Profit shifting in case of double taxation

The Federation Council approved the bill on ratification of the international Convention to prevent base erosion and profit shifting.

The Convention is aimed to prevent the abuse of interstate agreements on avoidance of double taxation, as a result of which profit is transferred to countries with a reduced tax rate. This leads to significant losses of budgets on income taxes. According to OECD, the countries budgets lose $100–240 billion per year due to profit shifting to low-tax jurisdictions. That is between 4 and 10 percent of global income tax revenues.

The bill provides the possibility of applying the provisions of the Convention without bilateral negotiations for each of the 71 existing intergovernmental agreements on the avoidance of double taxation reached by Russia.

Thus, the Russian Federation reserves the right not to apply particular provisions of the Convention to all or part of these agreements.

Such jurisdictions as Great Britain, Cyprus, Luxembourg and the Netherlands, which are popular among the Russian entrepreneurs, are ready to make occasional changes to the agreements with Russia.

Digital rights

Concept of digital rights is determined by the legislation as an object of civil rights. Amendments were made to the first, second and third parts of the Civil Code of the RF.

In particular, new article 141.1 «Digital rights» was adopted, whereby digital rights are defined as contractual and other rights the contents and conditions of which are determined in accordance with the rules of the information systems. The disposal, transfer, mortgage, encumbrance of digital rights in other ways or limiting the disposition is only possible in the information system without resorting to third parties.

According to the amendments, definition of digital rights holders is regulated. Transfer of digital rights based on transaction is conducted without permission of persons responsible for such digital rights.

Besides, it is defined by the Law:

  • conditions of compliance with transactions in written form, conducted with electronic or technical means, permitting to present content of transactions unchanged on material medium;
  • retail sales agreements are considered valid from the moment of issuing by trader electronic document, confirming payment of product by buyer;
  • it can be provided by information services contracts that one or both parties are obliged during particular period not to perform actions that can be resulted in disclosure of information to third parties;
  • nominal account, insurance contracts can be entered by means of one electronic document signed by parties or reciprocation of electronic documents;
  • settlement of wills with the use of electronic or other technical means is prohibited.

The Federal Law as of 18.03.2019 №34-FL «On Amendments to the First, Second and Article 1124 of the Third Parts of the Civil Code of the RF» will come into force since October 1, 2019.