The Presidium of the Supreme Arbitration Court of the Russian Federation has clarified how provisions of international treaties and those of article 269 of the Russian Tax Code on controlled indebtedness correlate

According to article 7 of the Russian Tax Code if international treaties of the Russian Federation, which contain provisions on taxation, stipulate rules and norms which differ from those established by the Russian Tax Code, the rules and norms on international treaties shall apply. Therefore, international treaties, in particular double tax treaties, shall apply when national legislation contravenes international legislative acts and provides for different legal regulation of any given issue related to taxation of residents of contracting states.

However, reviewing specific provisions on the elimination of taxation discrimination of nationals of one contracting state in the other contracting state, including guarantee of equal terms of taxation, stipulated in Double Tax Treaties (article 24 of Cyprus-Russia Double Tax Treaty of 5 December 1998 and Switzerland-Russia Double Tax Treaty of 15 November 1995) under particular case, the Presidium of the Supreme Arbitration Court of the Russian Federation resolved that these provisions do not exclude the possibility of introducing special rules of taxation at the national legislation level as a way to combat tax minimization. These rules include inter alia norms of article 269.2 of the Russian Tax Code in cases related to recording of controlled indebtedness interests.

As the highest instance court ruled, the provisions aimed to combat tax abuse should not be regarded as discriminative towards foreign invested Russian organizations should they have a controlled indebtedness to a foreign company.

The indicated approach of the Presidium of the Supreme Arbitration Court of the Russian Federation is universally binding and enforceable when lower instance courts review similar cases.