established, however, that a party may refuse to provide the requested information if this involves disclosing any commercial, business, industrial or professional secrets or trade processes, or information disclosure of which would be contrary to public policy (ordre public) and information that may not be obtained by virtue of law or in the course of the usual administrative practice of the contracting state.

There are specific limitations on exchange of information: in particular, no information can be exchanged on an automatic and spontaneous basis; requests of accidental nature  (“fishing expeditions”) are prohibited; on the request should bear the requisites including the name of the audited person, the tax purpose of the request, the tax period, etc., including the name and address of the person that may have the requested information. Exchange of information is permitted only when all the normal procedures for collecting information on the national level have been exhausted. The practical meaning of the procedure for exchanging information will, in many respects, depend on the evolution of domestic administrative procedures used by Russia and Switzerland in this regard.

  • Limitations on benefits and anti conduit measures

A new provision has been added stating that application of benefits under the Treaty may be limited in the event Treaty benefits being used to reduce the withholding tax on dividends, interest and royalties through intermediary and conduit arrangements aimed solely at tax evasion.

  • Other amendments

Other amendments include exclusion from dividends of payments to private and state pension funds, as well as governments, political subdivisions, local authorities and central banks of contracting states, as well as some other amendments bringing the Treaty closer in line with the above OECD Model Tax Convention.  It has also been agreed that the parties will accept documents without legalisation or an Apostille issued by a competent body on the basis of the Treaty, including confirmations of tax residence.

The Protocol will constitute an integral part of the Treaty and will take effect once the relevant domestic procedures have been performed. It will be applied from the beginning of the calendar year following the year in which it takes effect. There is a special indication that, pursuant to the above provisions on exchange of information, requests may relate only to information pertaining to tax periods starting at least during the calendar year following that in which the Protocol takes effect.

For additional information, please contact:

Evgeny Timofeev
Partner, Head of Russian/CIS Tax Practice, Goltsblat BLP
T: +7 (495) 287 44 44,

Andrey Shpak
Partner, Tax Practice, Goltsblat BLP
T: +7 (495) 287 44 44,

Contact details


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