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Russia-Sweden

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Protocol to Tax Treaty between Russia and Sweden to Enter into Force

The pending protocol to the 1993 tax treaty between Russia and Sweden will enter into force on 1 July 2019. The protocol, signed 24 May 2018, is the first to amend the treaty and includes the following main changes:

  • The title of the treaty is amended with the reference to "Income" changed to "Income and Capital";
  • The preamble is replaced in line with BEPS standards;
  • Article 2 (Taxes Covered) is amended in respect of both countries;
  • Article 9 (Adjustment of Income) is amended with new corresponding adjustment provisions;
  • Article 10 (Dividends) is amended with new withholding tax provisions, including that a 5% withholding rate applies if the beneficial owner is a company directly holding at least 10% of the paying company's capital and the holding amounts to at least EUR 80,000 or equivalent at the time of actual payment; otherwise, 15%;
  • Article 13 (Capital Gains) is amended with a new provision to provide that gains derived by a resident of a Contracting State from the alienation of shares or similar rights directly or indirectly deriving more than 50% of their value from immovable property situated in the other State may be taxed in that other State;
  • Article 22 (Capital) is added;
  • Article 23 (Elimination of Double Taxation) is amended with the addition of new provisions with respect to taxes on capital;
  • Article 25 (Mutual Agreement Procedure) is updated, including that MAP cases may be submitted to either Contracting State instead of just the taxpayer's State of residence;
  • Article 26 (Exchange of Information) is replaced to bring it in line with the OECD standards for information exchange;
  • Article 27 (Miscellaneous Provisions) is added, which includes the provision that a benefit under the treaty will not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty; and
  • Article 28 (Limitation of Benefits) is added, which includes the provision that an exemption from or reduction of tax provided by the treaty will not apply to the income of companies (and dividends paid by companies) in a Contracting State:
    • That derive income primarily from other states:
      • from banking, shipping, financing, or insurance activities; or
      • by being the headquarters, coordination center or similar entity providing administrative services or other support to a group of companies which carry on business primarily in other states; and
    • The income from such activities bears a significantly lower tax burden under the laws of that State than income from similar activities carried out within that State or from providing services or support to companies carrying on business in the State.

In relation to the new Articles added to the treaty, the subsequent Articles are renumbered accordingly.

The protocol applies from 1 January 2020.

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