Russia accedes to OECD Multilateral Treaty to Prevent Base Erosion and Profit Shifting

On June 7, 2017, Russia acceded to the OECD Multilateral Treaty to Prevent Base Erosion and Profit Shifting (hereinafter the “Treaty”). 

The Treaty’s main goal is coordination of the states’ efforts to implement the BEPS Project and states’ concerted actions on unifying the mechanisms for applying the effective double taxation treaties (hereinafter the “DTTs”).

This Treaty will be a supplement to the effective DTTs without any additional bilateral negotiations as to each DDT separately.

Russia has acceded to the minimum standard of measures provided by the Treaty, which presumes adding the following provisions to the treaties in effect:

• Preventing abuse of double taxation treaty provisions, meaning benefits under an agreement cannot be enjoyed if obtainment of the respective benefits was the main purpose of a transaction (“primary intent principle”);
• Mutual agreement procedures between competent state authorities of partner countries under DDTs;
• Norms on corresponding adjustments providing adjustments in the amount of the company’s profit tax if the other state has already imposed a tax on the profit of such company.

This provided, the Treaty substantially simplifies the process of unification and standardization of measures being taken by states to prevent tax abuse.

The Treaty was signed in Paris by 68 countries on June 7. However, the Treaty will ultimately take effect after OECD determines the countries that have synchronized their standards, after which the Treaty will be ratified.

If the Treaty takes effect, it will apply to 63 double taxation treaties concluded between the Russian Federation and foreign countries included in the OECD Special Group on the Treaty development. The treaties with Sweden and Japan will be an exception, as currently negotiations are ongoing on concluding new agreements subject to the Treaty’s provisions.

Decree No.963-r of the Government of the Russian Federation “On Russia acceding to OECD Multilateral Treaty to Prevent Base Erosion and Profit Shifting” dated May 20, 2017.

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