EY WHT Tool for companies paying Russian-source income to foreign entities (withholding tax)

Income of foreign entities from sources in the Russian Federation may be subject to a tax withheld at the source of income. In international practice, the tax is called withholding tax (WHT).

Article 309.1 of the Russian Tax Code lists the types of a foreign entity’s income subject to taxation in Russia. Withholding tax is calculated, withheld and remitted by a tax agent. In most cases, a tax agent is a Russian legal entity (less often — a Russian individual entrepreneur or a permanent establishment of a foreign entity).

Withholding tax is a tax on income from a source in Russia that is withheld by a tax agent (usually a Russian legal entity) when paying income to a foreign entity.

Information on income paid and tax withheld at source should be included in a special tax report, i.e., the tax calculation of amounts paid to foreign entities and taxes withheld ("tax calculation"). The tax calculation should be prepared even for income which is not subject to withholding tax.
EY has developed a special automated solution for reviewing the tax calculation of amounts paid to foreign entities on income received from Russian sources and on taxes withheld. This solution is called EY WHT tool.

Who is our solution for?

All Russian companies paying income of any type (dividends, interest or royalty) to foreign entities/structures
Financial institutions
System functionality
The tax calculation takes into account more than 15 control ratios of the Russian Federal Tax Service to ensure its correctness
Logical control of tax rates (exemptions) and grounds for their application is carried out in respect of more than 30 types of income and takes into account the provisions of the Russian Tax Code and of more than 100 international agreements (including MLIs)
The report generated as a result of the review contains a list of identified errors and areas for additional methodological verification and is based on more than 3,500 control and logical checks

EY's solution helps to:

1. Eliminate errors in tax rates and grounds for their application which may result in fines and sanctions by the tax authorities: prevent the application of incorrect rates/grounds for exemption when applying the provisions of international agreements
2. Automate and centralize the process of tax calculation: reconcile the tax calculation with various sources (international agreements, the Russian Tax Code and accounting systems)
3. Develop a process of additional review of logical and arithmetic errors: ensure that the control procedures established by the Russian Federal Tax Service and the taxpayer’s methodological approach are reviewed
4. Reduce risks associated with manual data processing and entry, as well as tax penalties and additional charges: minimize the risk of input errors attributable to the human factor when processing large amounts of data. EY’s solution is based on downloading XML data
5. Eliminate discrepancies in tax reports: centralize the review and improve control over the correctness of tax reports to be used for generating VAT returns
EY WHT Tool architecture:
Advantages and practical benefits of implementing the solution
More reliable tax reporting due to a centralized review procedure
Fewer issues and errors, and therefore reduced amounts of potential tax assessments/fines (including administrative)
Segregation of duties among business process participants
Increased employee efficiency and a reduced number of routine operations
Digitization and automation of tax function/controls
Our Team
Andrei Ignatov
EY Associate Partner,
Tax Technology and Transformation Leader, CIS
Sergey Foevtsov
EY Senior Manager,
Financial services group

Tatiana Alikina
EY Senior Manager,
Financial services group
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