Partial suspension of the double tax treaty between the USA and the Russian Federation: what does this mean and what are the consequences?

From August 16, 2024, a number of articles of the Treaty between the Russian Federation and the United States on the avoidance of double taxation and the prevention of tax evasion in relation to taxes on income and capital will be suspended. A corresponding notification about this appeared on June 17, 2024 on the official website of the US Department of the Treasury. Let's work with Antwort Law to figure out what this means and what consequences may arise in connection with this decision.

The Double Taxation Agreement (DTA) is an international treaty whose purpose is to prevent double taxation of income of individuals and legal entities that arises when doing business or investing in two different countries, as well as to prevent tax evasion.

The Double Tax Treaty between the United States and the Russian Federation was signed in 1992 and came into force in 1994. It then became an important tool to stimulate trade and investment between the two countries.

In August 2023, Russian Presidential Decree No. 585 was issued, by which Russia unilaterally suspended a number of articles of similar agreements with 38 unfriendly countries, including the United States.

It was in response to this measure that the United States decided to suspend the same number of articles of the Double Tax Treaty between the Russian Federation and the United States, which reflects the symmetry of the actions of the two countries within the framework of current political and economic relations. The decision will remain in effect until the governments of the two countries decide otherwise.

As a result of the suspension of certain articles of the DTA between the US and the Russian Federation, some income that was previously taxed at reduced rates will now be taxed at standard US tax rates. For example, dividends from US stocks that were previously taxed at 10% on Form W-8BEN, which allows foreign investors in the US to take advantage of preferential tax rates on dividends, interest and royalties, will now be taxed at 30%.

This situation will affect the structure of tax obligations of entrepreneurs and investors and will require a review of business and investment strategies. An increase in the tax burden on investment income will likely lead to a decrease in the interest of Russian investors in American assets, as well as complicating the business operations of companies operating in both countries.

The international law firm Antwort Law is ready to help you understand the new tax conditions and offer effective solutions to minimize tax risks. Our services include:

• Consultations on international taxation issues;
• Assistance in preparing and submitting tax documentation;
• Development of tax planning strategies for businesses and individuals.

Contact us for detailed advice and support in the ever-changing tax landscape. We will be happy to help you.

Lidia Ivanova

International lawyer
Antwort Law