The recent interpretative letter issued by the Russian Federal Tax Services (“FTS”) on 08th August 2019, has provided further guidance as to the application of the Beneficial Ownership Concept, further to the letter initially provided on the 12th of April 2018 which adopted a strict approach of the concept. 

Particular reference is made to the “entrepreneurial activities” criterion, which was interpreted very narrowly by FTS in effect considering that companies whose primary activity was holding, investing or granting of finance to affiliate companies, lacked of independent entrepreneurial activity were by default unable to qualify for the Beneficial Ownership Concept and therefore claim the tax treaty benefits.

The Russian Federal Tax Services have realised the latter through the various court cases, and therefore clarified that a company engaged in holding or financing activities, does not, on its own form an absolute criterion in establishing the company as conduit.

On the contrary, the Russian Federal Tax Services state that they must adopt more a holistic approach, by shifting the attention to indications of artificiality and signs of lack of independence in decision making regarding the company’s assets and income under consideration, rather than the mere types of business activity.

Mrs. Artemis Kyriakou (Associate – Tax Department)