Practice Of Applying The Beneficial Owner Concept Develops Rapidly.

2016 was marked by a breakthrough in the practice of applying the concept of the person beneficially entitled to income (the beneficial owner concept) as a legal mechanism for the Russian tax authorities to challenge the right of foreign recipients of income from sources in the Russian Federation (mainly dividends, interest and royalties) to apply preferential tax rates contemplated by double tax agreements, treaties and conventions.

What was previously perceived as a purely theoretical risk has become a reality. The cases of MDM Bank ¹, Bank Intesa ², Credit Europe Bank ³, Severstal ⁴ and Krasnobrodsky Yuzhny LLC⁵ clearly demonstrate that the negative trend of the Russian tax authorities challenging the validity of applying double tax treaties to multitier holding and financial structures that started in 2015 developed last year.