Tax News Reporter - Week Ended 29 July 1997 - Exchange Differences/Profits Tax

Further to our TNR of 22 July 1997, we have now received verbal confirmation from the State Tax Service that since 21 January 1997 negative exchange differences are fully deductible for profits tax purposes irrespective of the fact that until 27 March 1997 there was no relevant provision in Regulation No 552.

Double Tax Treaty with Switzerland

The treaty between the Russian Federation and Switzerland on avoidance of double taxation with respect of taxes on income and capital was ratified by the Council of Federation [Law No 38-FZ of 26 February 1997] and will be effective from 1 January 1998. The structure of the new DTT generally follows the OECD model convention, while the previous treaty had only one relevant Article on income from commercial activity and one on royalties, thus being very impractical. The DTT now also covers property tax.

The following withholding tax rate limits are set for dividends and interest:

Dividends - 5% if the owner is a company which at least 20% of the equity of the company of the other state and the amount of investment exceeds 200,000 Swiss Franks; 15% in all other cases;

Interest - 10% general rate, 5% for bank loans and 0% for commercial credit interest.

For details on other treaties to come into force from 1998 please speak to your regular contact in the tax department.

Sale of foreign currency proceeds / Amendments

According to the amendments made to Instruction No 7, refunds by non-residents of advance payments for import contracts which are never executed are not subject to obligatory 50% sale. Neither is the sale required for foreign currency transferred from the current foreign currency accounts of residents to accounts of Russian intermediary organisations in payment for imported goods. Russian intermediary organisation are defined as those acting as commissionaires or as agents in their own name. Approval of the Ministry of Finance of the Russian Federation is no longer needed for payment of export customs duties in foreign currency.

Amendments to the Instruction of the Bank of Russia No 7 "On the procedure for mandatory sale by the enterprises and organisations of part of proceeds received in hard currency through authorised banks on the internal currency market of the Russian Federation" (Appendix to the Order of the Bank of Russia No 02-311, dated 17 July 1997)

Please note that the Central Bank Regulation No 482 which we reported in the previous issue was officially published on 16 July 1997 and is now therefore in force.

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.

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