Russia and Singapore sign a Protocol revising their existing DTA

On November 17, 2015 Russia and Singapore signed a Protocol revising the existing Agreement between the Government of the Russian Federation and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Hereafter: the Protocol).

Although the Protocol has been signed, it has not entered into force yet. For the Protocol to enter into force, the respective ratification procedures have to have been finalized in both countries.

Below we will discuss a selection of provisions included in the Protocol of which we think they might interest our readers.

Permanent establishment
The Protocol arranges that the paragraphs 2g) and 2h) of Article 5 (“PERMANENT ESTABLLISHMENT”) of the DTA shall be deleted and replaced by the following:
g) a building site, construction, installation or assembly project or supervisory activities in connection therewith, but only if such site, project or activities lasts more than 12 months (ITP: is currently 6 months);
h) the furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days in any 12-month period (ITP: is currently 3 months).

Dividends
Under the Protocol the existing Article 10 on Dividends shall be deleted and replaced by a new Article 10 (“DIVIDENDS”).

If the beneficial owner of the dividends or distributions is a resident of the other Contracting State, Paragraph 2 of the new Article 10 maximizes the dividend withholding tax that the Source State is allowed to withhold over dividends payment to:
1. a) in the case of dividends:

(i) 5 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a company which holds directly at least 15 per cent of the capital of the company paying the dividends;
(ii) 10 per cent of the gross amount of the dividends in all other cases;

1. b) in the case of distributions paid by the real estate investment fund: 10 per cent of the gross amount of the distributions.

Paragraph 6 of the amended Article 10 defines the term “real estate investment fund” as used in that Article as follows:
1. a) in the case of Singapore, a trust that is constituted as a collective investment scheme authorised under section 286 of the Securities and Futures Act (Cap. 289) and listed on the Singapore Exchange, and that invests or proposes to invest in immovable property and immovable property-related assets;
2. b) in the case of the Russian Federation, a mutual investment fund organised in the Russian Federation primarily for the purpose of investing in immovable property situated in the Russian Federation.

Paragraph 9 of the amended Article 10 contains an anti-abuse clause that reads as follows: “The provisions of this Article shall not apply if it was the main purpose of any person concerned with the creation or assignment of the shares, units or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”

Interest
Under the Protocol the existing Article 11 on Dividends shall be deleted and replaced by a new Article 11 (“INTEREST”).

Under the new Article 11 the Source State will no longer be allowed to withhold withholding taxes over interest payments if these payments are made to a resident of the other Contracting State (ITP: Is currently 7.5 per cent of the gross amount of the interest).

Paragraph 6 of the amended Article 11 contains an anti-abuse clause that reads as follows: “The provisions of this Article shall not apply if it was the main purpose of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”

Royalties
Paragraphs 2 of Article 12 of the DTA (“ROYALTIES”) is amended in such a way that the withholding tax that a Source State is allowed to withhold over royalties is maximized to 5% of the gross amount of the royalties (ITP: is currently 7.5%) if the beneficial owner of the royalties is a resident of the other Contracting State.

Furthermore Article 12, Paragraph 3, which provides a definition of royalties, and is amended in such a way that it reads as follows: “The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.”

As in Article 10 on dividends and Article 11 on interest, in Paragraph 7 of Article 12 an anti-abuse clause is introduced. This anti-abuse clasue reads as follows: “The provisions of this Article shall not apply if it was the main purpose of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”

Other amendments include a.o.:

• A replacement of Article 22 of the DTA (“LIMITATION OF BENEFITS”) by a new Article 22 (“LIMITATION OF BENEFITS”);
• A replacement of Article 26 of the DTA (“EXCHANGE OF INFOMATION”) by a new Article 26 (“EXCHANGE OF INFORMATION”).

Click here to be forwarded to the Protocol as available on the website of the Inland Revenue Authority of Singapore, which will open in a new window.