EU adds Russia to its “blacklist”
of jurisdictions for tax purposes
16 February 2023
On 14 February 2023, the Council of the European Union (“EU Council”) issued a press release stating that Russia has been added to the “blacklist” of non-cooperative jurisdictions for tax purposes for the failure of its regime regarding International Holding Companies in special administrative regions (“SARs”) to ensure compliance with the tax good governance criteria of the European Union (“EU”).

Russia’s placement on the EU “blacklist” means that EU member states will be entitled to apply measures of an administrative and legal nature against Russia. Each EU state should choose at least one measure from two types of measures to be applied, namely:

1. Measures of an administrative nature:
  • enhanced monitoring of certain transactions between EU residents and Russian persons;
  • higher audit risks for EU taxpayers who use vehicles or transactions involving Russian persons.

2. Measures of a legal nature:
  • EU resident taxpayers will be unable to account, for tax purposes, for their expenses incurred in transactions with Russian persons;
  • the application of controlled foreign companies (“CFC”) rules to EU resident persons who were able not to apply such rules under their national laws;
  • the application of withholding taxes on income paid to Russian persons previously exempt from taxation;
  • a restriction on the application of the tax exemption rules to EU resident shareholders in relation to distributions received from Russian persons (participation exemption).

The Russian Finance Ministry made a comment in response to the EU Council‘s publication. The Finance Ministry stated that amendments had been made to the Russian Tax Code in February 2022, which improved the SAR regime in line with EU comments, including by allowing Russian companies to move to SARs, strengthened the requirements for actual presence in SARs and limited the period of the so-called “grandfathering” clause to 2025. However, since last March, all contacts with the EU in the tax field have been suspended for an indefinite period. The decision to include Russia on the list of non-cooperative jurisdictions was taken without consultation with the Russian side. The Russian Finance Ministry is unaware of the reasons behind such decision.


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