Protocol to agreement with Luxembourg
Protocol to agreement with Switzerland

The government has approved draft protocols amending the Agreement between Russia and Luxembourg for the Avoidance of Double Taxation and the Prevention of Evasion with Respect to Taxes on Income and Capital, and the Agreement between Russia and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital.

Protocol to agreement with Luxembourg

The draft protocol(1) amends the agreement that was signed with Luxembourg in 1993. In particular, the amendments affect:

  • the exchange of information on tax issues between the authorities in Russia and Luxembourg;
  • limits on the application of benefits stipulated by the agreement; and
  • the taxation of specific types of income, including income from shares and units in unit investment trusts.

The new version of the agreement, as amended, includes a new Article 26 which provides for the exchange of information between the tax authorities of Russia and Luxembourg in relation to all taxes. Moreover, a party may not refuse to provide information:

"solely on the grounds that the information is at the disposal only of a bank or other financial institution, nominee holder, agent or trustee, or that such information reveals the owners of a particular entity."

Article 29 has been amended and retitled "Limitation of benefits". The new text stipulates that taxpayers may not apply exemptions to tax benefits if one of the main reasons for a taxpaying entity's creation or existence is to obtain benefits under the agreement.

The draft protocol stipulates a reduced tax rate of 5% for dividends received by a tax resident of one signatory state from sources in the other state. It also proposes to apply dividend treatment to:

  • income (including that paid in the form of interest) which is subject to the same taxation as income from shares under the tax legislation of the state in question; and
  • payments in connection with units in unit investment trusts or similar forms of collective investment (except for those relating to real estate).

In addition, payments relating to units in investment trusts that were created for real estate investment will be treated as income in the state in which the real estate is located. The same principle will apply to income from the disposal of shares in entities in which real property represents 50% or more of the value.

Protocol to agreement with Switzerland

The government has also approved(2) a similar draft protocol that amends the agreement between Russia and Switzerland on the avoidance of double taxation in respect of taxes on income and capital.(3)

Various provisions of the draft protocol are aimed at increasing the effectiveness of information exchange between the two countries' tax authorities. In particular, the draft protocol states that in order to obtain information for which a request is made, the tax authorities which receive the request:

"may, to perform the obligations established by this clause, apply compulsory measures to ensure the disclosure of information… regardless of… any provisions of the legislation of such Contracting State."

It is proposed to include a specific article aimed at "combating conduit companies".(4) This new provision would make it impossible to claim tax benefits under the agreement where, for example, a Russian resident that is receiving income from sources in Switzerland pays that income to a third party which could not have claimed such a benefit had it received the income directly.

The draft protocol also provides for a range of amendments to the taxation of types of income received by residents of one state from sources in the other state, such as dividends, interest and income from a disposal of shares in an entity of which more than 50% of the value is represented by real estate in the country that is the source of the income.

The information exchange procedure will apply to requests sent on or after the date on which the protocol comes into force, in relation to tax periods beginning on or after January 1 in the calendar year after the protocol comes into force.


The protocols must be ratified (or otherwise brought into force by internal state procedures) following the signing by the parties. The protocol with Switzerland was signed on September 25 2011. The corresponding amendments will apply to tax periods that begin on or after January 1 of the calendar year after the protocols came into force.

Russian taxpayers that have business dealings with tax residents of Luxembourg and Switzerland would be well advised to examine whether the amendments may affect the tax regime for transactions with those counterparties.

For further information on this topic please contact Andrey Tereschenko or Vladimir Voinov at Pepeliaev Group's Moscow office by telephone (+7 495 967 0007), fax (+7 495 967 0008) or email ([email protected] or [email protected]). Alternatively, contact Sergey Sosnovsky at Pepeliaev Group's St Petersburg office by telephone (+7 812 333 0717), fax (+7 812 333 07 16) or email ([email protected]).


(1) Government Directive 1410-r, August 11 2011.

(2) Government Directive 1624-r, September 21 2011.

(3) Agreement of November 15 1995.

(4) The term 'conduit' is, in effect, used in the sense of 'conduit companies', as examined in the Commentary on the Articles of the Model Tax Convention on Income and Capital of the Organisation for Economic Cooperation and Development.