LETTER OF THE FEDERAL TAX SERVICE OF THE RUSSIAN FEDERATION

of February 7, 2013 No. ED-4-3/1828 @

The Federal Tax Service directs for data and use in work the letter of the Ministry of Finance of the Russian Federation of 01.11.2012 N 03-08-13 concerning determination of share of real estate as a part of assets of the Russian organization for the purposes of the taxation of the income of the foreign organizations from sources in the Russian Federation in case of application of the subitem 5 of Item 1 of article 309 of the Tax Code of the Russian Federation. The Departments of FNS of Russia for subjects of the Russian Federation are entrusted to bring this letter to subordinate tax authorities.

Appendix

LETTER OF THE MINISTRY OF FINANCE OF THE RUSSIAN FEDERATION

of November 1, 2012 No. 03-08-13

The department of tax and customs and tariff policy reviewed request concerning determination of share of real estate as a part of assets of the Russian organization for the purposes of the taxation the income tax of the organizations and reports.

According to the subitem 5 of Item 1 of article 309 of the Tax Code of the Russian Federation (further - the Code) the income of the foreign organization which is not performing the activities through permanent mission in the Russian Federation from implementation of shares (shares) of the Russian organizations which more than 50 percent of assets consist of the real estate which is in the territory of the Russian Federation and also the financial instruments derivative of such shares (shares), except for the shares recognized being traded on the organized market of securities according to Item 3 of article 280 of the Code belongs to the income of this foreign organization from sources in the Russian Federation and is subject to the taxation the income tax of the organizations withheld at source of payment of the income. At the same time the income from realization at the foreign exchanges (at foreign organizers of trade) securities or financial instruments, derivative of them, addressing at these exchanges, is not recognized the income from sources in the Russian Federation.

At the same time the Code does not contain provisions concerning calculation of share of the real estate which is in the territory of the Russian Federation in assets of the Russian organization.

In our opinion, in case of application of the subitem 5 of Item 1 of article 309 of the Code for determination of share of real estate it is necessary to proceed from the cumulative amount of all assets of the Russian organization which shares (share) were realized by the foreign organization.

This line item corresponds to the international practice enshrined in Comments to Model of the Convention on taxes on the income and the capital of OECD which Item 28.4 to item 4 of Article 13 of the specified Model says:

"Determination of whether represents the real estate which is in the Contracting State, directly or indirectly more than 50% of share value of the company is usually made by comparison of cost of such real estate with the cost of all property belonging to the company without debts and other obligations of the company (irrespective of their mortgage providing with the corresponding property)".

Direct calculation of share of such real estate can be made based on book value of assets of the Russian organization and book value of this real estate. The foreign organization selling shares based on the publications of the conventional private or official sources which are available for it, or based on information obtained by the seller of shares of the Russian organization can also provide to the tax agent such data. Necessary information can be obtained by the share purchaser - the tax agent directly from the issuer whose shares are acquired by him, or from any other reliable sources which are not forbidden by the law.

As the documents confirming the size of share of the real estate which is in the territory of the Russian Federation in assets of the Russian issuer can be:

- the balance sheet (form N 1) as of the last reporting date preceding the transaction on purchase and sale of shares;

- calculation for the property tax on the same reporting date.

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