Tax optimization abroad will become more complicated

From October 1, 2019 the «Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting», which was concluded in Paris on November 24, 2016 and signed in 68 countries of the world, will enter into force in Russia. The Convention was ratified by the Federal Law №79-FZ of May 1, 2019.

The Convention was developed within the frame of the Action Plan on Base Erosion and Profit Shifting (BEPS plan), the main purpose of which is to ensure profit taxation in those country where business is actually carried out, and to counter the artificial transfer of profit to low-tax jurisdictions with the aim of tax evasion.

The measures specified by the Convention relate primarily to hybrid schemes for reducing of the tax burden, abuses of the provisions of agreements, and artificially avoiding of the status of a permanent establishment.

The countries, which have signed the Convention and carried out the procedures that it provides for, are given the opportunity to toughen simultaneously all current intergovernmental agreements on the avoidance of double taxation, without holding bilateral negotiations on each agreement.

The application of the Convention to specific agreements is subject to the signing of a multilateral Convention by the partner countries and the inclusion of Russia in the list of jurisdictions, in respect of which the Convention applies.

The convention is to be applied to 71 agreements between Russia and other states. As of July 3, 2019, the Convention has already been ratified by 20 states: Austria, Belgium, Great Britain, Ireland, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Serbia, Slovakia, Slovenia, Finland, France, Israel, the United Arab Emirates, India, Singapore, Australia and New Zealand.