Multilateral instrument ("MLI")
The Luxembourg tax authorities recently confirmed, in a newsletter issued on 8 June 2020, their intention to publish coordinated versions of the currently enforceable double tax treaties, depicting the changes due to the Multilateral Instrument (hereafter “MLI”) and the options exercised by each jurisdiction thereunder.
The coordinated versions will soon be released by the Luxembourg tax authorities and available for consultation on their website. The aim is to enable taxpayers to understand the impacts and consequences resulting from the application of the MLI to a specific double tax treaty.
Double tax treaty with the Russian Federation
Recently, the Russian Finance Ministry announced that it has proposed changes to the withholding tax rates currently provided in the double tax treaty entered into with Luxembourg (as well as Malta and Cyprus).
Under the current double tax treaty between Luxembourg and the Russian Federation, withholding tax on dividends is limited to 5% if certain conditions are met and no withholding tax applies on interest payments. The Russian Federation now intends to apply a 15% withholding tax on dividend and interest payments. Those amendments are the direct consequence of the speech delivered by the President of the Russian Federation on 25 March 2020, in which he ordered the increase in tax rate on income in the form of dividends and interest, which are transferred to foreign accounts.
The Russian Federation expects the changes to enter into force on 1 January 2021 and in case the partner jurisdiction refuses to amend the existing double tax treaty before the end of the year, the Russian Federation would unilaterally withdraw from the relevant double tax treaty.
As a result, dividend and interest payments made by Russian companies to Luxembourg residents could suffer a higher withholding tax charge, for which Luxembourg would have to grant a tax credit. In this context, the Russian Finance Ministry also confirmed that the proposed changes should not affect interest income paid on Eurobonds, bond issues of Russian companies and loans provided by foreign banks, which should be governed by Russian tax law.