Tax Alert: EU adds Russia to tax havens list - tax implications in the Czech Republic

In mid of February of this year, the Council of the EU placed Russia on the list of countries not cooperating with the EU authorities on tax matters. In addition to Russia, Costa Rica, the Marshall Islands and the British Virgin Islands have been newly added to the list. This brings the total number of countries on the EU list to 16.

From the point of view of Czech tax legislation, Russia's inclusion on the list of non-cooperating countries may have a particular impact on:

  • the application of the fiction of the application of the so-called CFC rules to the taxation of controlled companies (e.g. Russian subsidiaries held by Czech parent companies) - the income of a controlled Russian company should be subject to taxation in the Czech Republic even without a profit distribution to the Czech Republic and it will be irrelevant whether the Russian company carries out substantial economic activity or not, etc. 
  • Notification obligation for cross-border arrangements with Russian affiliates under DAC 6 - e.g. if a Czech company makes a tax-deductible payment to a Russian affiliate, this arrangement should be notified to the tax authority (only applies to new arrangements created from 14 February 2023). 
  • it may be more difficult to apply the benefits of the double tax treaty with Russia -  in our opinion, it cannot be automatically assumed, for example, that the 35% withholding tax rate would apply to payments to Russia, but it may be more difficult to obtain relevant documents from Russia to apply the lower tax rate.

The EU list of non-cooperating countries in the tax area is reviewed regularly, twice a year. So the next revision is expected in October 2023. At least until then, it is necessary to pay increased attention to transactions with Russian entities, which will probably be paid to them by the tax administration as well.