Russia: New inflation linked OFZ instrument
Clearstream Banking1 would like to advise customers that on 17 July 2015, the Ministry of Finance of the Russian Federation issued a new security called inflation linked OFZ (OFZ-IN) that is fully eligible in Clearstream Banking for custody services and settlement (DVP & FOP) for the following transactions:
- Domestic transactions;
- Internal transactions; and
- Bridge transactions.
The tax regime remains the same as for other OFZ and the National Settlement Depository (NSD) will not withhold any tax for foreign nominees.
Background
The Ministry of Finance of the Russian Federation issued a letter on 14 July 2015, reference No. 03-03-10/40395 related to issuance, placement, circulation, and servicing of federal loan bonds with an indexed par value. It clarifies the procedure for tax calculation associated with the receipt of income from such bonds:
“In accordance with sub-clause 7 of clause 2 of Article 310 of the Code, tax on income paid to foreign organisations is not calculated or withheld in cases of payment of Interest Income from government securities of the Russian Federation, government securities of the Russian Federation’s constituent entities, and municipal securities.
Thus, with respect to Interest Income on Bond yield payable to foreign organisations which do not operate through a permanent establishment in the Russian Federation, corporate income tax is not calculated or withheld.”
Impact on customers
Customers should take note of the following:
- OFZ-IN settle in the same way as ordinary OFZ.
- A coupon paid under OFZ-IN is not subject to taxation, the same as the ordinary OFZ. The NSD as the Tax Agent will not withdraw tax from the coupon.
- Value increment of the OFZ-IN, which is possible due to inflation, will be paid by the Ministry of Finance of the Russian Federation only upon redemption of the OFZ-IN. NSD is the Tax Agent and value growth will be treated as interest income.
Note: OFZ-IN settlement can take place on both the stock exchange and over-the-counter (OTC) market at the choice of the investor. Settlement of the bonds placed in the OTC market will be conducted on 21 July 2015, based on the indexed principal and accrued coupon income as of 21 July 2015.
Further Information
For further information, customers may contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or their Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500, and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.