In accordance with the Tax Code of the Russian Federation, NSD performs tax agent obligations when paying income on emission securities.

NSD calculates, withholds and transfers to the budget of the Russian Federation profit tax and personal income tax in established cases in accordance with the provisions of the Tax Code of the Russian Federation, as well as international treaties (agreements) regulating taxation issues.

NSD as a depository performs tax agent obligations when paying income on securities to foreign organizations, foreign nominee holders, as well as when paying dividends to Russian organizations for shares stored on owner's depo accounts.

Foreign nominee holders submit aggregated tax disclosure to NSD, without providing documents confirming the right of actual income recipients (beneficial owners/beneficiaries) to receive tax exemptions and benefits. More detailed information for foreign nominee holders can be found in the Foreign Nominee Holders section.

Russian and foreign organizations (including international organizations) – actual income recipients, entitled to benefits or tax exemption on securities stored on owner's depo accounts, may provide the tax agent (NSD) with relevant documents confirming this right.

The list of documents required to obtain tax exemptions and benefits can be found in the relevant sections.

If the above persons are tax residents of countries (persons with permanent location) with which the Russian Federation has an active treaty on avoidance of double taxation, and if such treaty provides for taxation of income on securities at a reduced rate (exemption from taxation), then such persons have the right to tax withholding at the rate established by the international treaty (exemption from taxation), subject to submission of the following documents before the income payment date:

For the purpose of tax withholding at a reduced rate established by an international treaty, a foreign organization must submit to the tax agent a document confirming the tax status of the foreign organization (tax certificate) meeting the following requirements:

• the document must contain the following or similar phrase: "It is confirmed that the organization (organization name) is during (period specified) a person with permanent residence in (state specified) within the meaning of the Agreement (international treaty name specified) between the Russian Federation/USSR and (foreign state specified)";

• the document must indicate a specific period for which it is valid, or be dated by the year of income payment (in this case, the period of validity of the document will be the calendar year in which the document was issued);

• the document must have the seal (stamp) of the competent (or authorized by it), within the meaning of the applicable double taxation avoidance treaty, body of the foreign state and the signature of an authorized official of this body;

• the document must be legalized at the diplomatic mission or consulate of the Russian Federation (for states that have not acceded to the Hague Convention of 05.10.1961) or have an apostille (legalization and apostille are not required only if the relevant international double taxation avoidance treaty contains provisions that allow accepting documents confirming the tax resident status of a foreign state without an apostille);

• the document must be notarized if it is submitted as a copy;

• a notarized translation into Russian must be attached to the document if the document is in a foreign language.

In the event that the body/official of the foreign state, which is the authorized body/official within the meaning of the relevant treaty, has delegated its powers to another body(-ies)/person(-s), the taxpayer-deponent should provide information confirming this delegation.

In addition to the tax certificate, a resident of a foreign state must provide documents confirming that it is simultaneously a resident of the country of the applicable international treaty and has the actual right to receive income.

A person having the actual right to income, for the purposes of the Tax Code of the Russian Federation and application of international agreements, is recognized as a person who by virtue of direct and (or) indirect participation in the organization, or control over the organization, or by virtue of other circumstances has the right to independently use and (or) dispose of this income, or a person in whose interests another person is authorized to dispose of such income. When determining the person having the actual right to income, the functions performed by the persons specified in this paragraph, as well as the risks assumed by them, are taken into account.

In the event that an international taxation agreement provides for the application of reduced tax rates or exemption from taxation in relation to income from sources in the Russian Federation for foreign persons having the actual right to such income, for the purpose of applying this international agreement, a foreign person is not recognized as having the actual right to such income if it has limited powers to dispose of such income, performs intermediary functions in relation to such income in the interests of another person, without performing any other functions and without assuming any risks, directly or indirectly paying such income (in full or in part) to this other person, which, upon direct receipt of such income from sources in the Russian Federation, would not have the right to apply the provisions of the international agreement of the Russian Federation on taxation issues specified in this paragraph.

In the event that a foreign organization recognizes the absence of the actual right to receive such income in relation to income from sources in the Russian Federation, the provisions of international treaties of the Russian Federation and (or) the Tax Code of the Russian Federation may be applied to another person if such person has the actual right to such income.

If the person (persons) having the actual right to income is known, when paying income from sources in the Russian Federation to a foreign person who does not have the actual right to income, then the income paid to the foreign person who does not have the actual right to income is considered paid to the person (persons) having the actual right to such paid income, while taxation of the paid income is carried out in the following order:

1. if the person having the actual right to the paid income (its part) is recognized as a tax resident of the Russian Federation in accordance with the Tax Code of the Russian Federation, taxation of the paid income (its part) is carried out in accordance with the tax rates established by the provisions of the relevant chapters of Part Two of the Tax Code of the Russian Federation for taxpayers who are tax residents of the Russian Federation;

2. if the person having the actual right to the paid income (its part) is a foreign person to which the provisions of an international agreement of the Russian Federation on taxation issues apply, the provisions of the specified international agreement of the Russian Federation apply to the person who has the actual right to the paid income (its part) in accordance with the procedure provided for by the international agreement of the Russian Federation;

3. if the person having the actual right to the paid income (its part) is a foreign person to which the provisions of an international treaty of the Russian Federation on taxation issues do not apply, taxation of the paid income (its part) is carried out in accordance with the provisions of the relevant chapters of Part Two of the Tax Code of the Russian Federation.

More details on documents confirming the actual right to income (ARI) can be found in the letter of the Ministry of Finance dated 24.07.2014 No. 03-08-05/36499, posted on the NSD website.

In the presence of provisions in international treaties limiting the possibility of applying the specified treaties to taxation of income of certain categories of persons (limitation of benefits), residents of foreign states, in addition to the listed documents, provide additional confirmations. The confirmations must contain information that residents of the specified states do not fall under the restrictions established by the relevant international treaties. Such confirmations may be contained in certificates confirming the tax jurisdiction of the taxpayer, or in separate certificates issued by the competent authorities of the relevant foreign state.

If the applicable international double taxation avoidance treaty contains more than one reduced rate and the application of the lowest rate depends on the fulfillment of any criteria (investment amount and holding periods), then for the purpose of applying such a reduced rate, documents confirming the fulfillment of such criteria are also provided to the tax agent.

NSD, applying from January 1, 2021 the provisions of certain international double taxation avoidance agreements, must take into account, as a tax agent, the Multilateral Convention (concluded – Paris 24.11.2016) "On the Implementation of Measures Relating to Tax Agreements to Prevent Base Erosion and Profit Shifting" (hereinafter referred to as the Multilateral Convention).

One of the key changes for the application of benefits is the introduction by the Multilateral Convention of the principal purpose test, allowing tax authorities to refuse to apply any benefits under the agreement (for example, application of reduced rates or exemption from tax at source, deduction of expenses, etc.), if the application of such benefits was one of the main purposes of the structure or transaction (for example, ownership structure, licensing, financing, selection of counterparty jurisdiction within the group, selection of contract form, etc.). Thus, to pass the principal purpose test, it is important to demonstrate the business purposes of the structure or transaction within which tax benefits under the agreement are applied, and assess whether tax authorities can successfully prove that one of the purposes of creating the structure or transaction was to obtain benefits under the agreement.

The provisions of MLI do not provide explanations on how to documentually confirm passing this test. At the same time, there is an explanation from the Ministry of Finance (Letter dated 28.07.2020 No. 03-08-05/65902), which indicates examples of documents that can be used to confirm compliance with this test:

• Documents on the presence and amount of tax benefit from the application of an international treaty expected by the taxpayer when making a transaction (operation);

• Documents on the presence and assessment of commercial (business) benefit expected by the taxpayer when making a transaction (operation);

• Documents on the ratio of the expected tax benefit from the application of benefits under an international treaty and the expected commercial (business) benefit from making a transaction (operation);

• Documents substantiating the presence of residency in one of the Contracting States, reflecting the ownership structure and changes in it, the nature and volume of activity in the country of residency.

The listed documents are independent (additional) in relation to documents confirming the status of the actual income recipient (ARI concept), and documents provided in relation to limitation of benefits.

Documents are provided by deponents to NSD taking into account the need for their verification no later than 10 business days before income payment, together with a cover letter on Confirmation of Recognition of Actual Right to Income / Confirmation of Absence of Actual Right to Income in the form approved at NSD. The forms of letters – confirmations have features depending on the beneficiary status (legal entity / individual / RF resident / non-resident RF / international organization), therefore NSD clients need to request letter forms from client managers by an official letter with a description of the tax statuses of persons participating with the NSD deponent in the change of the actual income recipient for payment.

The specified letters must be signed by authorized officials of the deponent/income beneficiary, documents confirming the authority of such persons must be attached to the letters.

In the event of non-receipt within the specified period of documents necessary for the application of benefits and exemptions, NSD does not guarantee their application.