The Double Taxation Relief (Taxes on Income) (Russian Federation) Order 1994

Made: 14th December 1994

At the Court at Buckingham Palace, the 14th day of December 1994 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Russian Federation) Order 1994.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of the Russian Federation with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of the Russian Federation;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of the Russian Federation concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE RUSSIAN FEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Russian Federation;

Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

Article 1 — Personal scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2 — Taxes covered

Article 3 — General definitions

Article 4 — Residence

Article 5 — Permanent establishment

Article 6 — Income from immovable property

Article 7 — Business profits

Article 8 — Shipping and air transport

• (1) Profits derived by a resident of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• (2) For the purposes of this Article, profits from the operation of ships or aircraft in international traffic include in particular:

• (a) income from the rental on a bareboat basis of ships or aircraft; and

• (b) profits from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise;

where such rental or such use, maintenance or rental, as the case may be, is incidental to the operation of ships or aircraft in international traffic.

• (3) Where profits within paragraphs (1) or (2) of this Article are derived by a resident of a Contracting State from participation in a pool, a joint business or an international operating agency, the profits attributable to that resident shall be taxable only in the Contracting State of which he is a resident.

Article 9 — Adjustments to income

• (1) Where:

• (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State; or

• (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State;

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would have accrued to one of the enterprises, but, by reason of those conditions have not so accrued, may be included by a Contracting State in the profits of that enterprise and taxed accordingly.

• (2) Where a Contracting State includes in the profits of an enterprise of that State and taxes accordingly profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

Article 10 — Dividends

Article 11 — Interest

Article 12 — Royalties

Article 13 — Capital gains

• (1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of this Convention and situated in the other Contracting State may be taxed in that other State.

• (2) Gains derived by a resident of a Contracting State from the alienation of:

• (a) shares, other than shares quoted on an approved Stock Exchange, deriving their value or the greater part of their value directly or indirectly from immovable property situated in the other Contracting State, or

• (b) an interest in a partnership or trust the assets of which consist principally of immovable property situated in the other Contracting State, or of shares referred to in sub-paragraph (a) above,

may be taxed in that other State.

• (3) Gains from the alienation of movable property forming part of a permanent establishment which a resident of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other Contracting State.

• (4) Gains derived by a resident of a Contracting State from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State or movable property pertaining to such operation shall be taxable only in that Contracting State.

• (5) Subject to the provisions of Article 7 of this Convention gains from the alienation of any property other than that referred to in paragraphs (1), (2), (3) and (4) of this Article shall be taxable only in the Contracting State of which the alienator is a resident provided that those gains are subject to tax in that Contracting State.

• (6) The provisions of paragraph (5) of this Article shall not affect the right of a Contracting State to levy according to its law a tax on capital gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.

Article 14 — Independent personal services

Article 15 — Income from employment

Article 16 — Directors' fees

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17 — Artistes and sportsmen

Article 18 — Pensions

Subject to the provisions of paragraph (2) of Article 19 of this Convention, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State shall be taxable only in that State.

Article 19 — Government service

Article 20 — Students and business apprentices

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that first-mentioned State, provided that such payments arise from sources from the other Contracting State.

Article 21 — Other income

Article 22 — Elimination of double taxation

Article 23 — Limitation of relief

Article 24 — Non-discrimination

Article 25 — Mutual agreement procedure

Article 26 — Exchange of information

Article 27 — Members and employees of diplomatic or consular establishments and permanent missions

Nothing in this Convention shall affect any fiscal privileges accorded to members and employees of diplomatic or consular establishments or permanent missions to international organisations under the general rules of international law or under the provisions of special agreements.

Article 28 — Entry into force

• (1) Each of the Contracting States shall notify to the other in writing through the diplomatic channel the completion of the internal procedures required by the law applied in that Contracting State for the bringing into force of this Convention.This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the Convention enters into force;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the Convention enters into force;

• (b) in the Russian Federation:

• (i) in respect of taxes withheld at source for amounts paid or credited starting from the first of January of the calendar year, following the year in which the Convention enters into force;

• (ii) in respect of other income taxes for taxable periods beginning on or after the first of January of the calendar year, following the year in which the Convention enters into force.

• (2) Subject to the provisions of paragraph (3) of this Article as regards relations between the United Kingdom and the Russian Federation, the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Union of Soviet Socialist Republics for the Avoidance of Double Taxation of Air Transport Undertakings and their Employees signed at London on 3rd May 1974 (hereinafter referred to as “the 1974 Agreement”) and the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Union of Soviet Socialist Republics for the Avoidance of Double Taxation with respect to Taxes on Income and Capital Gains signed at London on 31st July 1985 (hereinafter referred to as “the 1985 Convention”) shall cease to have effect in respect of the taxes to which this Convention applies in accordance with the provisions of paragraph (1) of this Article.

• (3) Where any provision of the 1985 Convention would have afforded any greater relief from tax than is due under this Convention, any such provision as aforesaid shall continue to have effect:

• (a) in the United Kingdom, for any year of assessment, financial year or chargeable period, and

• (b) in the Russian Federation, for any taxable period,

beginning, in either case, before the entry into force of this Convention.

Article 29 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through diplomatic channels, by giving notice in writing of termination at least six months before the end of any calendar year beginning after the expiry of five years from the date of entry into force of the Convention. In such event, the Convention shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (b) in the Russian Federation:

• (i) in respect of tax withheld at source, for amounts paid or credited on or after the first day of January in the calendar year next following that in which the notice is given;

• (ii) in respect of other taxes on income, for taxation years beginning on or after the first day of January in the calendar year next following that in which the notice is given.

In witness whereof the undersigned, duly authorised thereto have signed this Convention.

Done at Moscow this 15th day of February 1994 in duplicate in the English and Russian languages, both texts being equally authoritative.

For the Government of the United Kingdom Great Britain and Northern Ireland:

Douglas Hurd

For the Government of the Russian Federation:

Andrei Kozyrev

PART II — EXCHANGE OF NOTES

Moscow

15th February 1994

Excellency

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to make on behalf of the Government of the United Kingdom the following proposals for the purpose of applying:

Article 22 : Elimination of double taxation;

Interest Payable by a Permanent Establishment of an Enterprise of a Contracting State a In computing tax payable on its income or profits, there shall be allowed to a permanent establishment of an enterprise of a Contracting State, a deduction for interest incurred for the purpose of its trade or business whether paid to a bank or other person and without regard to the period of the loan, but that deduction shall not be available to the extent that the interest paid exceeds, for whatever reason, the amount which would have been agreed upon in the absence of a special relationship between the payer and the beneficial owner of the interest.

Wages, Salaries and other Remuneration for Personal Services Payable by a Permanent Establishment of an Enterprise of a Contracting State b In computing tax payable on its profits, there shall be allowed to a permanent establishment of an enterprise of a Contracting State, a deduction for actual wages, salaries and other remuneration for personal services paid by the permanent establishment and incurred for the purpose of its trade or business, provided, in the case of a permanent establishment in the Russian Federation of an enterprise of the United Kingdom, that suchpermanent establishment pays tax at rates in accordance with the law “On taxes on profits of enterprises and organisations”.In the event that the law “On taxes on profits of enterprises and organisations” ceases to have effect, such permanent establishment will be permitted to continue to compute its tax as specified in this subparagraph.

Interest Payable by a Company or other Taxable Entity which is a Resident of a Contracting State c In computing tax payable on its income or profits, there shall be allowed, to a companyor other taxable entity which is a resident of a Contracting State and which is wholly or partly owned by a resident or residents of the other Contracting State, a deduction for interest incurred for the purpose of its trade or business whether paid to a bank or other person and without regard to the period of the loan, but that deduction shall not be available to the extent that the interest paid exceeds, for whatever reason, the amount which would have been agreed upon in the absence of a special relationship between the payer and the beneficial owner of the interest.

Wages, Salaries and other Remuneration for Personal Services Payable by a Company or other Taxable Entity which is a Resident of a Contracting State d In computing tax payable on its profits, there shall be allowed, to a company or other taxable entity which is a resident of a Contracting State and which is at least 30 per cent owned by a resident or residents of the other Contracting State and the issued share capital of which is at least £75,000 (or the equivalent value in roubles), a deduction for actual wages, salaries and other remuneration for personal services paid by the company or other entity and incurred for the purpose of its trade or business provided that the company orother entity is engaged in production or manucturing and that, in the case of a company or other taxable entity resident in the Russian Federation which is owned by a UK resident or residents, such resident pays tax at rates in accordance with the law “On taxes on profits of enterprises and organisations”.In the event that the law “On taxes on profits of enterprises and organisations” ceases to have effect, such resident will be permitted to continue to compute its tax as specified in this subparagraph.

Wages, Salaries and other Remuneration for Personal Services Payable by a Company or other Taxable Entity Carrying on Banking, Insurance or other Financial Business. e The Russian Federation agrees that if a banking, insurance or other financial business is carried on in the Russian Federation by a resident of the Russian Federation that is atleast 30 per cent owned by a resident or residents of the United Kingdom and has issued share capital of at least £75,000 (or the equivalent value in roubles), such resident of the Russian Federation shall be permitted deductions for actual wages and other remuneration for personal services, provided that such resident pays tax at rates in accordance with the law “On taxes on profits of enterprises and organisations”.In the event that the law “On taxes on profits of enterprises and organisations” ceases to have effect, such resident will be permitted to continue to compute its tax as specified in this subparagraph.

Withholding Tax f Each Contracting State shall endeavour to establish procedures to enable taxpayers to receive income dealt with under Articles 10, 11, and 12 without the imposition of withholding taxes where the Convention provides for taxation only in the state of residence. Where the Convention provides for taxation in the state where the income arises each State shall endeavour to establish procedures to enable taxpayers to receive income under deduction of tax at the rate provided for in the Convention.Where a claim is made by a taxpayer, tax withheld at source in a Contracting State at the rate provided for under domestic law shall be repaid in a timely manner where that tax is withheld at a rate in excess of that provided for under the terms of the Convention.

If the foregoing proposals are acceptable to the Government of the Russian Federation I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

I avail myself of this opportunity to extend to Your Excellency the assurance of my highest consideration.

Brian Fall

Her Brittanic Majesty’s Ambassador

Moscow

15th February 1994

Excellency

I am in receipt of your note dated 15th February 1994 which states as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to make on behalf of the Government of the United Kingdom the following proposals for the purpose of applying: (a) In computing tax payable on its income or profits, there shall be allowed to a permanent establishment of an enterprise of a Contracting State, a deduction for interest incurred for the purpose of its trade or business whether paid to a bank or other person and without regard to the period of the loan, but that deduction shall not be available to the extent that the interest paid exceeds, for whatever reason, the amount which would have been agreed upon in the absence of a special relationship between the payer and the beneficial owner of the interest. (b) In computing tax payable on its profits, there shall be allowed to a permanent establishment of an enterprise of a Contracting State, a deduction for actual wages, salaries and other remuneration for personal services paid by the permanent establishment and incurred for the purpose of its trade or business, provided, in the case of a permanent establishment in the Russian Federation of an enterprise of the United Kingdom, that such permanent establishment pays tax at rates in accordance with the law “On taxes on profits of enterprises and organisations”. In the event that the law “On taxes on profits of enterprises and organisations” ceases to have effect, such permanent establishment will be permitted to continue to compute its tax as specified in this subparagraph. (c) In computing tax payable on its income or profits, there shall be allowed, to a company or other taxable entity which is a resident of a Contracting State and which is wholly or partly owned by a resident or residents of the other Contracting State, a deduction for interest incurred for the purpose of its trade or business whether paid to a bank or other person and without regard to the period of the loan, but that deduction shall not be available to the extent that the interest paid exceeds, for whatever reason, the amount which would have been agreed upon in the absence of a special relationship between the payer and the beneficial owner of the interest. (d) In computing tax payable on its profits, there shall be allowed, to a company or other taxable entity which is a resident of a Contracting State and which is at least 30 per cent owned by a resident or residents of the other Contracting State and the issued share capital of which is at least £75,000 (or the equivalent value in roubles), a deduction for actual wages, salaries and other remuneration for personal services paid by the company or other entity and incurred for the purpose of its trade or business provided that the company or other entity is engaged in production or manufacturing and that, in the case of a company or other taxable entity resident in the Russian Federation which is owned by a UK resident or residents, such resident pays tax at rates in accordance with the law “On taxes on profits of enterprises and organisations”. In the event that the law “On taxes on profits of enterprises and organisations” ceases to have effect, such resident will be permitted to continue to compute its tax as specified in this subparagraph. (e) The Russian Federation agrees that if a banking, insurance or other financial business is carried on in the Russian Federation by a resident of the Russian Federation that is at least 30 per cent owned by residents of the United Kingdom and has issued share capital of at least £75,000 (or the equivalent value in roubles), such resident of the Russian Federation shall be permitted deductions for actual wages and other remuneration for personal services, provided that such resident pays tax at rates in accordance with the law “On taxes on profits of enterprises and organisations”. In the event that the law “On taxes on profits of enterprises and organisations” ceases to have effect, such resident will be permitted to continue to compute its tax as specified in this subparagraph. (f) Each Contracting State shall endeavour to establish procedures to enable taxpayers to receive income dealt with under Articles 10, 11, and 12 without the imposition of withholding taxes where the Convention provides for taxation only in the state of residence. Where the Convention provides for taxation in the state where the income arises each State shall endeavour to establish procedures to enable taxpayers to receive income under deduction of tax at the rate provided for in the Convention.Where a claim is made by a taxpayer, tax withheld at source in a Contracting State at the rate for under domestic law shall be repaid in a timely manner where that tax is withheld at a rate in excess of that provided for under the terms of the Convention. If the foregoing proposals are acceptable to the Government of the Russian Federation I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

The foregoing proposals being acceptable to the Government of the Russian Federation, I have the honour to confirm that Your Excellency’s Note and this Reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

I take this opportunity to renew to Your Excellency the assurances of my highest consideration.

Sergei Lavrov

Deputy Minister for Foreign Affairs of the Russian Federation

Signed

R. P. Bulling — Deputy Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with the Russian Federation is set out in the Schedule to the Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property may be taxed in the country in which the property is situated (Articles 6 and 13).

Air Transport and Shipping profits are to be taxed only in the residence state of the operator (Article 8).

The Convention includes rules for determining taxable profits when an enterprise in one country is related to an enterprise in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country shall not, in general, exceed 10 per cent of the gross amount of the dividends flowing to the other country. (Article 10).

The Convention provides that interest shall generally be taxable only in the recipient’s country of residence. (Article 11).

The Convention provides that royalties shall generally be taxable only in the recipient’s country of residence. (Article 12).

Capital gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in that other country (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are exercised (Article 17). Occupational pensions and annuities are to be taxed only in the recipient’s country of nce (Article 18). Government Service remuneration is normally taxable only by that Government (Article 19). Certain payments made to visiting students and business apprentices are to be exempt from tax in the country visited (Article 20). Other income not specified in the Convention (with the exception of income paid out of trusts or the estates of deceased persons in the course of administration) shall be taxable only in the taxpayer’s country of residence, as long as it is not associated permanent establishment in the country of source (Article 21).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed in the other country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in the Russian Federation where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends (Article 22).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25), and for consultation (Article 26) and exchanges of information (Article 27) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of the internal procedures required by its law to bring the Convention into force. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12).