Thin capitalisation & interest.

The thin capitalisation rule denies a tax deduction for excessive interest payments between related parties. In Russia, the rule sets a maximum debt to equity ratio of 3 : 1.

Interests can be deducted from taxable income provided that the interest does not exceed 20 per cent of the interest established by arm's-length parties in similar circumstances for the same period of time.

If similar examples in the same accounting period are unavailable, the maximum deductible interest is regarded as equal to the rate of Central Bank multiplied by 1.1 for rouble loans, and 15 per cent for loans denominated in a foreign currency.

In 2010 the assumed maximum arm's length interest will be the Central Bank's rate multiplied by 1.8 for rouble loans, and 15 per cent for loans denominated in foreign currency. From January 1, 2011 to December 31, 2012 - the Central Bank's rate multiplied by 1.8 for rouble loans, and the Central Bank's rate multiplied by 0.8 for loans denominated in foreign currency.

On May 24, 2011 the draft law increasing the amount of deductible interest on foreign loans to 9% has been submitted to the State Duma. If it goes through the Parliament, the new rule will work retroactively starting from January 1, 2011 and will remain in force until December 31, 2012.

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