Note: This Announcement, originally published on 27 January 2014, is now updated to provide further details of the applicable withholding tax rates and a link to the list of debt security Double Taxation Treaties currently in force with Russia. Additional information is highlighted.

Effective

30 January 2014

the withholding tax and disclosure procedures described below will apply on Russian corporate bonds issued after 1 January 2012.

This is further to our Announcement L14012, dated 23 January 2014.

Background

Russian Law 306-FZ establishes, among other things, that the information required by the tax agent must be presented to the Russian custodian, in all details, in the correct format and on a voluntary basis, before payment date and that failure to do so will result in income entitlements under Russian securities being subject to a tax rate of 30%.

In addition, the Russian Tax Authorities are entitled by Russian law to request, after the payment of income, disclosure of the documents mentioned below in the Ad-hoc Tax Disclosure section.

As a consequence, Russian corporate bonds held in the direct account of Clearstream Banking¹ with the National Settlement Depository (NSD) will be subject to Russian withholding tax and NSD will act as withholding tax agent.

Applicable withholding tax rates

After submission of the required information within the prescribed deadlines, the following reduced tax rates are applied by CBL:

• Double Taxation Treaty (DTT) rates: if the final beneficial owner² is a resident of a country that has signed a DTT with Russia (“DTT country”);
• 20% (15% for mortgage-backed bonds): if the final beneficial owner is a legal entity not resident in a DTT country but discloses his residency and holdings;
• 13%: if the final beneficial owner is a Russian physical person;
• 0%: if the final beneficial owner is a Russian legal entity (in which case, the Russian legal entity (being, according to the Russian Fiscal Code, subject to 20% withholding tax) is responsible to comply with the legal requirements and declare his income on the annual tax declaration).

The maximum tax rate of 30% will be applied for final beneficial owners that are individuals not resident in a DTT country (as stipulated in the Russian Fiscal Code) and for undisclosed positions (the "penalty rate").

Impact on customers

Relief from withholding tax is available to eligible beneficial owners through CBL by means of relief at source and quick/standard refund procedures as described in the following sections.

Relief at source

In order to benefit from relief at source on income/redemption from Russian corporate bonds, CBL customers will need to ensure that we receive the following documents at the latest on Record Date (that is Payment Date –1 business day), by 11:00 CET:

One-Time Certificate for Russian corporate bonds

The One-Time Certificate (see version attached below) must be submitted by all customers, regardless of the residency and status of the beneficial owners, before the first trade in Russian corporate bonds or at the latest before the first impacted interest payment date and must state that the customer holds the securities, either:

BOX 1 – Standing instruction: Exclusively for one single beneficial owner (which may be the customer or his underlying client) eligible for reduced tax rates. By ticking the first box, reduced tax rate is applied by default at source on all further interest payments. The customer must, in order to comply with the reporting obligations, complete the beneficial owner’s data as described in the One-Time Certificate and authorise CBL to forward these details together with the total holding to the NSD for each interest paid to the customer’s account.

Or

BOX 2 – Standing instruction: On behalf of several beneficial owners (including the customer, when applicable), being exclusively either:

• Legal entities; or
• Individuals (applicable to Russian or DTT country residents);

and residents of:

• The same country, whether having a DTT with Russia or not; or
• Russian residents.

By ticking the second box, the applicable reduced rate of tax is applied by default at source on all further interest payments. The customer must, in order to comply with the reporting obligations, complete the beneficial owners’ data as described in the One-Time Certificate and authorise CBL to forward these details together with the total holding to the Russian authorities for each interest payment made to the customer’s account.

Or

BOX 3 – Instruction per payment: On behalf of several beneficial owners that are residents of different countries and eligible for reduced rates of tax as above but also on behalf of beneficial owners that are not willing to disclose their holdings and country of residence. In addition to the One-Time Certificate, the customer is required to submit, before each interest payment, a Breakdown of Holdings as explained below.

One-Time Certificates that have more than one box ticked are not valid and will be rejected.

A Breakdown of Holdings

When Box 3 was ticked in the One-Time Certificate, a Breakdown of Holdings must be provided, before each impacted income event, via SWIFT MT599 or CreationOnline free-format message indicating:

• ISIN;
• Payment date;
• Customer’s CBL account number;
• Customer’s total holding; and
• Per country of residence and legal status of beneficial owner:
  • The country of residence;
  • DTT details (Article, Paragraph, Sub-paragraph);
  • Legal Status (individual/legal entity);
  • Total holding;
  • Tax Rate to apply;
• The total holding that remains undisclosed.

All these declared positions must be accurate on the relevant record date at 19:00 CET, meaning that no further transactions are allowed after the submission of the Breakdown. If there is a discrepancy between the declared positions and the customer’s total holding visible in Clearstream Banking’s books, the application for tax exemption will be rejected and, consequently, the maximum penalty tax rate will be applied.

Furthermore, if Box 3 of the One-Time Certificate is ticked and we receive no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum penalty tax rate will be applied.

Quick refund

A quick refund of withholding tax, for interest and redemption, is available for beneficial owners eligible for tax relief if the required certification has not been provided within the relief at source deadline.

The eligibility criteria and certification requirements are the same as for relief at source (see above).

In addition, if a One-Time Certificate with Box 1 or 2 ticked is submitted for a quick refund application, customers are obliged to send in addition a SWIFT MT599 or CreationOnline free-format message indicating the ISIN and payment date for which the standing instruction must be applied.

Deadline for quick refund

In order to benefit from a quick refund on income/redemption from Russian securities, customers must ensure that we receive the above-described documents at the latest 22 business days after the relevant Payment Date.

Standard refund

Note: The standard refund process with the Russian Tax Authorities is extremely complex and time-consuming. As a consequence, we strongly suggest that customers apply for relief at source or quick refund in order to obtain the reduced tax rates.

The documentation and additional information listed below has been confirmed by the NSD and depends on the legal status of the final beneficial owner applying for the standard refund:

• For legal entities:
  • A tax refund application in the form required by the federal executive authority in charge of tax supervision; and
  • A certification that the relevant foreign organisation was, as at the income payment date, a tax resident of a jurisdiction with which the Russian Federation has a DTT (such certification must be issued by a competent authority of such foreign jurisdiction).
• For individuals:
  • A tax refund application (in any form);
  • A tax residency certificate (or other documents) issued and certified by a competent foreign authority authorized to issue such certificates.

For the purpose of refunding any tax withheld on the basis of summary information (updated summary information) under article 214.6 or 310.1 of the Russian Tax Code, the following documents shall be additionally submitted (both by legal entities and individuals) in accordance with article 312 of the Russian Tax Code:

• A document evidencing that, as at the date determined by the relevant Russian issuer’s decision to pay income on the securities:
  • The applicant was authorised to exercise the rights attached to such securities; or
  • The rights to such securities were exercisable by a trustee on behalf of the applicant;
• A document evidencing the amount of income on the securities (including the securities held in trust on behalf of the applicant), as was actually paid to the applicant (or to the applicant’s trustee);
• A document containing information on the depository (depositories) that, either directly or through third parties, remitted the amount of income on the securities to a foreign organisation authorised, in accordance with the laws of the jurisdiction of its incorporation, to keep records of, and process the transfer of rights to, the securities, and that has been keeping records of the securities held by the applicant (or by the applicant’s trustee);
• A document showing that, as at the date determined by the relevant Russian issuer’s decision to pay income on the securities, the person authorised to exercise the rights attached to such securities, or the person on whose behalf the rights to such securities were exercisable by the trustee, complied with the additional terms and conditions provided for by the Russian Tax Code or by the relevant DTT of the Russian Federation, compliance with which is required to apply a reduced tax rate to the dividend income payable (or paid) (in the event of tax refund due to the application of a reduced tax rate).

Where any of the above documents is in a foreign language, the Russian Tax Authorities may request that such document(s) be translated into Russian. The requirement for notarisation and translation into Russian shall not apply to payment documents only.

An application for refund of taxes withheld in the Russian Federation and any other of the above documents shall be submitted, by the relevant recipient of the foreign income to the tax authority with which the withholding agent is registered, within three years or one year following the end of the tax period in which the income was paid to the foreign organisation or foreign individual, respectively.

The tax amount withheld (and paid) shall be refunded in Russian Rubles, by the tax authority with which the withholding agent is registered, upon submission of a tax refund application and the above documents.

The decision on whether to refund tax shall be made by the competent tax authority within 10 days of the receipt of the taxpayer’s tax refund application. The tax authority shall notify the taxpayer in writing of the tax authority’s decision to refund tax or reject the tax reclaim application within five days of the date on which such decision is made.

Deadline for standard refund

The statutory deadline for reclaiming withholding tax using the standard refund procedure is three years (for legal entities) or one year (for individuals) following the end of the year when the income was paid.

The deadline by which Clearstream Banking must receive the documentation for application for a standard refund of withholding tax is at the latest three months before the statutory deadline.

All refund applications received after this deadline will be processed by Clearstream Banking on a "best efforts" basis. However, in such cases, Clearstream Banking accepts no responsibility for forms that have not reached the Russian Tax Authorities by the date considered being the statute of limitations deadline.

Furthermore, Clearstream Banking will apply an extra charge for applications received less than two months before the statutory deadline.

With respect to tax reclaims in general, customers are reminded that Clearstream Banking accepts no responsibility for their acceptance or non-acceptance by the tax authorities of the respective country. It is the customer's responsibility to determine any entitlement to a refund of tax withheld, to complete the forms required correctly, and to calculate the amount due.

Ad-hoc tax disclosure

When submitting the per-country of residence information to CBL, the customer must make sure that the final beneficial owner holds documents certifying his tax residency status as at the income payment date, as, pursuant to the Russian Tax Code, the tax residency status of a beneficiary of income must be specified in summary information on the basis of documents certifying such tax residency status.

Customers are responsible to comply with the obligations of articles 214.8 and 310.2 of the Russian Tax Code and provide the documentation as described below.

In accordance with article 214.8 of the Russian Tax Code, in the course of an office audit and/or field audit conducted to ensure the accuracy of tax calculation and payment by a Withholding Agent with respect to foreign nominee securities accounts in accordance with article 214.6 of the Russian Tax Code, tax authorities may request the following documents:

• A copy of identification documents of the individual who, as at the date determined by the Russian organisation’s decision to pay income on the securities, was authorised to exercise the rights attached to the securities issued by such Russian organisation;
• A copy of identification documents of the individual on whose behalf the trustee, as at the date determined by the Russian organisation’s decision to pay income on the securities, was authorised to exercise the rights attached to the securities issued by such Russian organisation;
• A copy of documents and original documents certifying that the individual, as at the date determined by the Russian organisation’s decision to pay income on the securities, was authorised to exercise the rights attached to the securities issued by such Russian organisation, and documents certifying the tax residency of such individual; and
• Other documents proving the accuracy of tax calculation and payment, including documents proving the accuracy of information disclosed by the foreign nominee.

Where a DTT provides for any limitation of tax privilege, tax authorities of the Russian Federation may request that the taxpayer provide (at the same time when filing documents certifying the taxpayer’s tax residency status) an additional certificate issued (in any form) by a competent authority to certify that the taxpayer claiming tax privilege under the DTT is eligible to claim the same.

In accordance with article 310.2 of the Russian Tax Code, in the course of an office audit and/or field audit conducted to ensure the accuracy of tax calculation and payment by a Withholding Agent with respect to foreign nominee securities accounts in accordance with article 310.1 of the Russian Tax Code, tax authorities may request the following documents in the manner stipulated by the Russian Tax Code:

• A copy of documents evidencing the state registration and full name of the organisation that, as at the date determined by the Russian organisation’s decision to pay income on the securities, was authorised to exercise the rights attached to the securities issued by such Russian organisation;
• A copy of documents evidencing the state registration and full name of the organisation on whose behalf the trustee, as at the date determined by the Russian organisation’s decision to pay income on the securities, was authorised to exercise the rights attached to the securities issued by such Russian organisation;
• A copy of documents and original documents certifying that the organisation, as at the date determined by the Russian organisation’s decision to pay income on the securities, was authorised to exercise the rights attached to the securities issued by such Russian organisation, and documents certifying the tax residency of such organisation; and
• Other documents proving the accuracy of tax calculation and payment, including documents proving the accuracy of information disclosed by the foreign organisation acting on behalf of third parties.

Where a DTT provides for any limitation of tax privilege, tax authorities of the Russian Federation may request that the taxpayer provide (at the same time when filing documents certifying the taxpayer’s tax residency status) an additional certificate issued (in any form) by a competent authority to certify that the taxpayer claiming tax privilege under the DTT is eligible to claim the same.

Deadline for ad-hoc tax disclosure

The deadline within which the Russian Tax Authorities may request additional information through NSD is three years following the end of the year when the income was paid. CBL will immediately inform customers after receipt of the official letter. The deadline within which the documentation must be received back from customers is at the latest eight (8) weeks after the date included in the letter.

Capital gains tax

There is no capital gains tax withheld through Clearstream Banking on Russian corporate bonds held in Clearstream Banking. Capital gains tax may however be payable on specific gains. Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.

Further information

For further information, customers may contact the Clearstream Banking Tax Help Desk on:

	Luxembourg	Frankfurt
Email:	tax@clearstream.com	tax@clearstream.com
Telephone:	+352-243-32835	+49-(0) 69-2 11-1 3821
Fax:	+352-243-632835	+49-(0) 69-2 11-61 3821

or Clearstream Banking Customer Service or their Relationship Officer.

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1. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).

2. For foreign investment funds (investment companies) that qualify as collective investment schemes under the laws of their jurisdiction, the disclosed information shall not include information on investors (or their finduciaries).

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