Russian Federation: Application Of The Concept Of The Person Beneficially Entitled To (Beneficial Owner Of) Income

Last Updated: 31 January 2017
Article by Dzhangar Dzhalchinov

Dentons' Russia Tax practice would like to remind that, starting from 1 January 2017, the procedure for confirming entitlement to tax benefits under relevant double tax treaties when paying income to foreign companies from the Russian Federation has changed.

In particular, in order to apply tax exemption and reduced tax rates under double tax treaties (conventions, agreements) to which the Russian Federation is a party, before paying such income foreign companies must provide Russian companies (tax agents) with confirmation that such foreign companies are the beneficial owners of the income.

Prior to 2017 the RF Tax Code empowered Russian tax agents to request, in addition to a certificate of tax residency, the relevant information from foreign companies receiving income from the Russian Federation.

Who is affected?

The new requirements primarily affect tax agents paying dividends, interest and royalties to foreign companies and applying exemptions, reduced tax rates under double tax treaties.

Confirmation format

The RF Tax Code does not explicitly provide for a list and form of documents confirming that a foreign company is the person beneficially entitled to income, which the Russian Finance Ministry has noted more than once.1

In practice, foreign companies draft letters (signed by their director) which list circumstances evidencing that the foreign company is the person beneficially entitled to the income. Where possible, copies of contracts with third parties and financial analytics of the foreign recipient of the income showing that the funds are accumulated and reinvested at the level of the recipient of the income are also attached to such letters.

What difficulties might arise?

As you probably know, since 1 January 2015, the concept of the person beneficially entitled to income ("beneficial owner") has become an inseparable and full-fledged part of Russian tax law.

The new rules clearly suit the tastes of the tax authorities, who view these provisions as an effective mechanism for challenging the right of foreign companies (and, as a consequence of this, the right of Russian entities paying income to those foreign companies and performing the obligations of tax agents) to apply benefits (exemption from Russian tax on the income of foreign entities or reduction of the rates of that tax) set by treaties (conventions, agreements) on the avoidance of double taxation with respect to so-called passive income (dividends, interest, royalties). This is evidenced by the clearly exponential growth in the number of disputes related to application of the beneficial owner concept that have gone to court. And those disputes often have to do with periods before the beneficial owner provisions were incorporated into the RF Tax Code.

The cases of Votek Mobile2, Bank Inteza3, Credit Europe Bank4, MDM Bank5, Krasnobrodsky Yuzhny6,  Severstal7 and Vladimir Energy Retail Company8 make up a far from complete list of the court cases in which the subject (or one of the subjects) was whether a foreign company recipient of income from sources in the Russian Federation met the beneficial owner criteria. At the same time, one cannot leave unmentioned the Russian tax authorities' ever growing mastery of collecting information about foreign holdings and operating structures, in building their case in a dispute with taxpayers, and in manipulating the facts characterizing how foreign entities that are recipients of income from Russia conduct their business.

On the contrary, it is becoming more difficult for tax agents (generally Russian entities) to defend the status of beneficial owner with respect to foreign companies that are the formal recipients of income, which cannot but negatively impact the outcome of litigation involving them. The result is the recovery of tax amounts not withheld, a fine and late payment interest from Russian company tax agents.

What needs to be done?

Practice shows that the closest attention needs to be paid to protecting the right to apply benefits established by international tax treaties, correctly structuring the activity of foreign companies receiving income from sources in Russia, and properly documenting the facts of that activity. Essentially this means creating in advance a file that would contain documentation that foreign company recipients of Russian income meet the beneficial owner criteria.

This will help to strengthen the position of the tax agent paying the income to the foreign recipient and assuming the risks related to not withholding tax on income of foreign entities or withholding that tax at reduced rates provided for by international tax treaties, in a potential dispute with the tax authority, at the same time avoiding a rush to gather the appropriate evidence when the information is requested by the tax authority or, what is even worse, when the tax authority has drawn up a report of improper non-withholding or incomplete withholding of tax by the tax agent.

It also needs to be borne in mind that the new legislation provides previously absent opportunities to reduce risks associated with applying the beneficial owner concept by identifying the actual recipient of Russian income and voluntarily declaring that person as the person beneficially entitled to one or another type of income. This option may not be best for all situations; however, it is worth considering in any event. Furthermore, using it requires the taking of an informed decision, which again anticipates the need for careful and comprehensive examination of the facts of the activity of companies/beneficiaries of the group even before Russian income starts to be paid to foreign entities.

How can we help?

Dentons is prepared to offer its assistance in resolving problems related to application of the beneficial owner concept. In particular, our lawyers can assist in:

  • Advising clients on various aspects of applying the beneficial owner rules;
  • Analyzing the client's corporate structure and the structure of the client's cross-border transactions for the presence of risks related to the beneficial owner rules, assessing the degree and magnitude of risks identified;
  • Developing a "Defense File" to identify the circumstances and facts of activity of the client's corporate structure that occurred in past periods, and subsequently identifying strengths and weaknesses in the event of a possible tax dispute, and determining a strategy for gathering evidence if there is a risk of a tax dispute;
  • Developing a system of steps and recommendations to eliminate or to minimize identified risks of future periods, including changing the corporate structure and redistributing functions within the group of companies, changing the structure and/or substance of cross-border transactions, changing the content of documentation of such transactions;
  • Supporting the client's tax audits and tax disputes related to the application of the beneficial owner rules, compiling a tax file, developing a legal position and gathering evidences;
  • Drafting confirmation letters listing the circumstances of foreign companies' activity evidencing beneficial entitlement to income or indicating the person possessing such a right;
  • Assisting in drafting the relevant confirmation letters for a chain of companies that are not the beneficial owners of dividends while applying the "look-through" approach.
  • Drafting amendments to license agreements used by clients, loan agreements and shareholder agreements, in particular, by including provisions in them requiring foreign companies to provide not only a tax residency certificate, but also confirmation of actual entitlement to income;
  • Legal assistance in structuring a foreign company's economic substance.

Our experience

In recent years, Dentons' Tax practice team has gained considerable experience in applying the beneficial owner concept and reducing risks related to its application. Below are a few examples of the projects in which we have provided legal assistance to the clients.

  • American group of companies: analyzing the structure of dividend and interest payments to foreign companies as to whether the formal recipients of the income met the beneficial owner test; providing recommendations on improving the handling of contractual arrangements with those companies in order to strengthen the position of the tax agent (a Russian entity paying income to foreign recipients);
  • Swedish group of companies: assessing the risk of the beneficial owner concept being applied to the existing Russian asset holding structure, developing scenarios for applying the Russian asset holding structure in order to reduce that risk; 
  • Russian individual: preparing a tax file to confirm observance of the conditions for applying reduced tax rates on income of foreign entities (including beneficial owner conditions) for a Cyprus company owned by that individual;
  • Foreign bank: participating in drafting a form confirming beneficial owner of income status;
  • International group of companies: assessing the steps taken by the client in several jurisdictions from the perspective of the risk of beneficial owner rules being applied to the payment of dividends and royalties, developing ways of minimizing the risk factors we identified and enhancing the economic substance in each of those jurisdictions;
  • Foreign group of companies with manufacturing subsidiaries in several jurisdictions: supporting a tax audit of matters of applying beneficial owner rules;
  • Russian subsidiary of a global holding: assessing the risk of beneficial owner rules being applied to dividends payable to a subholding, assessing the possibility of applying the "look-through" approach;
  • Russian group of companies: advising on the possibility of deeming a foreign licensor the beneficial owner of royalties payable by the Russian licensee to a Cyprus company and then transferable by the Cyprus company to the foreign licensor.


1. For example, Ministry of Finance of Russia Letter No. 03-08-05/78852 of 28 December 2016

2. Case No. А14-13723/2013

3. Case No. А40-241361/15

4. Case No. А40-442/2015

5. Case No. А40-116746/15

6. Case No. А27-20527/2015

7. Case No. А40-113217/16

8. Case No. A11-6602/2016

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
27 Oct 2017, Seminar, New York, United States

Please join us for a milestone event, our 10th annual CLE Seminar for In-House Counsel.

24 Jan 2018, Seminar, San Francisco, United States

Dentons will host our Fourth Annual Courageous Counsel Leadership Institute in January, centered on the theme "Cultivating Innovation."

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
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.