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Beneficial Ownership of Income: Risk Calculator

Income stream diagram

Certain types of income, such as dividends, interest and royalties, are subject to withholding tax in Russia when paid to a foreign company. In the past, confirmation of the foreign company’s tax residence was sufficient in order for a lower rate to be applied.

Since 1 January 2015, new rules have been in effect, under which lower rates provided for in tax treaties are applicable where the foreign party is the beneficial owner of (‘has an actual right to’) income (Articles 7 and 312 of the Tax Code). This means that so-called intermediate (‘conduit’) companies cannot claim tax relief even if they have a residence certificate. This concept is also sometimes referred to as the beneficial ownership rules. The new rules leave much room for interpretation, which may give rise to disagreements during tax audits. Past arbitration rulings provide a basis on which to identify key factors and assess how safe it is for lower rates to be applied in a given structure.

The new rules leave much room for interpretation, which may give rise to disagreements during tax audits. Past arbitration rulings provide a basis on which to identify key factors and assess how safe it is for lower rates to be applied in a given structure.

We have prepared this questionnaire based on our analysis of existing case law. Answering the questions will enable you to evaluate the probability of winning a dispute with a tax inspectorate in the event that it disagrees with the applicability of tax reliefs in your situation.

Tax treaty benefits do not apply to agents, brokers or other intermediaries that act in the interests of third parties and do not recognize the income received in their financial statements. There is a high risk that reduced tax treaty rates will be challenged in such circumstances.

Please respond to the above questions to continue

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The beneficial ownership risk level is:

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The risk is calculated using a model that cannot take account of all factors relevant to the evaluation of beneficial ownership risk. Furthermore, this is a demo version of the risk calculator based on a shortened list of factors. For a more accurate assessment of beneficial ownership risk, you can request professional advice by completing the form to the right.

The risk that the immediate recipient of income is not the beneficial owner of that income does not mean that another entity in the income payment stream cannot apply tax treaty benefits. The applicability of the look-through approach requires further analysis.
Calculate the risk

To receive additional information or ask a question please fill in the form below:

The logistic regression model used for the calculation of risk (‘Model’) is based on a sample consisting of 52 observations (‘Sample’). The coefficient of determination for the model is 0.67. The independent variable coefficients are: -2.562 (confidence interval from -4.626 to -0.498), 0.051 (confidence interval from -0.176 to 0.278) and -0.337 (confidence interval from -0.611 to -0.063). The confidence intervals are based on a significance level of 5%. The Model assumes that factors exerting a positive or negative influence on the outcome of a court case have an equal impact on the probability of the outcome of a lawsuit. The Model does not take into account the influence that factors have on one another (the strengthening or weakening of one factor by another). The Model evaluates tax risks based on a sample set of tax disputes selected at the time of preparing the solution, and the outcomes thereof. Although the Model takes into account a large number of significant factors, each individual lawsuit may have a number of unique characteristics and circumstances which cannot be taken into account by mathematical methods. The Model evaluates tax risks based on previous rulings and factors, circumstances and events which occurred in the past. Even an absolutely precise evaluation of the impact of factors on the outcome of a tax case may produce a less than perfectly precise result if the true impact of the factors considered is dynamic in nature and changes over time. The Model delivers an assessment of the probability of defeat in a potential court case. Even a very high probability value for defeat does not mean that a negative outcome is a foregone conclusion, just as an extremely low value does not signify a complete absence of tax risks. Inaccuracies (as well as plain errors) in completing the questionnaire may result in the distortion of the Model’s output. The Model must be considered in conjunction with the Sample. Adding new statistical data to the Sample would inevitably alter the evaluation of the influence of factors on the probability of defeat in a court case. This means that the result given by the Model with the updated Sample may differ substantially from the result given by the Model with the older version of the Sample. EY does not recommend using the Model as a basis for making major decisions. EY accepts no liability for any financial losses resulting from such decisions.