Taxation Of Eurobonds

(Tax News Reporter - Week Ended 3 December 1996)

The Ministry of Finance and the State Tax Service have issued a joint letter which specifically deals with the taxation of the recently issued Eurobonds. The letter confirms that foreign legal entities trading Eurobonds offshore do not have a permanent establishment in Russia due to the mere fact of trading or performing of any services related to the trading. Purchase agreements can contain "tax clauses" which increase the amount to be paid out in case of new taxes which were not foreseen when the contract was concluded. Only when traded through a permanent establishment may turnover from the sale of Eurobonds give rise to road users tax. Housing tax can be levied on the same basis by the local tax authorities. It is also confirmed that interest income on Eurobonds is exempt for Russian profits tax and personal income tax purposes.