Russian Federation: New Thin Capitalization Rules Adopted

Last Updated: 19 February 2016
Article by Dzhangar Dzhalchinov

On February 15, 2016 the President of the Russian Federation signed Federal Law No. 25-FZ on Amendments to Article 269 of Part Two of the Russian Federation Tax Code with Respect to Defining the Term Controlled Debt (hereinafter the "Law").

The Law substantially changes the rules for deducting interest expense under thin capitalization rules that are aimed, as the Law's authors have stated, at combating tax abuses, in particular, those arising in so-called back-to-back financing, and at eliminating unreasonable tax barriers to raising financing for the Russian economy.

The most awaited change was the reflection in the Law of the approach already used in court practice according to which debt not only to Russian but also to foreign affiliates of the foreign company that is a direct or indirect owner of an equity interest in the borrower is considered controlled debt. That said, the threshold for direct or indirect equity interest in the borrower above which the debt is considered controlled has been raised from 20 to 25% (by citing art. 105.1 of the RF Tax Code, which sets precisely this threshold as a criterion for relatedness).

The Law provides three important exceptions from thin capitalization rules that have been actively discussed in the expert community in recent years.

Exception No. 1. Loans issued by independent banks that are guaranteed by related parties and discharged without applying interim measures

Already as of January 1, 2016 loans from independent banks (whether Russian or foreign) are no longer considered controlled debt if they are guaranteed:

  • by a foreign entity that directly or indirectly holds more than 25 percent of the Russian debtor company  (the "Foreign Entity");
  • or by its related parties (i) in which the Foreign Entity directly or indirectly holds more than 25 percent, (ii) which directly or indirectly hold more than 25 percent of the Foreign Entity, (iii) in which and in the Foreign Entity the same person holds more than 25 percent ("Related Parties"),

if neither the Foreign Entity nor the Related Parties have actually discharged the secured loan itself or paid the loan interest.

Exception No. 2. Debt obligations issued by Russian tax residents not from the Foreign Entity's funds

As of January 1, 2017 debt obligations of Russian taxpayers to other Russian tax residents that are related to a Foreign Entity (a "Russian Resident") are not considered controlled debt if the Russian Resident does not have debt obligations to the Foreign Entity comparable to the taxpayer's outstanding indebtedness to the Russian Resident.

If the Russian Resident has comparable debt obligations to the Foreign Entity, then only the part of the outstanding indebtedness to the Russian Resident that does not exceed the amount of the comparable obligation to the Foreign Entity can be considered controlled.

For the purposes of applying thin capitalization rules, the comparability of a taxpayer's debt obligations to a Russian Resident and of a Russian Resident to a Foreign Entity are defined differently than for transfer pricing purposes: on the basis of an exhaustive list of criteria consisting of three items:

  • the total amount (in other words, if there is more than one debt obligation they are summed up for the purposes of determining comparability);
  • the term: if the term of the taxpayer's debt obligaion to the Russian Resident is not longer than the term of the debt obligation to the Foreign Entity, then the terms are considered comparable;
  • if the currency of the debt differs, then the obligations are converted into a single currency at the RF Central Bank exchange rate on the date the obligation arose.

Exception No. 3. Debt arising in connection with the issuance of Eurobonds

An express rule that outstanding indebtedness under a debt obligation that arose in connection with the placement of Eurobonds to a foreign SPV located in countries with which Russia has double taxation treaties is not considered controlled enters into force as of January 1, 2017.

The most ambiguous novelty of the Law could be the fact that as of January 1, 2017 the court is entitled to deem as controlled debt any outstanding debt obligation of a taxpayer if it is determined that the ultimate purpose of the payments under the debt obligation is to transfer funds to a Foreign Entity or Related Party.

It should also be noted that the Law does not contain a rule eliminating in any event double taxation of "above-limit" interest payable by a Russian taxpayer to another Russian company on debt  that is deemed to be controlled (at the source as dividends and for the recipient as interest income), in spite of the need to introduce such a rule as experts have numerous times emphasized.

The lawyers of Dentons' Tax practice, based on their considerable experience of applying thin capitalization rules gained through advising, in structuring deals and handling court disputes, are prepared to assist in adapting your business to the new rules for deducting interest on debt obligations.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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.

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.

Events from this Firm
8 Nov 2016, Webinar, Washington, United States

Join Dentons government contracts lawyers for a Public Contracting Institute (PCI) webinar series involving the most current industry analysis in government contract cost accounting from a team of leaders in the field with unparalleled experience

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”

Mondaq Advice Centre (MACs)
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.