Global Tax Alert | 4 March 2014

Russian Arbitration Court confirms Form 6166 provides sufficient support for US company’s entitlement to treaty benefits

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On 3 December 2013, the Federal Arbitration Court (FAC) of the Moscow district issued Ruling No. А40-170730/2012 regarding the tax residency certificate form provided by a US company in order to apply treaty benefits. The tax authorities had challenged the adequacy of an official US tax residency certificate (Form 6166) to justify the application of tax benefits under the Russia-US double tax treaty (the treaty).

The court decision concerns Russian company ZAO SK Aviva (the Company) which was the source of Russian-source income of an American company John Hancock and hence required to act as tax agent in relation to that income. The Company applied the provisions of the treaty in determining that interest income derived by John Hancock in Russia was exempt from taxation at source. In order to confirm that John Hancock is a US tax resident, the Company provided the tax authorities with a certificate of residency in the form of Form 6166, which was neither apostilled (form of international certification) nor translated into Russian.

The tax authorities denied the validity of the tax residency certificate on the ground that its wording differed from that recommended in the Methodological Recommendations for Tax Authorities.1 The court rejected this argument and noted that the methodological recommendations are not mandatory for taxpayers, or for the US Internal Revenue Service (IRS) which had issued the Form 6166.

Under US legislation, Form 6166 is the official document proving the tax residency of a US taxpayer. Moreover, a number of clarifications by the Russian Ministry of Finance and a ruling of the Supreme Arbitration Court2 have confirmed that a Form 6166 issued by the IRS is the official document for confirming the permanent location of US residents for treaty purposes.

The tax authorities also pointed to the facts that the Form 6166 had not been translated into Russian at the time of the tax audit and there was no apostille as grounds for denying treaty benefits. The court rejected both arguments.

In relation to absence of a Russian translation, the court stated that the Company had enough personnel able to understand documentation in English. Moreover, the court cited the Ruling of the Plenum of SAC No. 5 of 28 February 2001 under which Russian courts are obliged to accept and evaluate documents and other evidence provided by a taxpayer to substantiate its objections to a decision concerning a field tax audit, regardless of whether these documents were provided to the tax authorities within the required time period. Therefore, the courts could take into account a translation of the form provided to them by the Company.

In relation to absence of apostille, the court referred to the provisions of Article 3 of the Hague Convention and a subsequent clarification from the tax authorities.3 According to the clarification, the US is included in the list of foreign countries with which Russia has agreed to accept documents confirming residency without an apostille.

The case was resolved in favor of the taxpayer in all three instances, confirming that Form 6166 remains acceptable as the official confirmation of tax residency in the US for treaty purposes. However, this case serves to remind taxpayers that the tax authorities scrutinize the documentation which confirms the right of a taxpayer to treaty benefits and are sometimes unwilling to accept documents even if doing so would be consistent with court practice and clarifications of the Ministry of Finance.

Endnotes

1. Methodological Recommendations for Tax Authorities on the Application of Certain Provisions of Chapter 25 of the Tax Code of the Russian Federation Concerning Special Considerations Relating to the Taxation of the Profit (Income) of Foreign Organizations approved by Order No. BG-3-23/150 of 28 March 2003 (repealed on 19 December 2012).

2. Determination No. ВАС-5317/11 of the SAC of 17 June 2011; and Letters of the Ministry of Finance No. ОА-4-13/7707 of 24 April 2013; No. 03-08-05/9437 of 26 March 2013; No. 03-08-05 of 15 June 2012; and No. 03-08-05/1 of 1 April 2010.

3. Letter No. 26-2-08/5988 of the Federal Tax Service of 12 May 2005.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (CIS) B.V., Moscow
  • Maureen O’Donoghue
    +7 495 228 3670
    maureen.odonoghue@ru.ey.com
  • Vladimir V. Zheltonogov
    +7 495 705 9737
    vladimir.zheltonogov@ru.ey.com
Ernst & Young LLP, Russian Tax Desk, New York
  • Julia Samoletova
    +1 212 773 8088
    julia.samoletova@ey.com

EYG no. CM4225