International groups with residual Russian exposure face a substantially altered tax landscape following Presidential Decree No. 585 of 8 August 2023, which suspended key income-taxation provisions of Russia's double tax treaties with 38 states, including most EU member states, the United Kingdom, Switzerland, Norway, Japan and Singapore. Without treaty relief, Russian tax agents are required to withhold at domestic statutory rates, and the structures many groups relied upon for dividends, interest and royalties no longer operate as intended. Ferraz & Whitmore advises non-Russian parent groups and investors on managing that residual exposure, assessing tax risk, and navigating cross-border compliance obligations – without providing advisory services to Russian-established entities, in full conformity with EU sanctions.
Why Treaty Suspension Changes Everything for Holding and Financing Structures
Until August 2023, most international groups structured their Russian investments through intermediate holding companies in jurisdictions whose tax treaties with Russia reduced or eliminated withholding on outbound dividends, interest and royalties. Presidential Decree No. 585 removed the operational basis for those benefits with respect to 38 counterparty states. The treaties remain formally in existence – they are suspended, not denounced – but their income-taxation provisions are not applied by Russian tax agents. Denmark and Latvia went a step further, terminating their treaties with Russia with effect from 1 January 2024.
The practical consequence is that groups still receiving Russian-source income, or winding down Russian investments, must recalibrate entirely. The intermediate holding company that was chosen for treaty access may now add cost without providing benefit. At the same time, the holding company's home jurisdiction may impose its own tax on income that previously flowed through largely sheltered, raising questions about participation exemption eligibility, CFC rules under the Anti-Tax Avoidance Directive (EU) 2016/1164, and the interaction with hybrid mismatch rules extended by Directive (EU) 2017/952.
If you are reassessing how your group's Russian exposure sits within its current legal architecture, our team is available to discuss the position. Please write to info@ferrazwhitmore.com or visit our contacts page.
Tax Risk Assessment: What the Current Environment Demands
Effective tax risk management for groups with Russian exposure now involves several converging pressures. First, the suspension of treaty provisions does not resolve any pre-existing disputes or audit exposure arising in years when treaty positions were applied. The Federal Tax Service retains the right to audit prior periods, and transfer pricing documentation, substance requirements for treaty entitlement, and beneficial ownership analyses undertaken in earlier years all remain subject to review.
Second, the mandatory pre-trial appeal procedure in Russia – by which disputes must be escalated to the higher tax authority before proceeding to the Arbitrazh court system and ultimately the Supreme Court of Russia – means that groups managing legacy disputes or assessments need a clearly sequenced strategy from the outset. Attempting to shortcut the administrative stage is not permitted; every step in that sequence carries its own timeline and procedural requirements.
Third, EU-based intermediaries and advisers must assess their own obligations under Directive (EU) 2018/822 (DAC6), which requires mandatory disclosure of reportable cross-border arrangements based on defined hallmarks. Where restructuring of Russian exposure involves arrangements that meet those hallmarks, disclosure obligations may arise in one or more EU member states. Penalty regimes differ by jurisdiction, so the compliance burden must be mapped entity by entity.
Our approach to tax due diligence in this context focuses on quantifying open exposure on treaty positions already applied, identifying whether any tax control framework documentation mitigates penalty risk, and reviewing transfer pricing documentation for compliance with Russian requirements in years still open for audit. We also assess whether the group's intermediate structures retain any commercial rationale that could be relevant in future Arbitrazh court proceedings.
Substance, Anti-Abuse and the EU Dimension
One of the persistent vulnerabilities for groups that used EU or EEA holding companies to access Russian treaties was the question of substance. Even before the suspension, the Federal Tax Service had developed an active approach to challenging beneficial ownership claims and testing whether intermediate entities had genuine economic presence. Those arguments remain alive in pending or future audits covering prior periods.
The EU layer adds further complexity. The general anti-abuse rule under the Anti-Tax Avoidance Directive, CFC rules, and the interest limitation framework all interact with the post-suspension picture. A holding entity that was structured with Russian treaty access as its primary purpose may now be commercially stranded: its treaty function is gone, yet it may still trigger CFC charges or withholding tax exposure in its home jurisdiction if it receives Russian-source income that was reclassified following an audit. The question of whether to maintain, restructure or liquidate such entities is fact-specific and requires coordinated analysis across jurisdictions.
For groups managing EU-side substance and anti-abuse questions, our analysis of developments under the EU anti-shell framework may also be relevant – see our discussion of substance requirements following the EU's Unshell initiative. Where the Russian exposure intersects with Italian group structures, our tax structuring practice for Italy covers the relevant domestic anti-abuse and CFC considerations.
Transactions, Exits and Redomiciliation
The most acute decisions facing many international groups concern exits: whether to divest Russian assets, redomicile an intermediate entity, or proceed with a liquidation. Each path carries distinct tax consequences in Russia and in the jurisdiction of the holding company.
Key considerations in this area include:
- Exit taxation at the EU level: the Anti-Tax Avoidance Directive's exit taxation rules apply when assets, business or tax residence are transferred out of an EU jurisdiction. Where redomiciliation of a holding entity is part of the restructuring plan, the home state's implementation of those rules must be analysed before any step is taken.
- Russian withholding on exit proceeds: with treaty provisions suspended, proceeds from the disposal of Russian participations or assets may be subject to withholding at domestic rates where the buyer is a Russian tax agent. The precise treatment depends on the nature of the asset and the identity of the counterparty.
- Government Commission approval: transactions involving the disposal of Russian assets by entities from 'unfriendly' states are subject to approval requirements under the framework administered by the Russian Government Commission. The procedural requirements and the timelines involved are a material factor in exit planning and should be assessed before any transaction is initiated.
- Liquidation: winding up a Russian subsidiary or a foreign holding company that held Russian assets involves a multi-stage process across jurisdictions. Tax filings, withholding obligations, and the treatment of distributions on liquidation all require careful sequencing.
- DAC6 disclosure: depending on the hallmarks triggered, a cross-border reorganisation or exit may constitute a reportable arrangement in one or more EU member states.
We do not advise on the internal Russian tax affairs of Russian-established entities, consistent with the prohibitions in Article 5n of Regulation (EU) No 833/2014. Our work focuses on the non-Russian group members: parent companies, intermediate holding structures and financing entities established outside Russia.
The Government Commission and Regulatory Dimension
Since 2022, Russia has imposed a layered set of capital controls and transactional restrictions that directly affect the tax planning timeline for exits and restructurings. The Government Commission on the Control of Foreign Investment reviews transactions by entities from 'unfriendly' states and may impose conditions, including pricing floors or mandatory contributions, as a condition of approval. This regulatory dimension sits alongside – and often dictates the pace of – the tax structuring work. Groups that have not yet assessed the interaction between the regulatory approval timeline and their tax position may find that tax-optimal sequencing is constrained by the administrative process.
Self-Assessment Checklist for International Groups
The following questions may help identify where professional review is most urgent:
- Does your group still receive dividends, interest or royalties from Russian entities? If so, at what rate is withholding now applied, and has the group's tax position in the intermediate jurisdiction been reassessed?
- Are there open transfer pricing audits or tax assessments from prior years when treaty positions were relied upon?
- Does your intermediate holding company retain genuine substance and a commercial purpose independent of Russian treaty access?
- Has the group's tax structuring been reviewed to account for CFC and hybrid mismatch rules in the relevant EU member states?
- Are there planned or contemplated disposals of Russian assets that require Government Commission approval?
- Has DAC6 reportability been assessed for any recent or planned cross-border arrangements involving Russian entities or assets?
- Is there a documented tax control framework that could support penalty mitigation arguments if a prior-period position is challenged?
How Ferraz & Whitmore Approaches This Work
Our team works with international holding structures, private equity funds and multinational groups that need coordinated advice spanning the Russian regulatory environment and the home jurisdictions of their holding entities. We do not provide tax or legal advice to Russian-established companies. Our engagement typically begins with a focused tax risk assessment that maps the group's current position against the post-suspension landscape, identifies the most pressing exposures, and produces a prioritised action plan.
Where disputes have already arisen or are anticipated, we support groups in the mandatory pre-trial appeal process before the Federal Tax Service's higher authority, and in proceedings before the Arbitrazh court system. We also coordinate with local correspondent counsel where specific procedural steps require a Russian-licensed practitioner, always retaining responsibility for the overall strategy and for the cross-border elements of the matter. For a broader overview of our Russia tax practice, see our Russia tax law service page.
If your group is reviewing its Russian tax exposure or considering a restructuring or exit, we welcome an initial discussion of your situation. Please contact us at info@ferrazwhitmore.com or through our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.