This means that EU countries will apply certain measures against the countries on the list, including Russia. Each EU country is expected to select and implement one or more of the following tax ‘safeguards':
- To disallow the deduction of expenses incurred in Russia
- To apply controlled foreign company rules in relation to companies in Russia
- To impose withholding tax measures to prevent improper access to tax reliefs and refunds (this may affect any transfers of income or other payments into Russia)
- To limit the application of the participation exemption in relation to dividends received from Russia
Countries may also opt to apply one of three administrative ‘safeguards':
- More robust reporting and monitoring procedures for all transactions
- Higher risk of tax audits for taxpayers that benefit from listed regimes (for example, in the case of Russia, for multinational companies in special administrative districts)
- Higher risk of tax audits for taxpayers that make tax arrangements using listed regimes
Each EU country will make its own choice of which measures to apply. This process will take some time, and countries are not obliged to harmonise their chosen measures with each other.
Furthermore, there is not yet any specific penalty for countries that delay in choosing one or more measures. Practice shows that 21 countries are already implementing both tax and administrative ‘safeguards' in relation to countries on the list. The larger EU countries will probably act relatively quickly to introduce one of the safeguards, of which changes to withholding tax on particular payments would likely have the greatest impact.
B1's professionals would be happy to discuss the implications of these changes for your business.