Russia: Withholding tax and disclosure procedures for Depository Receipts with Russian underlying securities
Effective
immediately
the withholding tax and disclosure procedures described below will apply to Depository Receipts with Russian underlying securities (referred to herein as “Russian DRs”) with a record date1 as of 1 January 2014.
Background
Russian Law 306-FZ establishes, among other things, that the information required by the tax agent must be presented in all details, in the correct format and on a voluntary basis, before payment date and that failure to do so will result in income entitlements under Russian securities being subject to a tax rate of 30% (15% withholding tax rate together with 15% penalty tax rate).
In addition, the Russian Tax Authorities are entitled by Russian law to request, after the payment of income, disclosure of the documents mentioned below in the Ad-hoc Tax Disclosure section.
As a consequence, Russian DRs held with Clearstream Banking2 for which no disclosure has been provided are subject to the maximum 30% tax rate.
Applicable withholding tax rates
After submission of the required information within the prescribed deadlines, the following reduced tax rates are available:
- Double Taxation Treaty (DTT) rates: if the final beneficial owner3 is a resident of a country that has signed a DTT with Russia (“DTT country”);
- 15%: if the final beneficial owner is not resident in a DTT country but discloses his residency and holdings;
- 9%: if the final beneficial owner is a Russian resident.
The maximum tax rate of 30% will be applied for undisclosed positions.
Impact on customers
Relief from withholding tax is available to eligible beneficial owners through CBL by means of relief at source and quick/standard refund procedures as described in the following sections.
Relief at source
In order to benefit from relief at source on income from Russian DRs, CBL customers will need to ensure that we receive the following documents by the deadline included in the tax notification distributed by CBL before each income event:
One-Time Certificate for Depository Receipts with Russian underlying securities
The One-Time Certificate (see version attached below) must be submitted by all customers, regardless of the residency and status of the beneficial owners, before the first trade in Russian DRs or at the latest before the first impacted income payment date and must state that the customer holds the securities, either:
BOX 1 – Standing instruction: Exclusively for one single beneficial owner (which may be the customer or his underlying client) eligible for reduced tax rates. By ticking the first box, a reduced tax rate is applied by default at source on all further interest payments. The customer must, in order to comply with the reporting obligations, complete the beneficial owner’s data as described in the One-Time Certificate and authorise CBL to forward these details together with the total holding to the Russian authorities (through the depository and agents) for each income paid to the customer’s account.
Or
BOX 2 – Standing instruction: On behalf of several beneficial owners (including the customer, when applicable), being exclusively either legal entities or individuals and:
- Residents of the same country, whether having a DTT with Russia or not; or
- Russian residents.
By ticking the second box, the applicable reduced rate of tax is applied by default at source on all further income payments. The customer must, in order to comply with the reporting obligations, complete the beneficial owners’ data as described in the One-Time Certificate and authorise CBL to forward these details together with the total holding to the Russian authorities (through the depository and agents)for each income payment made to the customer’s account.
Or
BOX 3 – Instruction per payment: On behalf of several beneficial owners that are residents of different countries and eligible for reduced rates of tax as above but also on behalf of beneficial owners that are not willing to disclose their holdings and country of residence. In addition to the One-Time Certificate, the customer is required to submit, before each income payment, a Breakdown of Holdings as explained below.
One-Time Certificates that have more than one box ticked are not valid and will be rejected.
A Breakdown of Holdings
When Box 3 was ticked in the One-Time Certificate, a Breakdown of Holdings must be provided, before each impacted income event, via SWIFT MT599 or CreationOnline free-format message indicating:
- ISIN;
- Payment date;
- Customer’s CBL account number;
- Customer’s total holding;
- Per country of residence and legal status of beneficial owner:
- The country of residence;
- DTT details Article, Paragraph, Sub-paragraph);
- Legal Status (individual/legal entity);
- Total holding;
- Tax Rate to apply;
- The total holding that remains undisclosed.
All these declared positions must be accurate on the relevant record date indicated in CBL’s tax notification at 19:00 CET, meaning that no further transactions are allowed after the submission of the Breakdown. If there is a discrepancy between the declared positions and the customer’s total holding visible in CBL's books, the application for tax exemption will be rejected and, consequently, the maximum tax rate of 30% will be applied.
Furthermore, if Box 3 of the One-Time Certificate is ticked and we receive no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum standard tax rate will be applied.
Quick refund
A quick refund of withholding tax is available for beneficial owners eligible for tax relief if the required certification has not been provided within the relief at source deadline.
The eligibility criteria and certification requirements are the same as for relief at source (see above).
In addition, if a One-Time Certificate with Box 1 or 2 ticked is submitted for a quick refund application, customers are obliged to send in addition a SWIFT MT599 or CreationOnline free-format message indicating the ISIN and payment date for which the standing instruction must be applied.
Deadline for quick refund
In order to benefit from a quick refund from Russian DRs, customers must ensure that we receive the above-described documents by the deadline included in the tax notification distributed by CBL before the respective income event.
Standard refund
Note:The standard refund process with the Russian Tax Authorities is extremely complex and time-consuming. As a consequence, we strongly suggest that customers apply for relief at source or quick refund in order to obtain the reduced tax rates. Furthermore, the DR agent has not yet confirmed that the standard refund service will be offered. Therefore, we provide below, for information purposes only, the documentation and additional information as confirmed for the domestic securities. As soon as we obtain a final confirmation from the DR agents that standard refund will be available, we will inform you accordingly.
- For legal entities:
- A tax refund application in the form required by the federal executive authority in charge of tax supervision; and
- A certification that the relevant foreign organisation was, as at the income payment date, a tax resident of a jurisdiction with which the Russian Federation has a DTT (such certification issued by a competent authority of such foreign jurisdiction).
- For individuals:
- A tax refund application (in any form);
- A tax residency certificate (or other documents) issued and certified by a competent foreign authority authorised to issue such certificates.
For the purpose of refunding any tax withheld on the basis of summary information (updated summary information) under article 214.6 or 310.1 of the Russian Tax Code, the following documents shall be additionally submitted (both by legal entities and individuals) in accordance with article 312 of the Russian Tax Code:
- A document evidencing that, as at the date determined by the relevant Russian issuer’s decision to pay income on the securities:
- The applicant was authorised to exercise the rights attached to such securities; or
- The rights to such securities were exercisable by a trustee on behalf of the applicant;
- A document evidencing the amount of income on the securities (including the securities held in trust on behalf of the applicant), as was actually paid to the applicant (or to the applicant’s trustee);
- A document containing information on the depository (depositories) that, either directly or through third parties, remitted the amount of income on the securities to a foreign organisation authorised, in accordance with the laws of the jurisdiction of its incorporation, to keep records of, and process the transfer of rights to, the securities, and that has been keeping records of the securities held by the applicant (or by the applicant’s trustee);
- A document showing that, as at the date determined by the relevant Russian issuer’s decision to pay income on the securities, the person authorised to exercise the rights attached to such securities, or the person on whose behalf the rights to such securities were exercisable by the trustee, complied with the additional terms and conditions provided for by the Russian Tax Code or by the relevant DTT of the Russian Federation, compliance with which is required to apply a reduced tax rate to the income payable (or paid) (in the event of a tax refund due to the application of a reduced tax rate).
Where any of the above documents is in a foreign language, the Russian Tax Authorities may request that such document(s) be translated into Russian. The requirement for notarisation and translation into Russian shall not apply to payment documents only.
An application for refund of taxes withheld in the Russian Federation and any other of the above documents shall be submitted, by the relevant recipient of the foreign income to the tax authority with which the withholding agent is registered, within three years or one year following the end of the tax period in which the income was paid to the foreign organisation or foreign individual, respectively.
The tax amount withheld (and paid) shall be refunded in Russian Rubles, by the tax authority with which the withholding agent is registered, upon submission of a tax refund application and the above documents.
The decision on whether to refund tax shall be made by the competent tax authority within 10 days of the receipt of the taxpayer’s tax refund application. The tax authority shall notify the taxpayer in writing of the tax authority’s decision to refund tax or reject the tax reclaim application within five days of the date on which such decision is made.
The statutory deadline for reclaiming withholding tax using the standard refund procedure is three years following the income payment date.
The deadline by which Clearstream Banking must receive the documentation for application for a standard refund of withholding tax will be defined as soon as the service and all details linked to it will be confirmed by the DR agents.
Ad-hoc tax disclosure
When submitting the per-country of residence information to CBL, the customer must make sure that the final beneficial owner holds documents certifying his tax residency status as at the income payment date (for example, the Certificate of Residence must be issued before the respective income event and within the same calendar year for which tax relief has been applied, indicating the DTT in place), as, pursuant to the Russian Tax Code, the tax residency status of a beneficiary of income must be specified in summary information on the basis of documents certifying such tax residency status.
Under article 2148 or 3102 of the Russian Tax Code, tax authorities may, in the course of an office audit and/or field audit, request the withholding agent, the foreign nominee or the relevant foreign competent authority to provide documents certifying the beneficial owner’s eligibility for the tax rates applied at source. Customers are responsible to comply with these obligations.
According to the information obtained from the NSD, such requirements may include, among other things, copies of identification card/registration documents, certificate of residence (valid for the year when the income was paid), credit advice provided by each intermediary in the custody chain etc.
Deadline for ad-hoc tax disclosure
The deadline within which the Russian Tax Authorities may request additional information is three years following the income payment date. CBL will immediately inform customers after receipt of the official request.
The deadline within which the documentation must be received back from customers will be defined as soon as all details linked to the ad-hoc tax disclosure process are confirmed by the DR agents.
Further information
For further information, customers may contact the Clearstream Banking Tax Help Desk on:
| Luxembourg | Frankfurt | Singapore | |
| Email: | tax@clearstream.com | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 | +65-6597-1665 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Customer Service or their Relationship Officer.
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1. Record date must be set between 10 and 20 calendar days after the Annual General Meeting and payment date must be set within 25 local business days after the record date.
2. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
3. For foreign investment funds (investment companies) that qualify as collective investment schemes under the laws of their jurisdiction, the disclosed information shall not include information on investors (or their finduciaries).
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