Russia proposes changing tax agreement with Netherlands, eyes 15% dividend tax

MOSCOW (Reuters) - Russia’s finance ministry on Wednesday proposed revising its bilateral tax agreement with the Netherlands, as Moscow looks to increase tax revenues on capital outflows to boost state coffers in the wake of the coronavirus pandemic.

With Russia’s economy bruised by low oil prices and the COVID-19 outbreak, President Vladimir Putin in March proposed a 15% tax on all interest and dividend payments leaving Russia, to combat capital outflows, starting next January.

At the time, he warned that Russia would unilaterally withdraw from agreements with foreign partners who did not accept its suggestions.

A vast network of bilateral tax treaties around the globe has made the Netherlands a key hub for corporate entities shifting profits to lower tax jurisdictions for years and several Russian companies are registered in the Netherlands, including internet giant Yandex YNDX.O and the X5 retail group FIVEDR.MM.

Both companies declined to comment.

The move follows similar proposed changes on Monday, when the finance ministry said it would scrap an agreement with Cyprus aimed at avoiding double taxation after it said talks aimed at altering the system in line with Putin’s request had failed.

The proposed changes could make for a very painful situation for Russian firms with financial centres in the Netherlands, said Dmitry Babarin, a tax partner at Ernst & Young in Moscow.

However, he said he expected exceptions to be made for certain publicly traded Dutch companies and that some sort of compromise over corporate bond trading would likely be reached with the Dutch authorities.

Tax analysts at KPMG said the Dutch finance ministry had received the letter from Russia on Tuesday, pointing out that Cyprus, Malta and Luxembourg had all received similar letters.

The Dutch finance ministry could not immediately be reached for comment.

Additional reporting by Darya Korsunskaya, Andrey Ostroukh, Olga Popova and Nadezhda Tsydenova in Moscow and Bart Meijer in Amsterdam; writing by Gabrielle Tétrault-Farber and Alexander Marrow; editing by Larry King