The Russian Ministry of Finance has issued guidance letter No. 03-03-06/1/87340 on the interaction between the country's thin capitalization rules and a tax treaty. Under the thin cap rules, the maximum amount of deductible interest expense on controlled debt is limited to the debt not exceeding a debt-to-equity ratio of 3:1 as determined on the last day of the reporting tax period (12.5:1 for banks and leasing companies). Any excess amount is treated as a deemed dividend for which withholding tax must be paid. The letter clarifies that the Ministry of Finance's position is that because an interest payment in excess of the limit would be considered a deemed dividend for Russian tax purposes, it is also considered a dividend for the purpose of an applicable tax treaty and the provisions of the treaty article covering dividend payments would apply.