UK Asks Russia To Reverse Decision On UK-Russia Double Tax Treaty

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Russia suspended the treaty on August 8th, resulting in higher withholding tax exposure to British companies   

The United Kingdom has asked Russia to reverse the suspension of the provisions of the bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains signed in 1994, pointing out that the document “does not permit this unilateral action.”

“The UK considers the treaty to remain in force and is continuing to comply with its terms. The government is considering next steps and will provide further information in due course,” the UK government said in a statement on its official website.

On August 8, Russian President Vladimir Putin signed a decree suspending certain provisions of its tax agreements with 38 countries Russia has designated as unfriendly.

The Russian Finance Ministry and Foreign Ministry said in March they proposed that the president order suspending the agreements on avoiding double taxation with all countries that had imposed unilateral economic restrictions on Russia. It said that, if Russia exercised its right to suspend the agreements, all payments of dividends, interest, and royalties to unfriendly countries, and that these would be taxed at source in Russia at a rate of 15% or 20%. Deputy Finance Minister Alexei Sazonov explained later that the suspension of the agreement would not apply to provisions allowing for the crediting for tax, including personal income tax.

The suspension of certain provisions of these agreements apply to Poland, the United States, the Republic of Korea, Bulgaria, Sweden, Luxembourg, Romania, the United Kingdom, 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 line with the presidential decree and Russian Foreign Ministry notes forwarded to said states, the validity of the provisions has been suspended from August 8 until these states eliminate their violations of economic and other interests of Russia and the rights of its citizens and legal entities, or until the expiration of these international treaties with respect to Russia.

It remains uncertain how the UK Government would be able to prevent Russia from imposing the higher rates of tax on British companies within Russia, with the UK’s request likely to be ignored. Moscow would also point out that the freezing of Russian assets in the UK was carried out without any British legal due process and was also a singular action carried out against its State assets.

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