Timmermans & Simons International Business Lawyers: Tax Alert

Dear colleagues!
Timmermans & Simons International Business Lawyers would like to inform you about developments related to the amendment of the Russia-Luxembourg double tax treaty. It recently has been reported that the Russian Government has approved the draft of the Amending Protocol to Russia-Luxembourg Double Tax Treaty. From the available documentationattached to the present Alert as an Annexit appears that the Russian Government intends to renegotiate the tax treaty with Luxembourg along the same lines as the renegotiated (October 2010) tax treaty with Cyprus. The key features of the amending protocol appear to be: Comprehensive Information Exchange Clause; Reduction of the lowest Russian withholding tax from 10% to 5%; Taxation in Russia of distributions from REITs and mutual funds; Taxation in Russia of capital gains on alienation of shares in entities the value of which is primarily based on the value of immovable property located in Russia; More precise and comprehensive definition of a Permanent Establishment aimed at service-type PEs; Introduction of a Limitation of Benefits Clause.

It should be noted that: (a) the Protocol has yet not been signed; and (b) the signed text may (significantly) deviate from the pending draft. However the pending amendments are in line with: (a) new Russian tax treaty policy; (b) the Russian Tax Treaty Model; and (c) amendments to the Russia-Cyprus tax treaty which already have been signed. The undoubtedly positive development which is expected from this draft, when signed, is the reduction of the lower dividend withholding tax rate from 10% to 5%; this will put Luxembourg holding structures in a more competitive position vis--vis Cyprus and The Netherlands. A number of other amendmentsprimarily dealing with real estate and mutual fundsmay affect some existing structures and prompt investors to consider alternative routes of investments. It is noteworthy that The Netherlands remains the only country among the three largest investors in Russia (Cyprus, Luxembourg being the other two) which has not (yet) been affected yet by Russias renegotiations of its tax treaties.

The statements and analysis contained in the attached case summary are for informational purposes only and do not constitute specific legal advice for the recipient(s) of these materials. Appropriate legal advice from this firm or from another competent professional should be sought, where appropriate, before entering into transactions or (re-) structuring arrangements which possibly may be affected by the developments described in this letter or by related events.

We will keep you posted on further development and remain prepared to discuss with you the possible effect which the ongoing amendment-process of Russian tax treaties may have on your international structures.

Kind regards, Roustam Vakhitov International Tax Partner 11 August 2011

Mobile RU: +7/906/059.8008 Mobile NL: +31/20/8943767 E-mail: <vakhitov@tsiblaw.com>

Roustam Vakhitov, International Tax Partner, Timmermans & Simons International Business Lawyers 11.08.2011

ANNEX Agenda of the Session of Government of Russian Federation for 2 August 2011 (Excerpt) 7. The signing of the Protocol amending the Agreement between the Russian Federation and the Grand Duchy of Luxembourg for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and property. The draft was submitted by the Russian Ministry of Finance. The draft includes a proposal to sign the Protocol to the Agreement between the Russian Federation and the Grand Duchy of Luxembourg for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income, which was signed in Moscow on June 28, 1993. In accordance with the recommendations of the Organization for Economic Cooperation and Development (OECD), the Protocol sets out a new text of Article 26 of the Agreement, Information Exchange, aimed at improving the exchange of information between tax authorities of Russia and Luxembourg, including information held by banks, financial organizations, trust service providers, agents or trustees. The information exchange is designed to cover all taxes. The procedure for exchanging information among the competent authorities of the Contracting States is set out in the Additional Protocol. According to the current requirements of international taxation, the term resident is specified in Article 4 of the Agreement. Article 5 (Permanent Establishment) is supplemented by provisions allowing a significant portion of tax revenues from the supply of services and activities through a dependent agent to be taxed in Russia. Article 10 (Dividends) provides for a lower rate of taxation on dividends (5%) instead of current rate (10%). This should put Luxembourg on an equal, competitive footing with those other European states which are the main investors in the Russian economy (The Netherlands and Cyprus) and should strengthen the trend of switching projects implemented in Russia by major international institutional investors from Cyprus to Luxembourg. In addition, several articles of the Agreement are supplemented by provisions: allowing Russia to tax income paid on shares of investment funds, including real estate funds (Articles 6 (Income from real property) and 10 (Dividends)); allowing t Russia to tax revenues from the alienation of shares in companies the assets of which are made up of 50% or more of immovable property (Article 13 (Income from capital gains)); allowing a widening of the possibilities of taxing certain other income (Article 21 (Other income)) and specifying the procedure for eliminating double taxation in Luxembourg (Article 23 (Elimination of double taxation)).

The agreement also is supplemented by Article 29 (Limitation of benefits).

Roustam Vakhitov, International Tax Partner, Timmermans & Simons International Business Lawyers 11.08.2011

In preparing the draft, Russia has followed the Russian Tax Treaty Model for the avoidance of double taxation of income and assets. The Contracting States also are guided by typical models recommended by the OECD and the United Nations (UN). After the signing of the Protocol, it must be ratified in accordance with paragraph a of paragraph 1 of Article 15 of the Russian Federal Law On International Treaties of the Russian Federation.

Roustam Vakhitov, International Tax Partner, Timmermans & Simons International Business Lawyers 11.08.2011