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Cyprus and Russia make no progress on double-tax treaty

There has been almost no progress in the negotiations for an amended double taxation treaty between Cyprus and Russia, sources close to the negotiations told the Cyprus Mail on Friday.

Negotiations that took place on Wednesday consisted almost entirely of Cyprus representatives putting their proposals in writing and sharing them with their Russian counterparts.
“The Russians are taking a very hard line on this,” sources said. “There was very little response to our proposals. Another meeting is scheduled for July 2.

He noted that Russia has recently allowed its double taxation treaty with Malta to lapse, as the two sides could not come to an agreement.
The Cypriot side is reportedly seeking some exceptions to Russia’s overall demand to place a 15 per cent withholding tax on dividends paid from Russian companies to Cyprus-based accounts by Russian residents or companies.

Russian President Vladimir Putin announced this measure in March in a speech to the nation.

The Russian Ministry of Finance said in a subsequent statement that the dividend tax will be in force in 2021. The Ministry has not suggested that there is any room for negotiation.
Cyprus was the first treaty partner to receive an official letter on April 1 from the Russian Ministry of Finance regarding changes to the existing income tax treaty. A similar letter has since been sent to Luxembourg.

According to the Russian embassy in Nicosia, Cyprus had been selected as the first country for objective reasons. “Thirty-four per cent of the cumulative direct foreign investment in the Russian economy comes from Cyprus,” the embassy told the Cyprus News Agency (CNA).

CMS Russia writes: “If the requested amendments are introduced to the DTT, it may be reasonably expected that newly increased withholding tax rates will not only apply to direct payments made to Cypriot entities, but also indirect ones made through other jurisdictions, provided that the ultimate beneficial owner of such income is located in Cyprus (based on recent court practice on beneficial ownership issues).

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