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Do we need a double tax treaty with Russia (the country-aggressor)? It is still effective!

21 April, 2022 Newsletters

Please see the updates “We have been heard: Ukraine denounces the Double Tax Treaty with Russia

Why do we need treaties (conventions) for the avoidance of double taxation of income and property (capital gains)?

First of all, as even the name implies, they are needed to prevent double taxation (both in the country of source of income and in the country of residence) of certain incomes of residents of one country, who operate or receive their income in another country. This promotes economic development and deepens business relations between the contracting states.

Yet, is there such a task with regard to relations between Ukraine and Russia (to promote the development and deepening of economic ties by eliminating double taxation)?

Meanwhile, the relevant treaty on avoidance of double taxation with Russia dated February 8, 1995, exists and remains valid. Such information proceeds from public sources available (in particular, double treaty is indicated as valid on the website of the Verkhovna Rada of Ukraine by the link).

As of the day of drafting this newsletter, no public information has been found about any steps taken by Ukraine to terminate and ultimately denounce the double treaty.

Unlike other countries in this regard.

For example, on April 5, 2022, Reuters reported, citing the US Treasury Department, that the US Internal Revenue Service (IRS) had officially stopped exchanging information under the double tax treaty with Russia’s tax authorities to limit the latter’s ability to collect taxes for financing aggression.

Germany and Great Britain has stopped the exchange of tax information with Russia as well.

According to the information from the Spiegel, German edition, on April 1, 2022, Germany suspended the exchange of information with Russian and Belorussian tax authorities due to Russia’s invasion of Ukraine. Spiegel refers to the letter of Christian Lindner, Germany’s Federal Minister of Finance, to his Ukrainian colleague Serhiy Marchenko. The citation from the German edition is available below (as translated into Ukrainian and published by the Ukrainian edition “Economichna Pravda“)1:

“Germany will no longer offset the income tax of Russian citizens and companies which registered in the country’s financial institutions, which will affect the ability to avoid double taxation”.

According to the announcement of the British government, Great Britain suspended the exchange of tax information with Russia and Belarus on March 18, 2022.

As for the validity and application of the treaty on avoidance of double taxation between Ukraine and Russia, we have not yet found any official statements, signs of preparation of full denunciation of such double treaty, or any other steps of Ukraine in this regard.

According to the Law of Ukraine “On International Agreements of Ukraine”, denunciation must be made in the form of the law of Ukraine. We haven’t found a draft of such a law on the website of the Verkhovna Rada of Ukraine. We also haven’t found public information on the status of exchange of tax information with the country-aggressor.

Is not it the right time for Ukraine to resolve these issues?

By the way, for the last few years, Russia has been actively “proposing” a revision of such double treaties, based on its own interests. And in the case of non-acceptance of its ultimate proposals, Russia threatened with the denunciation and denounced the relevant treaties (for example, in May 2021 Russia denounced the treaty on avoiding double taxation with the Netherlands).

So, isn’t it exactly the right time for Ukraine to take care of its own interests in relations with Russia – in particular, by the denunciation of the double tax treaty with it?

Similarly, the termination of Russia’s doble tax treaties (there are more than 80 of them) with other countries could be one of the directions of Ukrainian diplomacy efforts to economically isolate the aggressor. This can be done by pleading other countries to stop exchanging tax information (if some countries still have not done so already) and fully denounce double tax treaties with Russia, thereby reducing its tax base for financing aggression.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.


1Translation into English was made by KM Portal editorial.

Kind regards,

© WTS Consulting LLC, 2022

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