On November 25, 2016 the Inland Revenue Authority of Singapore issued a press release announcing that the Protocol to Amend the Agreement Between the Government of the Russian Federation and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which was signed on November 17, 2015 (Hereafter: the Protocol), entered into force on November 25, 2016.

 

The Protocol amends certain provisions of the Agreement Between the Government of the Russian Federation and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which was signed on September 9, 2002 and which entered into force on January 16, 2009 (Hereafter: the DTA).

 

Based on Article XIII of the Protocol, the fact that the Protocol entered into force on November 25, 2016 means that the provisions of the Protocol shall have effect:

a)   in Singapore:

(i)   in respect of taxes withheld at source, on amounts liable to be paid, deemed paid or paid (whichever is the earliest) on or after January 1, 2017;

(ii)  in respect of tax chargeable (other than taxes withheld at source) for any year of assessment beginning on or after January 1, 2018; and

(iii) in respect of Article 26 (Exchange of Information), for requests made on or after the date of entry into force concerning information for taxes relating to taxable periods beginning on or after January 1, 2017; or where there is no taxable period, for all charges to tax arising on or after January 1, 2017.

b)   in the Russian Federation, for taxable periods beginning on or after January 1, 2017.

 

Below we will discuss a selection of provisions included in the Protocol of which we think they might interest our readers.

 

Permanent establishment

Article 5, Paragraph 2 of the DTA arranges that the term “permanent establishment” includes especially certain situations. Article III of the Protocol arranges that Paragraphs 2g and 2h of Article 5 of the DTA (“Permanent Establishment”) shall be deleted and replaced by the following:

 g)  a building site, construction, installation or assembly project or supervisory activities in connection therewith, but only if such site, project or activities lasts more than 12 months;

h)   the furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days in any 12-month period.

 

Dividends

Article IV of the Protocol arranges that Article 10 of the DTA (“Dividends”) shall be deleted and replaced by a new Article 10 (“Dividends”).

 

If the beneficial owner of the dividends or distributions is a resident of the other Contracting State, the new Article 10, Paragraph 2 maximizes the withholding tax a Source State is allowed to withhold over dividends or distributions to:

a)   in the case of dividends:

(i)   5 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a company which holds directly at least 15 per cent of the capital of the company paying the dividends;

(ii)  10 per cent of the gross amount of the dividends in all other cases;

b)   in the case of distributions paid by the real estate investment fund: 10 per cent of the gross amount of the distributions.

 

The new Article 10, Paragraph 6 of the DTA arranges that the term “real estate investment fund” as used in Article 10 means:

a)   in the case of Singapore, a trust that is constituted as a collective investment scheme authorised under section 286 of the Securities and Futures Act (Cap. 289) and listed on the Singapore Exchange, and that invests or proposes to invest in immovable property and immovable property-related assets;

b)   in the case of the Russian Federation, a mutual investment fund organised in the Russian Federation primarily for the purpose of investing in immovable property situated in the Russian Federation.

 

The new Article 10, Paragraph 9 contains an anti-abuse clause, which reads as follows:

The provisions of this Article shall not apply if it was the main purpose of any person concerned with the creation or assignment of the shares, units or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.

 

Interest

Article V of the Protocol arranges that Article 11 of the DTA (“Interest”) shall be deleted and replaced by a new Article 11 (“Interest”).

 

The new Article 11 arranges that a Source State is in principle not allowed to withhold withholding taxes over interest.

 

The new Article 11, Paragraph 6 contains an anti-abuse clause, which reads as follow:

The provisions of this Article shall not apply if it was the main purpose of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.

 

Royalties

Article VI of the Protocol arranges that Article 12 Paragraphs 2 and 3 of the DTA (“Royalties”) shall be deleted and replaced by a new Paragraph 2 and 3.

 

If the beneficial owner of the royalties is a resident of the other Contracting State, the new Article 12, Paragraph 2 maximizes the withholding tax a Source State is allowed to withhold over the royalties to 5 per cent of the gross amount of the royalties.

 

Furthermore a.o. a new Paragraph 7 is added to Article 12 of the DTA. This new Paragraph 7 contains an anti-abuse clause, which reads as follows:

The provisions of this Article shall not apply if it was the main purpose of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.

 

Other

Article IX of the Protocol arranges that Article 22 of the DTA (“Limitation of Benefits”) shall be deleted and replaced by the following:

This Agreement shall not apply to any person who became a person covered by the Agreement if the principal goal of such a person is to enjoy the benefits of any reduction in or exemption from tax provided by this Agreement. In no case shall this exclusion apply to any person engaged in real business activity. The competent authorities of the Contracting States shall consult each other on the application of this provision.

 

Article XI of the Protocol arranges that Article 26 of the DTA (“Exchange of Information”) shall be deleted and replaced by a new Article 26 (“Exchange of Information”).

 

Click here to be forwarded to the text of the DTA and the amending Protocol as available on the website of the Inland Revenue Authority of Singapore.

 

 

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