Publications for:
Activity Start Date:

Newsletter Andrey Gorodissky & Partners comment on amendments to the Double Taxation Agreement between Russia and Switzerland


Informative Memorandum
Amendment of the Double Tax Treaty between Russia and Switzerland

27 November 2012

On 2 October 2012, the Russian Federation ratified the Protocol on the amendment of the Treaty between the Russian Federation and the Swiss Confederation on the avoidance of double taxation with respect to the taxes on income and capital, signed in Moscow on 15 November 1995 (the “Treaty”).

The key changes made in the Treaty by the Protocol are described below.

The term “resident”

The term “resident” has been changed. Now it means any person that by the laws of that country is subject to taxation on the basis of the place of residence, place of permanent stay, place of management or any other criteria of a similar nature and includes that country and any of its political subdivisions or local authorities.  A person subject to taxation in that country exclusively with respect to income gained from sources in that country or with respect to the capital located therein is not a “resident”.
It is specified that the place of the factual management of a person is located where key management and commercial decisions necessary for the person to carry out entrepreneurial activity are generally made. It is possible to have more than one place of factual management, but the person may only have one such place at any given moment of time.


The term “dividends” has also been changed and now also means any distributions on the shares of real estate mutual funds and unit funds which receive over 50% of their income from their shares.

Exempt from taxation at source in the country of the income origin and taxed in the recipient’s country are dividends distributed to pension funds and other similar institutions providing pension plans for individuals to secure payments in connection with retirement, disability or loss of breadwinner to the governments of the contracting parties, their political subdivisions or local authorities, the Central Bank  of the Russian Federation or the Swiss National Bank.

The rates of the tax at source on dividends and the conditions of their application have not been changed. (The rate of the tax at source is 5%, provided the person has interest in at least 20% of a foreign company’s capital and has invested over 200,000 Swiss Francs in its capital. In all other cases the rate is 15%.)

Income from the shares of real estate mutual funds are to be regarded either as dividends and attracts the tax at source at the corresponding rates 5% - 15% for funds gaining over 50% of their income from the shares or, in case of income from the shares being less than 50%, as interest which, under the general rule, is not subject to the tax at source in the country of such income origin.


One of the key changes is the establishment of a uniform rule with respect to the tax at source on interest paid by the resident of one country to the resident of the other country in connection with sale on credit of any kind of industrial, commercial or scientific equipment or any products by one enterprise to another enterprise and in case of any kind of a bank loan. The right to tax interest only arises for the country of residence of the interest recipient. Thus, interest with respect to the tax in the country of the income origin is tax exempt.

The Protocol fixates the term “interest” used in the previous version of the Treaty which means income from debt claims of any kind irrespective of their mortgage collateral and the right to have part in the debtor’s profits, and, in particular, income from governmental securities and income from bonds or promissory notes, including bonuses and prizes. Besides, it has been agreed that distributions on the shares of unit funds with income comprising less than 50% of income from the shares are to be regarded as interest. It should be noted that penalties for overdue payments are excluded from the term “interest”, which corresponds to the provisions of the latest OECD Model Convention with respect to taxes on income and capital.

The countries have also agreed not to bar the use of commonly accepted rules of undercapitalization established by national laws.

Capital gains

The Treaty has been supplemented with a new clause whereunder income received by a resident of one country from sale of shares in a company with assets over 50% of which consist, directly or indirectly, of real estate located in the other country may be taxable in the other country. The said provision is not applied to income received from sale of shares listed on a stock exchange (registered and recognized as such in the country or another stock exchange agreed by the parties) or from the income of a company with assets over 50% of which consist of real estate used as the place of its business.

Exchange of information

The Treaty has been supplemented with a new article devoted to the exchange of information on tax issues. In particular, information about the taxes to which the Treaty extends and the value added taxes. Such information may only be provided to persons and bodies (including courts and administrative bodies) which levy or collect or engage in criminal prosecution with respect to those     taxes.     Information     being     a      trade, entrepreneurial, industrial, commercial or professional secret, or a trade process, or the provision of which would contradict public policy, is not to be exchanged.

Provision of information may not be denied on the sole ground that it is in the possession of a bank, other credit organization, nominal holder, agent or trustee or that such information concerns the right to possess a person.

It has been agreed that exchange of information will only take place after the requesting party has exhausted all common means of information collection established by its national laws and only with respect to the periods after 2013.

Dummy schemes interaction

The Treaty has been supplemented with a new provision on the dummy schemes counteraction. It is determined that the provisions of the Treaty on dividends, interest and income from copyrights and licenses are not applied to payments under a dummy scheme.

The Protocol fixates the definition of the term a “dummy scheme” which means a transaction or a series of transactions made in such a way that a resident of one country entitled to the privileges granted by the Treaty and receiving certain income from sources in the other country pays, directly or indirectly, all or virtually all income (at any time and in any form) to another person which is not a resident of the contracting parties and which would not have been entitled to any privileges should such income be received directly, and the main purpose of such scheme is obtainment of the privileges granted by the Treaty. Competent authorities have the right to mutually agree on the cases and circumstances characterizing such main purpose of a dummy scheme.