MLI tax convention enters into force in Russia

AO UniCredit Bank
Implementation of the MLI tax convention will have practical implications for DTTs interpretation with regards to taxation on Russian securities starting from January 01, 2020.
Mon, 25/11/2019

In 2016 a group of countries developed the Multilateral Convention To Implement Tax Treaty Related Measures To Prevent Base Erosion And Profit Shifting (MLI). This convention is a tool for the practical implementation of the Action plan on base erosion and profit shifting - a joint initiative of OECD and G20 aiming to prevent tax treaty abuse. As of October 30, 2019 the MLI was signed by 90 countries and territories, and ratified by 37 of these jurisdictions.

On October 01, 2019 the MLI entered into force for the Russian Federation. This effectively means that as of January 01, 2020 the bilateral double tax treaties (DTTs) entered into by Russia in the past will be modified according to this multilateral instrument, provided that the MLI will also come into force for the other contracting jurisdictions under such DTTs by the end of 2019.

Foreign investors in the Russian securities market may be potentially impacted by two groups of MLI provisions:

  • Anti-abuse rules requiring the contracting jurisdictions to apply one of the approaches prescribed by the MLI (“principle purpose test” and/or “limitation-on benefits” provisions) to identify whether an entity(individual) is qualified to receive tax benefits from the DTT;
  • Provisions amending the DTT rules which limit tax rates on (i) dividend payments and (ii) capital gains from alienation of shares or interests of entities deriving their value principally from immovable property.

AO UniCredit Bank is closely involved in the on-going market discussions (within working groups, self-regulating organizations, meetings with tax authorities etc.) aiming to work out a practical approach to MLI implementation in the context of tax agent functions performed by Russian custodians. As an interim outcome of these discussions, it is expected that the MLI will mostly impact the operational procedures and documentation requirements to apply the reduced DTT rates to foreign investors who hold their Russian securities via the Owner custody accounts.

The requirements applicable to Foreign Nominee Holder (FNH) accounts are more likely to stay intact or undergo fewer changes, as the Russian Tax Code envisages in detail the particular procedure of aggregated disclosure of FNH accounts for tax purposes. However, given the complex nature of the MLI and the remaining room for interpretation, these conclusions may be further adjusted as a result of the market discussions and in line with the regulators’ guidelines.

AO UniCredit Bank will keep its clients duly informed about any further developments in this regard. Once the updated tax disclosure forms and documentation requirements are finalized in line with the MLI, they will be distributed by AO UniCredit Bank relationship managers among the clients.


Impact on investors: Ratification of the MLI convention by the Russian Federation is expected to impact the tax agent procedures of Russian custodians including AO UniCredit Bank. Clients will be informed about the new documentation requirements in due course.