Amendments regarding Thin Capitalisation Introduced into the Russian Tax Code


Legal Update № 553

Goltsblat BLP advises that Federal Law No. 25-FZ dated 15 February 2016 “On Amendments to Article 269, Part 2 of the Russian Tax Code Regarding the Controlled Debt Definition” has been adopted. 

Below is an overview of the amendments we believe to be the most important. 

A debt is not recognised as controlled if it is owed to:

  • Russian tax residents (from 2017), provided that the debt is not classed as back-to-back financing obtained from foreign controlling persons, and/or
  • Russian and foreign banks (from 2016), if they are not regarded as related parties either with the borrower or persons that secured the debt, or no debt was repaid by the borrower's group.  

Generally, the main principles of the rules remain the same but there are significant developments: 

  • individuals may act as controlling persons; 
  • controlling persons will be determined according to  certain criteria for “related parties” by means of corporate control (Article 105.1 of the Russian Tax Code) rather than “affiliated parties” in the terminology of the antitrust legislation. Yet the courts might recognise debt as controlled irrespective of the formal criteria if the ultimate purpose is to make payments to controlling persons;
  • the minimal stake sufficient to qualify as a controlling person has been increased from 20% to 25%, plus a criterion for indirect participation through consecutive participation of more than 50% has been added. 

The amendments will come into force from 1 January 2017, apart from the above exception with respect to bank loans, which has retroactive effect from 1 January 2016.

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