The Ministry of Finance has issued Letter No. 03-08-05/9669 on May 6, 2014 that clarifies the application of thin capitalization rules to the interest paid by a Russian company (borrower) to another Russian company (lender) under a controlled loan within the meaning of article 269 of the Tax Code. The loan is assured by a foreign company, which owns more than 20% of the equity of the Russian borrower. The Russian borrower can subtract the interest expenses for corporate income tax purposes to the level that such expenses do not cross the limits calculated based on article 269 of the Tax Code. Again, the Ministry of Finance noticed that the lender must familiar the whole amount of interest under the loan agreement as long as article 269 of the Tax Code sets forth limitation rules in respect of deductible expenses.
Therefore, the Ministry of Finance concluded that the positive difference between accrued interest and marginal interest (calculated based on provisions of article 269 of the Tax Code) paid by a Russian company to another Russian company under a loan guaranteed by a foreign company affiliated to the borrower should not be subject to taxation at source.
