DECISION OF ECONOMIC COUNCIL OF COMMONWEALTH OF INDEPENDENT STATES

of December 12, 2008

About practice of application of agreements on avoidance of double taxation and prevention of tax avoidance in the State Parties of the CIS

The economic council of the Commonwealth of Independent States solved:

1. Take into consideration the information state-of-the-art review "About practice of application of agreements on avoidance of double taxation and prevention of tax avoidance in the State Parties of the CIS" it (is applied), provided by Coordination council of heads of Tax Services of the State Parties of the Commonwealth of Independent States and considered by the Commission on economic problems.

2. Charge to Coordination council of heads of Tax Services of the State Parties of the CIS to consider question of feasibility of development of comments concerning avoidance of double taxation it is similar to the comments published by Organization for Economic Cooperation and Development and developments of the regulating document about the administrative help with taxation in the State Parties of the CIS.

3. To send to executive committee of the CIS the specified overview to the governments of the State Parties of the CIS for informing the interested ministries and departments and to place it on the website on the Internet.

About practice of application of agreements on avoidance of double taxation and prevention of tax avoidances in the State Parties of the CIS

Information state-of-the-art review

INTRODUCTION

Tax factors in the international relations acquire the increasing relevance in connection with development of the external economic activity of each State Party of the CIS as taxes are the factor capable to exert impact on international trade, movement of investments, implementation of other interstate bonds.

The legal base in the field of differentiation of tax jurisdiction of the State Parties of the CIS when implementing by subjects of managing of these states of foreign economic activity is constituted by the regulating legal documents accepted by each of the states and also the international agreements including tax questions.

The national legal system in the State Parties of the CIS, realizing the principle of tax sovereignty, establishes the taxation of comprehensive income for the tax residents that means tax payment according to all income, irrespective of their sources of origin (within the country or beyond its limits).

To tax residents of foreign states (nonresidents) of regulation of the legislation are applied to legal relationship which party is the nonresident, i.e. according to the income and property arising (being) in the territory of this state.

Thus, in case of conducting foreign economic activity by the subject (trade, works, services, loan granting, etc.) in the territory of two states there are circumstances under which the income tax (income), property, and in some cases and indirect taxes shall be paid in both states that will correspond to the legislation of both states.

Claims of both states for the right of the taxation of result of activities or the property of such subject of foreign economic activity which is referred to as with double taxation can deliver barriers on the way of development of mutually beneficial economic cooperation.

Therefore management of the tax relations in the field of the international commercial ties causes need of forming for the State Parties of the CIS of the organizational and economic mechanism of elimination of double taxation.

To some extent double taxation is leveled by provisions of the national legal system. Different methods are for this purpose used. For example, "tax burden" of the income of the nonresidents who are not performing activities through permanent mission is slightly lower, than the main rate on the income tax (for example, the income of the nonresident from the freight is assessed in the Republic of Belarus with tax on the income at the rate of 6%, in the Republic of Kazakhstan and the Kyrgyz Republic - 5%; the insurance payments received according to insurance contracts or risks reinsurances are assessed with tax on the income in the Kyrgyz Republic at the rate of 5%; in the Republic of Kazakhstan - the insurance premiums paid under agreements of risks reinsurance are assessed at the rate of 5%, paid according to insurance contracts of risks - 10%; the income from use, content or leasing (freight) of courts, airplanes or other mobile vehicles or containers in connection with implementation of international carriages are assessed in the Russian Federation at the rate of 10%); also the taxation object joins not all turnovers (article 306 of the Tax Code of the Russian Federation, article 7 of the Law of the Republic of Belarus "About taxes on the income and profit" turnovers according to contracts in foreign trade in the absence of signs of permanent mission are not the taxation object); the tax credit on foreign tax on profit (income) in the absence of agreements on avoidance of double taxation (article 311 of the Tax Code of the Russian Federation), etc. is granted.

However the conclusion of agreements on avoidance of double taxation allows to remove this problem more fully. Therefore the number of such agreements increases in process of development of cooperation between the State Parties of the CIS. Respectively Tax Services have need of permanent interaction for ensuring their efficient application.

1. The legislation of the State Parties of the CIS regulating the taxation of nonresidents. Premises of the conclusion of agreements on avoidance of double taxation

All State Parties of the CIS have the legislation regulating tax regimes for the residents performing business activity abroad and for foreign taxpayers (nonresidents) acting in their country.

Concerning profit (income) of nonresident legal entities the tax regime of all State Parties of the CIS is set depending on extent of presence and nature of activities of the foreign company.

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