By Jochem van Staalduine en Gidi Pols
Two prominent oligarchs have become victims of Russia’s termination of the tax treaty with the Netherlands, according to research by The Investigative Desk. The journalistic collective investigated the Dutch activities of the 25 largest privately-owned Russian companies. Three of these companies – owned by two oligarchs – appear to use the Netherlands as a transit country.
Three of these companies – owned by two oligarchs – appear to use the Netherlands as a transit country. Cigarette distributor Megapolis, telecom services company VEON and food retailer X5 Retail Group transfer dividends to business units based in the Netherlands. As from next year, they will have to pay three times as much dividend tax on these cash flows in Russia.
The investigation was prompted by the Russian threat to unilaterally terminate the tax treaty with the Netherlands. President Putin’s government demands, among other things, a 15% withholding tax on dividends (i.e., a distribution of profits from a Russian subsidiary to a Dutch parent company). At present, Russia may levy a maximum of 5% in such cases. Russia has now terminated the tax treaty with the Netherlands with effect from 1 January 2022.
Since 2008, Putin has been talking about de-offshorizatsiya – the ambition to keep Russian roubles in the domestic economy rather than in tax havens. The Russian president has used the pandemic as an opportunity to put that wish into action. The Netherlands is not the only target here. Malta, Cyprus and Luxembourg already signed a new tax treaty, in which they complied with the Russian demands. The Netherlands is the only known obstructionist.
The largest shareholder of cigarette distributor Megapolis is Igor Kesaev. He owns 49.9% of the voting rights. Between 2014 and 2019, the Dutch office of Megapolis Distribution in The Hague received a total of EUR 1.23 billion in dividends from Russia. Via another Dutch company, the money was sent to Cypriot Megapolis Holdings (Overseas), of which Kesaev owns the majority of the shares. Between 2014 and 2019, that company received EUR 1.9 billion via the Netherlands.
Oligarch Mikhail Fridman plays an important role in both VEON and X5 Retail Group. Fridman is also one of the co-founders of international investment company LetterOne. That fund owns a majority of the shares of telecom services company VEON. The group of investors around Fridman is the only major shareholder of X5 Retail Group, with 47.9% of the voting rights.
Dutch VEON Holdings received USD 2.8 billion in dividends between 2014 and 2019. Some of that money comes from subsidiaries in several countries, but it is likely that a substantial part of that money comes from Russia. The Russian branch of the company accounts for roughly half of the total annual turnover and features in the annual report as ‘our cornerstone’.
X5 Retail Group transferred EUR 1 billion in dividends to the Netherlands for the first time in 2020. The company paid only EUR 57 million in Russian dividend tax on that transfer.
Megapolis, VEON and X5 Retail Group did not respond to questions from The Investigative Desk.
By Gidi Pols and Jochem van Staalduine, published (in Dutch) in NRC Handelsblad