On January 1st, 2014, a procedure for determination of dividend taxation base was clarified (Federal Law No.306-FZ d.d. 02.11.2013 hereinafter referred to as 306-FZ).
Now taxable sum withheld from a dividend-receiving taxpayer's income is calculated by a tax agent from the following formula:
N = K × Сн × (D1 – D2),
where
N — tax sum subject to withholding;
K — relation of dividend sum subject to distribution for the benefit of the dividend-receiving taxpayer to total sum of dividends subject to distribution by a Russian company;
Сн — tax rate;
D1 — total sum of dividends subject to distribution by a Russian company for the benefit of all receivers (previously denoted as 'd');
D2 — total sum of dividends received by a Russian company in the current tax period and previous tax periods (previously denoted as 'D').
It should be noted that before the stated date, the procedure for calculation of tax for dividends depended, among other things, on whether the company received dividends from other legal persons in the current or previous tax period. It was unclear shall the dividends received earlier be considered.
Clarifications from Russian Ministry of Finance (hereinafter referred to as Minfin), Federal Tax Service of Russia (hereinafter referred to as FTS), and juridical positions were in contradiction. Financiers allowed using previous periods for calculation of D (Minfin letter No. 03-03-06/1/28891 d.d. 23.07.2013). The taxmen noted that calculation of the factor could include only that tax period that directly precedes the current one (FNS Letter No.ED-4-3/10475@). The service justified its position by pointing out that clause 275 of Russian Tax Code uses the word 'previous' in a single form and, therefore, does not imply usage of any other, further earlier, period as related to the current one.
Courts also didn't have an unambiguous solution to that matter. Thus, judges of Moscow district allowed considering of only one previous period ending straight before the current one (decree of FAC of MO No.F-05-6463/13).
Yet other judges expressed an opposite opinion (decree of FAC of PO No. F-06-6717/12 d.d. 03.10.2012). They noted that one may include any tax period preceding the accountable one in the calculation of the tax withheld from the dividend payment. In order to clarify that issue the law-makers introduced relevant amendments to the Tax Code (clause 275 of the Russian Tax Code). Now calculation of D2 may consider all dividends received both in the following and previous tax periods provided they had not been accounted earlier.
The amendments became effective as of January 1st, 2014. Payment of dividends for 2012 and interim dividends within 2013 shall be performed under old requirements.
Taxation of dividends received from foreign companies
Generally, a Russian organization that had received dividends from a foreign company calculates the tax on its own by multiplying the dividend sum by tax rate (item 2 of clause 275 of RTC) thus functioning as a tax agent. Dividends received from a foreign company are taxable as revenue from participation in capitals of Russian organizations at the rate of 9% or 0% provided all necessary conditions are observed (item 3 of clause 284 of RTC).
Here are the conditions for application of 0% rate:
as of the date of dividend payment decision making, the dividend-receiving party owns less than 50% of shares in charter (share) capital (fund) of the dividend-paying organization;
as of the date of dividend payment decision-making the dividend-receiving organization continuously owns a share in the charter capital for 365 calendar days or more.
In that case zero tax rate applies if the foreign dividend-paying organization is not enlisted as an offshore zone. It's to be recalled that an offshore zone is a state or a territory providing a preferential tax treatment and that does not disclose or transfer information of bank transactions performed. List of offshore zones is subject to approval by Minfin. In order to justify their right to apply zero tax rate the taxpayers shall provide documents containing data on date (dates) of purchasing (obtaining) of property rights for a share in charter (share) capital (fund) of a dividend-paying organization (item 3 clause 284 of RTC) to the tax inspection.
In fact, a Russian dividend-receiving organization must calculate revenue tax and then it can reduce it by the sum of the tax that had already been withheld from this revenue at the foreign company's principal place of business. But this right can be used only if consideration of the tax is provided in an international treaty concluded between Russia and the country where the dividends are paid (paragraph 2 of item 2 of clause 275 of RTC). Consideration may be performed only to the extent of tax sum calculated per the rate established in the agreement for avoiding of double taxation.
In order to perform the consideration one shall provide a confirmation from a tax agent of withholding of a relevant sum in the dividend-payment source state (paragraph 2 of item 2 of clause 311 of RTC) and tax declaration of revenue of a Russian organization from sources beyond Russia to a tax inspection (Order of Russian Ministry of Taxes No.BG-3-23/709@ d.d. 23.12.2003).
Declaration of foreign revenue shall be provided along with declaration on revenue tax to the inspection at any tax period regardless of time of tax withholding.
The financiers clarify that no tax consideration is possible without confirmation of tax payment (Minfin letter No.03-08-05 d.d. 31.12.2009).
Russian FTS pertains to similar position (Letters of FTS Directorate of Moscow d.d.14.07.2006 No. 20-12/62876, d.d. 01.04.2005 No.20-12/21906, d.d. 27.12.2004 No.26-12/84596, d.d 07.12.2004 No. 26-12/78808, Ministry of Taxes Directorate of Moscow d.d. 22.09.2004 No. 26-12/61660). The taxmen clarify that the declaration on foreign revenue shall be accompanied by the following documents confirming the payment (withholding) of the tax beyond Russia:
- for taxes paid by the same organization: documents approved by tax entity of corresponding foreign state;
- for taxes withheld in accordance with legal codes of foreign states or international treaty by tax agents: confirmation from the tax agent.
Confirmation from a tax agent (foreign company) of withholding of a relevant tax sum may be submitted in the form of a letter from a company accompanied by a calculation and sum of the tax withheld. The document shall be signed by an authorized officer and certified by seal. A bank transfer order on transaction of a relevant sum as a tax withheld from a payment source with the bank's notion of performance shall be attached to the letter (Minfin letters d.d. 16.06.2010 No. 03-08-05, d.d. 07.10.2009 No. 03-08-05, d.d. 20.08.2008 No. 03-08-05, d.d. 26.01.2005 № 03-08-05). Documents in a foreign language shall be accompanied with a notarized translation into Russian.
Moreover, tax inspections may inquire for additional documents to perform tax control in the course of considering the consideration of revenue tax withheld from a Russian organization in a foreign state by tax agents (Minfin letter No. 03-08-05 d.d. 17.12.2009):
- duplicate of a contract on the basis of which a Russian organization obtains revenue beyond Russia, as well as acceptance certificates for works (services);
- duplicates of invoice documents confirming tax payment beyond Russia;
- documented confirmation from a tax entity of a foreign state of actual reception of the tax withheld from a Russian organization's revenue to the budget of the corresponding foreign state.
Russian Minfin also clarified (in Minfin letter No.03-03-06/2/236 d.d. 23.12.2009) that tax sums paid as per legal codes of foreign states by a Russian company are considered while payment of revenue tax in Russia by the same company in that taxation period when the payer received a confirmation of tax withholding in a foreign state from a tax agent. Relevant revenues from which the tax had been withheld in a foreign state shall be considered in the course of tax base formation for revenue tax in the current or preceding tax periods.
Tax declaration for revenue tax following the tax period shall be submitted by the taxpayers not later than on 28th March of a year following the elapsed tax period (item 4 of clause 289 of RTC).
Tax sum subject to consideration is reflected per lines 240 through 260 of Sheet 02 of tax declaration in that tax period when the Russian organization obtained the right for consideration (cl. 5.9 of Annex No.3 to the order of FTS No.MMV-7-3/174@ d.d. 22.03.2012). It should be noted that values in lines 240, 250 and 260 cannot exceed those in lines 180, 190 and 200 respectively.
EXAMPLE
Company "Sveko" has a standalone subdivision in Tashkent (Uzbekistan). A tax of 50,000 rub. was paid abroad.
Distribution of the paid-abroad tax (50,000 rub.):
Revenue tax sum for the federal budget comprises 5,000 rub. (50,000 × 2% : 20%).
"Sveko" reflects this sum in line 250 of Sheet 02 of the declaration;
Tax sum considered for revenue tax payment to Russian regional budget comprises 45,000 rub. (50,000 rub. × 18% : : 20%).
"Sveko" reflects this sum in line 260 of Sheet 02 of the declaration (refer to the figure).
Fragment of Sheet 02 of revenue tax declaration for organizations
Taxation of dividends paid to foreign companies
The 306-FZ Law provides details on the list of persons considered tax agents since 1st January, 2014, while paying revenues to organizations in the form of dividends of shares issued by a Russian organization. It enlists Russian companies paying dividends to foreign companies from Russian shares. Rights for those shares shall be registered in security bonds register of a Russian organization at personal account of their owner as of the date determined in the decision of payment (declaring) of revenues from those shares.
Dividends paid by Russian companies to foreign organizations are generally taxed for revenue at the rate of 15% (sub-paragraph 2 of item 3 of clause 284 of RTC) if other taxation rates are not provided in an international treaty of the Russian Federation for taxation issues (item 6 of clause 275 of RTC). In fact other tax rates are applied as stated in Russian Government's agreements with other countries' governments as for avoiding of double taxation related to revenue and capital taxation.
For instance, according to provisions of Agreement between Russian and Cyprus governments on avoiding of double taxation (item 2 of clause 10, 05.12.1998) dividends at the payment source are taxed at the following rate:
1) 5% of total sum of dividends if the person having the actual right for the dividends directly invested a sum equal or more than 100,000 euros to the capital of the company;
2) 10% of total sum of the dividends in all other cases.
Thus, in each particular case a Russian organization defines a tax rate as per provisions of an agreement.
While paying dividends to a foreign company, a Russian organization shall submit a special tax declaration on foreign organization revenue tax. Declaration filling-in instruction is developed by the tax entity (order of Russian Ministry of Taxes d.d. 07.03.2002 No. BG-3-23/118).
Please note that reduced rates (as compared to the general rate of 15%) is possible if the following is observed (item 3 of cl.310 of RTC): the foreign organization shall provide the Russian organization (tax agent) a confirmation of fiscal residence of the foreign company (item 1 of cl.312 of RTC).
This confirmation shall be issued by an authorized (in terms of a relevant agreement on avoiding of double taxation) entity of a foreign state, certified by its seal (stamp) and becomes subject to legalization pursuant to the established procedure or apostilization. The confirmation shall include a particular period (for instance, a calendar year) in relation to which the residence of the foreign organization is confirmed. The stated period shall comply with the period for which the revenues being due to the foreign organization is paid.
The confirmation compiled in a foreign language shall be submitted along with a translation into Russian originally or as a duplicate with notarial certification.
Should the confirmation is absent, the dividend tax shall be withheld at the rate of 15% and may be recalculated subsequent to reception of a confirmation with simultaneous submitting of a corrected declaration on foreign organization tax declaration.
"Actual accounting"
