On the decision of the headquarters, a representative office of a Russian company sells part of its used main assets (furniture, cars, office equipment, etc.).
The representative office is not engaged in entrepreneurial activity. Will the revenues got by the foreign company from sale of such a property be subject to taxation in Uzbekistan?
– According to point 7 of the “Provisions on accreditation of representative offices of foreign commercial organizations in the territory of the Republic of Uzbekistan”*1, representative offices are not legal entities and, therefore, do not conduct economical or other commercial activity. According to point 22 of the same Provisions, a representative office will get the property from the foreign company which established it and will act under regulations approved by the latter. Therefore, main assets used in the activity of a representative office, are considered to be the property of the foreign company.
Peculiarities of taxation of non-residents of the Republic of Uzbekistan are determined in Articles 154 and 155 of the Tax Code (TC). Article 154 describes the specifics of income taxation of the non-residents carrying out their activity in the Republic of Uzbekistan through permanent establishment. The concept of “permanent establishment” does not include any preparatory and intermediate activity, which, in particular, the maintenance of a permanent place of activity refers to for the purpose of collection, processing and (or) distribution of information (without rights to sell) as well as marketing, promotion and market research for goods (works, services) of a non-resident of the Republic of Uzbekistan, if such an activity is not his main one (article 20 of the TC).
In our case the foreign company does not carry out any entrepreneurial activity through permanent establishment. Therefore, functions of the representative office (as it is obvious from the question) have solely intermediate character.
According to article 155 of the Tax Code, income of a non-resident of the Republic of Uzbekistan which is not related to the permanent establishment, is subject to taxation at the source of payment without deduction of expenditures connected to the received income. This article also defines which of the non-residents’ income is subject to taxation at the source of payment. Income got from sales of a non-resident’s movable property located in the territory of the Republic of Uzbekistan is not mentioned in the article.
In accordance with point 2 of Article 13 of the Agreement concluded between the Government of the Russian Federation and the government of the Republic of Uzbekistan on avoiding double taxation of income and property*2 , income got from alienation of movable property, making part of a business property of the permanent establishment, which the company of one negotiating state has in the other negotiating state, or from alienation of movable property, related to permanent base which is accessible by a resident of one negotiating state in another negotiating state with the aim of rendering independent personal services, including income, obtained from the alienation of this permanent establishment (separately or together with a company) or such a permanent base, may be subject to taxation in this other country.
According to point 4 of Article 13 of the Agreement, income, obtained from alienation of any other property, which is not stated in points 1, 2 and 3 of the article, shall be subject to taxation only in that negotiating state, where the person alienating the property is a resident.
Taking into consideration the above-stated provisions, Tax Code of the Republic of Uzbekistan and the Agreement, if a non-resident has no permanent base in the Republic of Uzbekistan and does not carry out any activity through permanent establishment, then income got from sale of his movable property shall be subject to taxation in the country of a non-resident (in this case it is Russian Federation).
*1 Attachment N 1 to Decree N 410 issued by the Cabinet of Ministers on 23.10.2000.
*2 Moscow, 2.03.1994., came to force on July 27, 1995.
Tax and custom news, № 18 dd. May 7, 2013
Author: Irina AGAFONOVA, head of Tax Practice
«BAKER TILLY Uzbekistan»