Russian Federation: Tax Alert - 4/97 - 7 March 1997 Filing Of Tax Returns For Interest On State Secu

Last Updated: 10 June 1997
This Tax Alert further discusses the recently published letter on the taxation of GKOs (treasury bills) and other State securities, which was issued jointly by the Central Bank of Russia (CBR), the Ministry of Finance (MinFin) and the State Tax Service (STS) on 4 February 1997 and was published in Finansovaya Gazeta on 11 February 1997 and in Rossiskaya Gazeta on 22 February 1997. As discussed in our Tax Alerts No. 2/97 of 30 January 1997, and No. 3/97 of 18 February 1997, the tax regime for transactions with State securities changed with effect from 21 January 1997, however, the practical application of this law was unclear. Nevertheless, the letter of 4 February 1997 appears to impose a filing obligation on those entities conducting transactions with certain state securities. The first filing is due on 11 March 1997.


Prior to the amendments to the profits tax law, the law contained an exemption for "interest (discount) on state securities". In the amended law, the word "discount" between the brackets has been omitted, giving rise to the impression that interest and discounts will no longer be treated in the same way. Interest from state securities was made taxable, with tax to be withheld at source at a rate of 15%. The taxation of GKOs, which are issued at a discount was unclear; they could either be subject to the 15% withholding tax, or subject to tax at normal profits tax rates, or if sold on the secondary market before redemption, at a mixture of both rates. The applicability of double tax treaties is similarly unclear.


The letter of 4 February 1997 attempted to clarify the situation. The letter states that the 15% withholding tax is applicable to income on state securities from:

  • capital gains on GKO trading and the positive GKO revaluation which should be conducted by entities that are required to revalue their securities;
  • accrued coupon income on certain securities - which is defined as the difference between the accrued coupon paid by the buyer at the time of purchase (if any) and the coupon amount paid by the issuer and/or the accrued coupon received upon sale - this mainly applies to OFZs, Savings Certificates and RAO VSM, and
  • interest income on state securities for which the payment of an accrued coupon yield is not to be performed (some locally issued state securities may fall in this category).
  • The issuer's authorised payment agent has the withholding obligation in the case of iii) above.

The letter went on to provide that the tax would not be collected as a withholding tax. On the contrary, profits tax on GKO income, including positive revaluation differences, should be calculated by owners selling GKOs on the basis of monthly tax returns (no specific form for the return is required) which should be filed with the tax authorities by the 10th of the following month, with the tax being payable within 5 days from the date of submission of the tax return.

According to our information, the government bodies responsible for the letter were aware of the discrepancy between the law and the letter and are currently seeking an amendment to the law to bring it into conformity with their administrative clarification. However, according to paragraph 4 above, the first date on which tax returns will be due is 10 March 1997. Since that date is a public holiday in Russia, the due date is therefore extended to 11 March 1997. Although there have been rumors that the authorities are drafting a further letter to clarify the filing situation, as of today nothing has been issued. Thus, market participants must now determine whether to file a return by 11 March 1997.


The letter does not specifically discuss income of non-residents from these sources. Thus, the letter could be considered to create a filing obligation on behalf of foreign entities. However, according to our informal discussions with MinFin officials, the tax should always be withheld at source by the payer of income at the 15% rate with respect to both GKO income and coupon income on other securities in the absence of double tax treaty protection. Unfortunately, it is still unclear whether the bank or the actual purchaser will be responsible for withholding the tax. We also understand that the Ministry of Finance and Central Bank have different views on this issue.

It is the opinion of Coopers & Lybrand that foreign investors through "S" accounts need not file a return at this time. This is based on the fact that the letter of 4 February contradicts the law that describes the tax as a withholding tax. Further, the letter does not specifically mention foreign investors through S accounts (who are not registered as taxpayers in Russia) and refers to Instruction No. 37 which only applies to Russian legal entities. Finally, the informal opinion of MinFin officials is that purchasers through S accounts should not file. We are writing for further guidance from the relevant government officials on how these rules will apply to foreign holders, especially in respect of the purchase of GKOs through S accounts. We will provide details of any clarifications as soon as they are received. However, in the interim, to be as safe as possible, a foreign S account holder may attempt to obtain confirmation from their Russian counterparties that the income tax was indeed withheld at source, and therefore, the tax has already been paid.

As of yet no guidance has been issued as to how foreign purchasers should file double tax treaty exemption claims. In the absence of any clarification, the most logical solution for a foreign entity is to file the tax exemption claim with the tax inspector of the bank in which the S account is opened. The option of filing it with the tax inspector of the purchaser or the paying agent of the Ministry of Finance is not practical under these circumstances, especially in respect to a request for exemption from withholding before the payment is made.


For Russian purchasers we believe the most prudent option is to file the return by 11 March 1997. The tax should be paid by 15 March 1997 as required. We recommend that Russian purchasers not pay the tax in the case where income has been withheld by the purchaser, although this should be noted on the tax return when it is filed. We are seeking more definitive guidance on this issue from the authorities.

The letter does not provide a specific format for the filing of the return. Thus, any form of reporting should be acceptable by the authorities, including a simple letter format. We recommend that the filing should contain the name of the taxpayer, its address, its tax identification number, the taxable base with respect to this tax and the amount of tax to be paid.


A small change was made in the letter between the time it was published unofficially in Finansovaya Gazeta on 11 February 1997 and published officially in Rossiskaya Gazeta on 22 February 1997. The version in Rossiskaya Gazeta makes it clear that the new taxation regime applies for revaluation of GKOs not only in respect to Russian banks but to all entities that are required to revalue their state securities.


The law is still unclear with respect to state securities issued at a discount without a coupon element other than GKOs, for example, St. Petersberg and Ekaterinberg rouble denominated municipal bonds. Since the letter is silent on these types of securities, there are three possibilities:

  • to use the regime applicable to GKOs as described in the letter of 4 February;
  • consider the gains to be subject to 15 % withholding at source, and
  • to consider the letter inapplicable to these other securities and to be taxable at the regular profits tax rate. We are also seeking clarification of the tax authorities in this area. However, in the absence of any further clarifications or guidance, it would seem that the law requires the entire profit to be subject to the regular profits tax rate.


The letter confirms that this new form of profits tax would not apply to either GKO income or interest income on other state securities issued before the profits tax amendment law came into effect, on 21 January 1997, regardless of whether the income was received before or after this date. This exemption should also apply to supplementary tranches of GKO issues dated before 21 January 1997.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Alla Shaulina on tel: +7 503 232 5511 fax: +7 503 232 5522 or e-mail directly: or enter a text search 'Coopers & Lybrand' and 'Business Monitor'.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions