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New approach to beneficial owners of income

17 August 2018


In April 2018 the Federal Tax Service (FTS) issued a letter providing an extensive explanation of the tax authorities' application of the beneficial owner of income (BOI) concept.(1) This concept was previously referred to only in the international tax treaties between Russia and other states, but has - in recent years - been actively implemented into Russian tax legislation. In this regard, the FTS's letter is of great interest, as it summarises the approach of both the courts and the tax authorities with regard to resolving BOI issues.

Interpretation of BOI concept

The letter states that the BOI concept will not be interpreted as having a narrow, technical meaning; rather, it will be interpreted based on:

  • the goals and objectives of Russia's international double taxation avoidance treaties; and
  • the main principles applied when resolving tax disputes, such as the prevention of abuse of agreement provisions and the prevalence of substance over form.

In particular, the goals and objectives of Russia's international tax treaties are incompatible with the exemption of withholding tax when a resident of another state who receives income acts as a frontperson for the actual beneficiary of the income. Further, the international tax treaties will not apply where:

  • the operations underlying financing and income payments do not seek to attract foreign capital; and
  • the actions of the parties undertaking the operations are aimed only at gaining preferential tax treatment.


The letter also reviews the court practice regarding disputes between taxpayers and the tax authorities and briefly assesses the most common issues that the courts are asked to resolve.