The Russian Ministry of Finance (MoF) on 22 February 2017, issued Guidance Letter No. 03-08-05/73316 of 7 December 2016, clarifying the taxation under the Russia – Spain Income and Capital Tax Treaty of the dividends derived by a Spanish company.

According to article 7(4) of the Tax Code, with regard to income derived from Russia and paid to a non-resident who is not the beneficial owner of that income, if the person paying the income has been informed that the recipient is not the beneficial owner of the income, the provisions of the tax treaty between Russia and the resident state of the beneficial owner will apply.

Further, article 312( 1.1) of the Tax Code also states that a look-through approach applies where the recipient of the dividends acknowledges that it is not the beneficial owner of the dividend income and thus tax treaty provisions apply to another person who is the beneficial owner of the dividend income and who has directly invested in the Russian company.

Under article 10(2)(a) of the Treaty, dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state may be taxed at 5% in the contracting state of which the company paying the dividends is a resident and according to the laws of that state, if the recipient is the beneficial owner of the dividends, provided that both of the following conditions are met: (i) if the beneficial owner is a company (other than a partnership) which has invested at least 100,000 ECU (EUR 100,000) or the equivalent amount in any other currency in the capital of the company paying the dividends; and (ii) those dividends are exempt from tax in the other contracting state.

The MoF said that in order to apply the reduced 5% rate under the Treaty, the Spanish company must directly invest at least EUR 100,000 or the equivalent amount in any other currency in the capital of the Russian company paying the dividends.