What happened? JSC Experimental Design Bureau Crystal paid income to a Belarusian company under a license agreement for the transfer of rights to software. The company did not pay taxes in Russia: the bureau believed that it had all the documents confirming the absence of an obligation to withhold and pay tax on this income in the Russian Federation.
The tax inspectorate did not agree with the company’s position: according to the agreement on avoidance of double taxation between Russia and Belarus, income from copyrights and licenses must be paid in Russia at a rate of 10%. In addition, the taxpayer does not have the right to choose the state for paying the tax. The tax inspectorate also clarified that the agreement implies that Russia, as a source of income, retains the ability to collect tax in the amount of the tax rate specified in the agreement on avoidance of double taxation.
What did the court rule? The Moscow Arbitration Court supported the company’s position. During the consideration of the case, the regulator came to the conclusion that from a systematic reading of the provisions of paragraphs 1 and 2 of Article 11 of the agreement on the avoidance of double taxation between Russia and Belarus, it follows that income may be taxed either in the Russian Federation or in the Republic of Belarus. Thus, variability in taxation and the choice of the country of payment of tax by the parties are allowed.
What does this mean for business? Acsour experts note that this case is a unique case of support from the court in a matter concerning DTA. The wording "may be taxed" used in the agreement on the avoidance of double taxation has an ambiguous interpretation, which often leads to negative consequences for business.
For questions on the application of the double taxation agreement, please contact Acsour.
The tax inspectorate did not agree with the company’s position: according to the agreement on avoidance of double taxation between Russia and Belarus, income from copyrights and licenses must be paid in Russia at a rate of 10%. In addition, the taxpayer does not have the right to choose the state for paying the tax. The tax inspectorate also clarified that the agreement implies that Russia, as a source of income, retains the ability to collect tax in the amount of the tax rate specified in the agreement on avoidance of double taxation.
What did the court rule? The Moscow Arbitration Court supported the company’s position. During the consideration of the case, the regulator came to the conclusion that from a systematic reading of the provisions of paragraphs 1 and 2 of Article 11 of the agreement on the avoidance of double taxation between Russia and Belarus, it follows that income may be taxed either in the Russian Federation or in the Republic of Belarus. Thus, variability in taxation and the choice of the country of payment of tax by the parties are allowed.
What does this mean for business? Acsour experts note that this case is a unique case of support from the court in a matter concerning DTA. The wording "may be taxed" used in the agreement on the avoidance of double taxation has an ambiguous interpretation, which often leads to negative consequences for business.
For questions on the application of the double taxation agreement, please contact Acsour.
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