Stelios Gregoriou - IBCPIB™ 2009


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Stelios Gregoriou - IBCPIB™ 2009

  1. 1. New Protocol to the Cyprus –Russia DTT & Tax Update STELIOS A. GREGORIOU Tallinn 16 July 2009
  2. 2. New protocol to the Cyprus- Russia DTT <ul><li>- Signed on 16 April 2009 </li></ul><ul><li>- Expected to come into effect on 1 January 2010 </li></ul><ul><li>Two main changes in relation to previous treaty: </li></ul><ul><li>Capital gain on sale of shares of companies which hold more than 50% of their assets in immovable property, may be taxed in the country where the property is situated. </li></ul><ul><li>Exchange of information- </li></ul><ul><li>In line with the Article 26 of the OECD model </li></ul>
  3. 3. New protocol to the Cyprus- Russia DTT <ul><li>Other provisions </li></ul><ul><li>1. No changes to withholding Tax rates </li></ul><ul><li>Dividends ----------- 5%* </li></ul><ul><li>Interest -------------- 0% </li></ul><ul><li>Royalties ----------- 0% </li></ul><ul><li>* The minimum investment for the 5% to apply is now Euro100.000 and not US$100.000 (10% in all other cases) </li></ul>
  4. 4. New protocol to the Cyprus- Russia DTT <ul><li>Other provisions </li></ul><ul><li>Article 2 </li></ul><ul><li>Clarification of existing “tie-breaker” clause in relation to residency </li></ul><ul><li>In case where the effective management cannot be determined, the Cyprus and Russian Tax Authorities should consult between them, having regard to all factors they consider relevant, and come to a mutual agreement in this respect. </li></ul>
  5. 5. New protocol to the Cyprus- Russia DTT <ul><li>Other provisions </li></ul><ul><li>Article 5 </li></ul><ul><li>Extension of definition of Permanent Establishment </li></ul><ul><li>…… to allow for the taxation of profits from services performed in one country by an entity of the other country through an individual/s presence in the other country for more than 183 days in a 12 months period </li></ul>
  6. 6. New protocol to the Cyprus- Russia DTT <ul><li>Other provisions </li></ul><ul><li>Article 10 </li></ul><ul><li>The term “Dividends” covers distributions from: </li></ul><ul><li>-Mutual Investments Funds </li></ul><ul><li>-Shares held in the form of Depositary Receipts </li></ul><ul><li>Therefore, only 5% or 10% WT comparing to 20% which is the WT now. </li></ul>
  7. 7. New protocol to the Cyprus- Russia DTT <ul><li>Other provisions </li></ul><ul><li>Article 11 </li></ul><ul><li>The term “Interest” is clarified that it also includes income from debt- claims of any kind whether or not secured by mortgage and whether or not carrying the right to participate in the debtor’s profits. </li></ul><ul><li>However it does not cover interest regarded as Dividend under para. 3 of Art. 10 (thin capitalisation rule) </li></ul>
  8. 8. New protocol to the Cyprus- Russia DTT <ul><li>Other provisions </li></ul><ul><li>Article 29 </li></ul><ul><li>Limitation of benefits </li></ul><ul><li>A company which is not registered in any of the Contracting States but it is resident with main purpose to obtain the benefits of this Agreement shall not be entitled to any reduction or exemption from taxes provided for in this agreement on income derived from the other contracting state. </li></ul>
  9. 9. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>Article 13 </li></ul><ul><li>Capital Gains </li></ul><ul><li>-Gains from the sale of shares deriving more than 50% from immovable property situated in the other contracting state may be taxed in that other state. </li></ul><ul><ul><li>Gains shall not include gains from sale of shares: </li></ul></ul><ul><ul><li>Listed on a recognised Stock Exchange </li></ul></ul><ul><ul><li>In the course of corporate reorganisation </li></ul></ul><ul><ul><li>Derived from Pension or Provident Funds and the Government of the Contracting State </li></ul></ul>
  10. 10. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>… .Capital Gains </li></ul><ul><li>This amendment shall be effective 4 years from the date from which the Protocol will enter into force (ie. 2013 or 2014) </li></ul><ul><li>“ Deriving more than 50% of their value” directly or indirectly? </li></ul><ul><li>The words “directly or indirectly” were deleted from the Protocol enabling tax planning structures. </li></ul>
  11. 11. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>Article 26 </li></ul><ul><li>Exchange of information </li></ul><ul><li>The Article has been revised in line with article 26 of the OECD Model Tax Convention. It reflects the changes that have already been made in the Cyprus tax laws since 2008. </li></ul>
  12. 12. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of information </li></ul><ul><li>2. The two contracting states shall exchange such information as is foreseeable relevant to secure the correct application of the provisions of the treaty or of their domestic laws concerning taxes of every kind and description . </li></ul><ul><li>3. Contracting States are not at liberty to engage in “fishing expeditions” or request information which are irrelevant to tax affairs. </li></ul>
  13. 13. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of information </li></ul><ul><li>The information is exchanged by request , only. No automatic or spontaneous exchange of information. </li></ul><ul><li>Contracting States do not have to supply information, the disclosure of which could be contrary to Public Policy, ie. Were motivated by political, racial or religious persecution. </li></ul>
  14. 14. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of information </li></ul><ul><li>Requested information shall be provided even though the State may not need such info for its own tax purposes (new para 4) </li></ul><ul><li>Professional secrecy rules (eg. By a bank or a person acting in an agency or fiduciary capacity) cannot be used as a reason for refusing the supply of information (new para 5). </li></ul>
  15. 15. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of information </li></ul><ul><li>The procedure to be followed in obtaining the information under the law is as follows: </li></ul><ul><li>The Director of Inland Revenue should disclose to the person for whom the information is sought, the name of the foreign tax authority requesting the information. </li></ul>
  16. 16. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of informatio n </li></ul><ul><li>The foreign tax authority should provide </li></ul><ul><li>- The identity of the person </li></ul><ul><li>- Description of information sought </li></ul><ul><li>- Tax purpose for which the information is sought </li></ul><ul><li>- The grounds for believing that info is held by the director or a person in the Republic </li></ul>
  17. 17. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of informatio n </li></ul><ul><li>-Statement that the request for info is in conformity with the law and admin practices of the applicant state </li></ul><ul><li>-Statement that the applicant state has pursued all means available in its own juristiction to obtain the information </li></ul>
  18. 18. New protocol to the Cyprus- Russia DTT <ul><li>Main changes </li></ul><ul><li>…… Exchange of informatio n </li></ul><ul><li>The Director shall not supply any info except if he is satisfied that the applicant state has reciprocal provisions </li></ul><ul><li>Before providing any info the Director must obtain written consent of the Attorney General </li></ul><ul><li>The taxpayer has the right to apply to the Court to prevent the provision of information. </li></ul>
  19. 19. New protocol to the Cyprus- Russia DTT <ul><li>Conclusion </li></ul><ul><li>- The amendments are not substantial to affect the flow of investments between the two countries </li></ul><ul><li>The effects of the CGT amendment expected to be introduced in 2014, can be limited by tax advise </li></ul><ul><li>Exchange of info will be in the form of confirmation and not request for information </li></ul><ul><li>The treaty is the most favourable concluded by the Russian Federation. </li></ul>
  20. 20. Tax Update <ul><li>Investment instrument that constitutes “Titles ” </li></ul><ul><li>The profit from sale of titles is exempt from taxation. For the purpose of interpretation of the term “titles” the Inland Revenue issued a circular clarifying what is considered “title”: </li></ul><ul><li>1.       Ordinary Shares </li></ul><ul><li>2.       Founder’s shares </li></ul><ul><li>3.       Preference Shares </li></ul><ul><li>4.       Options on titles </li></ul><ul><li>5.       Debentures. </li></ul><ul><li>6.       Bonds </li></ul><ul><li>7.       Short positions on titles </li></ul>
  21. 21. Tax Update <ul><li>8.       Future/Forwards on titles </li></ul><ul><li>9.       Swaps on titles </li></ul><ul><li>10.   Depositary receipts on titles e.g. ADRs and GDRs </li></ul><ul><li>11.   Rights of claim on bonds and debentures, which do not include the right on interest of such instruments. </li></ul><ul><li>12.   Index participations only if they represent titles. </li></ul><ul><li>13.   Repurchase agreements or Repos on titles </li></ul><ul><li>14.   Share capital participations in companies like Russian OOO and ZAO, United States companies LLC provided that they are subject to tax on their profits, Romanian SA and SRL and Bulgarian AD and OOD. </li></ul>
  22. 22. Tax Update <ul><li>15.   Units in open-end or closed-end collective investment schemes which have been incorporated, registered and operate according to the provisions of specific and relevant legislation of the country in which they have been incorporated. </li></ul><ul><li>Examples of such collective investment schemes are: </li></ul><ul><li>● Investment Trusts, Investment Funds, Mutual Funds, Unit Trusts, Real Estate Investment Trusts. </li></ul><ul><li>● International Collective Investment Schemes- ICIS. </li></ul><ul><li>● Undertakings for Collective Investments in Transferable Securities or UCITS. </li></ul><ul><li>● Other relevant investment organizations. </li></ul>
  23. 23. Tax Update <ul><li>Note: Promissory Notes and Bills of Exchange do not constitute titles </li></ul><ul><li>Direct expenses for “titles”, ie. Brokers fees, exchange differences on trading of tilltes etc. are not allowed for tax purposes </li></ul><ul><li>Indirect expenses eg. Overheads, are allocated: </li></ul><ul><li>Based on gross receipts of each type of income, ie Proceeds from sale of titles Vs proceeds from sale of Promissory notes, or </li></ul><ul><li>Based on cost of acquisition of the assets, ie Cost for purchase of titles Vs Cost of Promissory Notes . </li></ul><ul><li>Method should apply consistently. </li></ul>
  24. 24. Tax Update <ul><li>Last year the Cyprus government changed the stamp duty. </li></ul><ul><ul><li>No stamp duty on contracts that relate to foreign transactions. </li></ul></ul><ul><ul><li>Other contracts there is a maximum of €17.000. </li></ul></ul><ul><li>Expected / suggested changes </li></ul><ul><ul><li>Abolition of 1% restriction in investments regarding dividends received by Cyprus holding companies. </li></ul></ul><ul><ul><li>Legislation on mutual funds </li></ul></ul><ul><ul><li>Abolition of 1,5% charge on Stock Exchange transaction </li></ul></ul>
  25. 25. Thank you! <ul><li>Stelios A. Gregoriou </li></ul><ul><li>+357 2559 1515 </li></ul><ul><li>[email_address] </li></ul>