Tax implications for German subsidiaries with Russian parent companies
In a letter dated January 7, 2026, the German Federal Ministry of Finance (BMF) confirmed the current legal status of the double taxation agreement (DTA) between Germany and Russia. Previously, in a diplomatic note dated August 8, 2023, the Russian Federation had unilaterally suspended significant provisions of the treaty with immediate effect. The affected provisions include, in particular, the rules governing the allocation of taxing rights for income (Articles 5 through 22 of the DTA) as well as the non-discrimination provision under Article 24 of the DTA.
Although the DTA remains in force under international law, it will, in practice, no longer restrict German taxing rights as of January 1, 2027. This is due to the application of the German Tax Haven Defense Act (StAbwG) in conjunction with the Tax Haven Defense Ordinance. As a result, German taxing rights will no longer be limited by the Germany–Russia double taxation agreement.
Double taxation agreement no longer a basis for tax relief
For German subsidiaries with Russian parent companies, this development has significant tax implications. In particular, relief from withholding taxes on dividends, interest, and royalties can no longer be claimed based on the DTA. In addition, the provisions of the German Tax Haven Defense Act are becoming increasingly important. Cross-border business relationships, financing transactions, as well as licensing and service arrangements with Russian related parties are receiving increased attention from the tax authorities.
Transfer pricing documentation becomes increasingly important
In addition, the importance of proper transfer pricing documentation is increasing. If appropriate contractual agreements or evidence demonstrating compliance with the arm’s-length principle for intra-group transactions are missing, the tax authorities may determine taxable income based on estimates pursuant to Section 162 of the German Fiscal Code (AO) and impose corresponding income adjustments.
Russia-related business activities: What companies should review now
Companies with business relationships involving Russian group companies should therefore review their existing structures as well as the tax and documentation-related implications of the DTA suspension in a timely manner. An early analysis can help identify tax risks and implement any necessary adjustment measures at an early stage.
Our experienced international tax team will be happy to support you in addressing these issues. Please feel free to contact us.
