Tax disadvantages for transactions with Russian business partners

Largely unnoticed, the Russian Federation was added to the so-called “blacklist” of non-cooperative countries on 20 December 2023. Normally, this list only includes small states and islands that do not fulfil international standards in tax matters. In order to exert pressure on them, taxpayers are to be prevented from maintaining business relationships with individuals or legal entities in such jurisdictions. To this end, the so-called Tax Haven Defence Act provides for a series of measures that lead to tax disadvantages for business relationships with non-cooperative jurisdictions, such as

• Deduction ban for operating expenses and income-related expenses
• Companies domiciled there are subject to stricter add-back taxation on all income
• The limited tax liability is extended and subject to a withholding tax deduction of 15%
• No application is made for profit distributions and sales of shares relating to a corporation domiciled in a non-cooperative jurisdiction:
  • the tax exemption pursuant to Section 8b KStG or a comparable provision of a DTA
  •  the flat-rate withholding tax pursuant to Section 32d (1) EStG or
  • the partial income procedure of § 3 no. 40 EStG.
• In addition, Section 12 StAbwG provides for increased duties of co-operation in the form of extensive record-keeping obligations.

These rules have applied to all countries on the blacklist since 1 January 2024, with the exception of the ban on deducting business expenses or income-related expenses and the stricter rules on profit distributions and the sale of shares (which only come into force at a later date).
Anyone who undertakes a business trip in the future, e.g. to meet with Russian business partners or with consultants to discuss business in Russia, should take into account that these costs can no longer be deducted as business expenses at a later date, which will increase their taxable profit.