Notice to Customers on Clarification of Withholding Tax on Foreign Entities’ Income


This Notice of VTB Bank (PJSC) Depository (the “Depository”) is addressed to customers of the Depository who are legal entities — tax residents of foreign states not engaged in any entrepreneurship activities and whose securities are recorded on a depo account of a securities’ holder opened with the Depository (the “Depositors”).

Hereby the Depository informs of amendments made to the communication with the Depositors aimed at confirming the legitimacy for the Depository to apply tax benefits under the international double taxation treaties (the “International Treaties”) entered into by and between the Russian Federation and the state of the Depositor’s permanent establishment (“Tax Benefits”) when the Depository pays any income under the securities issued by Russian issuers to such Depositors.

Starting from the date this Notice is published and for the purpose of confirming the right to such Tax Benefits, the Depositor should submit to the Depository, along with a confirmation of its permanent establishment and a confirmation letter of the person having an actual right to the income (the “Confirmation Letter”), an additional set of documents (*Annex 1 hereto) to confirm the correctness of representations set out in the Confirmation Letter. Having considered the documents received from the Depositor, the Depository may request any additional documents or clarifying information to be provided by the Depositor.

The amendments set out in this Notice are due to the following factors:

  • Abusive practice by some foreign companies in using the right to Tax Benefits with no actual right to manage the Russian Federation source income.
  • Enhanced control by tax authorities1 over the legitimacy for Russian depositories to apply Tax Benefits stipulated by the International Treaties when paying income in favor of foreign companies. As a result of their claims, tax authorities recover the not withheld tax amount and relative fines from the Russian depositories who act as tax agents.
  • Development of legal practice in the Russian Federation when Russian courts would support tax authorities in their claiming the legitimacy of the application of Tax Benefits under the International Treaties if foreign companies do not have any actual right to the income gained.
  • Enactment of the Multilateral Convention to Implement Tax Treaty Related Measured to Prevent Base Erosion and Profit Shifting (the “Convention”) which states that non-residents may be subject to Tax Benefits in income payment only if the person deriving the income complies with the “Principle Purpose Test”. The Russian Federation is one of the countries that have ratified the Convention.

If the documents referred to in Annex 1 hereto are not submitted to the Depository, or if any document submitted does not prove that the person is a beneficiary owner of the income, the Depository will, when paying the income, apply the tax rate stipulated by the Russian Federation Tax Code (the “Russian Tax Code”) ignoring the provisions of the International Treaties. Nevertheless, under Article 312 of the Russian Tax Code, a foreign company retains the right to address the tax authority located at the place of VTB Bank (PJSC) registration for a tax refund by submitting the documents confirming its actual right to the income. A decision to refund the amount of any tax previously withheld will be taken by such tax authority within six months as from the receipt of the foreign company’s application for refund of tax previously withheld, and other documents referred to in Clause 2, Article 312 of the Russian Tax Code.

*Annex 1 hereto is available at Custody documents

1Russian FTS Letter No.СА-4-7/8448@ dated 06.05.2019 “Review of Legal Cases Related to Application of International Tax Treaties and Law Abuse in Trans-border Operations”, Russian FTS Letter No. СА-4-7/9270@ dated 17.05.2017 (as amended on 31.05.2017) “On the Practice of Considering Legal Cases Related to Mistakes in Application by Tax Agents of Tax Benefits when Charging Income Tax from Foreign Companies”