UK Calls for Reversal of Tax Treaty Suspension: Diplomatic Standoff with Russia

August 28, 20230

In a diplomatic maneuver that has grabbed the attention of tax professionals, investors, and businesses alike, the United Kingdom has formally requested Russia to rescind the suspension of the 1994 UK-Russia tax treaty. This request comes from Russia’s unexpected notification to the UK government, announcing the suspension of key provisions of the tax treaty via a Presidential decree issued on August 8, 2023. 

The UK government has responded firmly, asserting that the tax treaty does not provide for such unilateral actions. In a statement, the UK government conveyed its profound concern over the suspension, emphasizing the gravity of the situation. 

The suspension by Russia encompasses a substantial portion of the UK-Russia Convention, affecting critical aspects such as the treatment of dividends, interest, royalties, capital gains, business profits, employment income, and pensions. It also includes provisions related to protection against discrimination. However, it is notable that the provision for the elimination of double taxation has not been entirely suspended. 

This suspension carries significant implications. It suggests that Russia may no longer adhere to the agreed-upon limits on taxing income at the source, potentially leading to increased tax liabilities for individuals and entities involved in cross-border transactions with Russia. Moreover, the availability of relief from double taxation within Russia is expected to be limited under these circumstances. 

Despite the suspension, the UK government firmly maintains that the tax treaty remains in force from its inception in 1994. As a demonstration of its commitment to upholding the provisions of the treaty, the UK government has indicated its intention to continue complying with the terms and conditions outlined within it. 

The UK-Russia tax treaty has been a longstanding framework governing tax matters between the two nations since its inception in 1994. For nearly three decades, it has played a crucial role in facilitating cross-border trade, investment, and economic cooperation. The treaty has been instrumental in providing a degree of certainty and predictability for businesses and individuals engaged in financial activities between the UK and Russia. 

The UK’s call for the reversal of the tax treaty’s suspension underscores the importance of stable and reliable tax treaties in international commerce. For tax professionals, this situation adds a layer of complexity to their advisory roles, as they may need to navigate evolving tax landscapes resulting from geopolitical tensions. 

Investors with interests in both the UK and Russia are closely watching this development, as it has the potential to impact the tax implications of their investments and cross-border transactions. Furthermore, businesses engaged in tax technology and transfer pricing services may find an increased demand for their expertise, as companies seek innovative solutions to address the uncertainty created by this diplomatic standoff. 

In conclusion, the UK’s call for the reversal of Russia’s suspension of the 1994 UK-Russia tax treaty has injected uncertainty into the world of international taxation. The implications of this suspension are far-reaching, affecting diverse aspects of cross-border financial activities. As the situation unfolds, tax professionals, investors, and businesses will need to adapt to this evolving landscape, emphasizing the critical role of international tax treaties in fostering stability and predictability in global economic relations. 


Update: Russian Finance Ministry Rejects UK’s Request to Revoke Suspension 


In a significant turn of events, the Russian Finance Ministry has rejected the United Kingdom’s request to withdraw the partial suspension of the Russia-UK tax treaty. 

Earlier this month, Russia notified the UK government that it had partially suspended the provisions of the tax treaty through a Presidential decree dated August 8, 2023. Subsequently, the UK government asked Russia to revoke the suspension of the tax treaty, stating that the tax treaty does not permit this unilateral action. 

However, rejecting the UK’s request, the Russian Finance Ministry, on August 19, stated that the partial suspension of tax treaties with “unfriendly” countries shall continue until Russia’s rights are restored. 

The Finance Ministry said: “Western countries have been unilaterally introducing economic restrictive measures against Russia since 2022. In February this year, Russia was included by the European Union in the list of non-cooperative jurisdictions for tax purposes, the so-called EU blacklist.” 

“At the same time, non-compliance with certain provisions of tax treaties by unfriendly countries is noted,” it added. 

The Finance Ministry said that Russia cannot apply the tax treaty provisions under the circumstances. “The Vienna Convention on the Law of Treaties allows such a form as the suspension of agreements, including their individual provisions, if the rights of another country have been violated,” the Ministry noted. 

This update underscores the continued tensions between Russia and the UK, with significant implications for the world of international taxation. As the situation unfolds, tax professionals, investors, and businesses will need to adapt to this evolving landscape, emphasizing the critical role of international tax treaties in fostering stability and predictability in global economic relations. 


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