Beneficial Ownership for Purposes of Applying of Double Tax Treaties: the View from Russian Courts

Abstract

The topic of taxation is one which finds few enthusiasts outside the field of tax specialists. Yet, public indignation when large companies are discovered to be avoiding large amounts of tax is common - especially when set alongside matters such as rising prices, salaries which do not match inflation, and cuts to public services due to reduced sums of money in the public purse to pay for essential infrastructure and services. Accordingly, the basis on which such large companies - and affluent persons can avoid (not evade) paying taxes becomes interesting. The question as to how to secure better tax income stream from such companies and persons becomes a matter to which States increasingly pay attention. To this end, the existing international system of double tax treaties provides a mechanism whereby dividend payments can avoid tax liability when they are cunningly manipulated with a number of financial entities linked together. The concept of “beneficial ownership” has been developed internationally as a tool to leverage income tax revenue out of such tax avoidance schemes. The tax code of the Russian Federation now incorporates provision regarding such beneficial ownership - yet its implementation (both in Russia and abroad) is in its infancy, There are ambiguities and anomalies. This paper explores this concept of beneficial ownership - historically, in theory and in practice - and signposts directions for the taxation law and practice to develop.