UK asks Russia to change course on tax treaty

Moscow axed a double taxation agreement between the countries in response to “unfriendly actions” from London

The British government has called on Russia to reverse its recent suspension of a treaty against double taxation, stating that the issue is of the “utmost seriousness.” Moscow has said that it will return to the pact, but only if the UK lifts its anti-Russian sanctions.

Russian President Vladimir Putin signed a decree earlier this month suspending certain provisions of tax treaties with 38 countries, including the US, UK, EU, and other so-called “unfriendly states.” On Friday, the British government announced that it received notification last week that the 1994 UK-Russia Double Taxation Convention would be affected by this decision. 

“The UK-Russia Convention does not permit this unilateral action,” read a statement on the British government’s website. “The government views this action with utmost seriousness,” the statement continued, adding that “the UK has asked Russia to reverse the suspension.”

“The UK considers the treaty to remain in force and is continuing to comply with its terms. The government is considering next steps” the statement concluded.

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With the treaty suspended, dividends, interest, and royalties earned by Russian citizens or companies in Britain are liable for taxation in Russia, and vice versa should the UK decide to tax its citizens in Russia. Tax rates of either 15% or 20% will be applied, Russia’s Interfax news agency reported.

Income tax paid by Russians working in the UK will still be credited against tax due in Russia, Interfax reported, citing Deputy Finance Minister Alexei Sazonov.

According to the decree, Russia will only return to any of the canceled treaties when “foreign states eliminate the violations they have committed of the legitimate economic and other interests of the Russian Federation, the rights of its citizens and legal entities.”

Back in June, the Russian Finance Ministry scrapped a planned tax hike on Russians working abroad for Russian businesses. Sazanov explained that had this hike been implemented, businesses could have avoided it by setting up foreign subsidiaries, denying the Russian government both the income tax and employer-funded insurance contributions.