Tax agreements suspended against backdrop of partial noncompliance by counterparties - Russian Finance Ministry

MOSCOW. Aug 21 (Interfax) - Russia was unable to continue to apply its double tax agreements with unfriendly countries because these failed to comply with some of their provisions, the Finance Ministry said, commenting on a request by the United Kingdom to cancel the suspension of the UK-Russia Double Taxation Convention of 1994.

The request said that, because the document provides for no such unilateral action, the agreement remains in force and the UK continues to comply with it, the UK government's website said. The British government is considering further steps, it added.

The Finance Ministry said in turn that such suspension of agreement, wholly or in part, was permitted by the Vienna Convention on the Law of Treaties if the other country's rights were violated.

"Since 2022 Western countries have unilaterally been introducing economic restrictive measures against Russia. Thus, in February this year the European Union placed Russia on a list of non-cooperative jurisdictions for tax purposes, the so-called EU blacklist. At the same time, parts of the taxation agreements have been flouted by the unfriendly countries. For instance, by refusal to issue its residents with proof of permanent residence in a foreign state for the purpose of such an agreement and by no longer sharing tax information with Russia. In these circumstances, Russia was unable to continue to apply the agreements unilaterally," the ministry said in a statement.

On August 8, 2023, Russian President Vladimir Putin signed a decree suspending parts of taxation agreements with 38 unfriendly countries. In March, Russia's Finance and Foreign Ministries said they had proposed that the president issue a decree suspending the agreements with every country that imposed unilateral economic restrictions against Russia. In the event that the right to suspend the agreement is exercised, all dividend, interest and royalty payouts to unfriendly countries would be subject in Russia to a tax deduction at source, at rates of 15% and 20%, respectively, it had been said. Later, Deputy Finance Minister Alexei Sazanov said that the suspension would not affect the articles which offset taxes, including the individual income tax.

The agreements have been partially suspended with Poland, the United States, South Korea, Bulgaria, Sweden, Luxembourg, Romania, UK, Hungary, Ireland, Slovakia, Albania, Belgium Slovenia, Croatia, Canada, Yugoslavia, Switzerland, the Czech Republic, Denmark, Norway, Italy, Finland, Germany France, Macedonia, Cyprus, Spain, Lithuania, Iceland, Austria, Portugal, Greece, New Zealand, Australia, Singapore, Malta and Japan.

In accordance with the decree, and the notes forwarded by Russia's Foreign Ministry to the countries, the provisions are suspended from August 8 until these states address their violations of the economic and other interests of the Russian Federation, citizens and legal entities, or until these international agreements cease to be effective with respect to Russia.