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Russia Proposes to Suspend Tax Agreements with nonfriendly States

The Ministry of Finance and the Ministry of Foreign Affairs of the Russian Federation have recently proposed the suspension of double taxation agreements with all nonfriendly states through a special presidential decree.

The proposal comes in response to the introduction of unilateral economic restrictive measures against Russia by Western countries, including its inclusion in the European Union’s blacklist of non-cooperative tax jurisdictions, of which we have recently informed you.

When the proposal is enacted into effective law, the tax exemptions in respect of income of companies and individuals covered by double taxation agreements will be suspended.

This proposal marks a significant departure from Russia’s previous approach, which was to react to counterparties who suspended tax agreements with Russia. However, in light of the current situation, the Russian government believes it has grounds to introduce retaliatory measures.

It is important to note that until now, there has been no talk of a total suspension of tax agreements with nonfriendly  states. For example, Russia only suspended its agreement with Latvia as a response to the same action.

Russia’s proposed action, if implemented, will have significant legal consequences for affected parties. The suspension of double taxation agreements means that companies conducting business between Russia and the affected countries may be subject to higher tax rates. Moreover, it may result in double taxation of the same income in both Russia and the affected country.

Affected companies should carefully review the terms of their countries’ existing tax agreements with Russia and consider the potential impact of a suspension of those agreements and even amendment of their contract structure. It also may be necessary to review existing tax planning strategies and take steps to mitigate the potential tax exposure.

In addition, companies should monitor developments closely and seek legal advice to ensure compliance with any changes in tax laws or regulations. It is possible that other countries may also take similar retaliatory measures, which could result in further disruptions to cross-border business operations.

In conclusion, the proposal to suspend tax agreements with nonfriendly states is a significant development in the ongoing economic issues between Russia and Western states.