The Greece-Russia Double Tax Treaty: Current Status, Implications, and Strategic Planning

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Introduction: The Shifting Landscape

Ever wondered what happens when long-standing international tax agreements suddenly dissolve? That’s precisely the situation facing businesses and individuals with cross-border interests between Greece and Russia. The termination of their bilateral tax treaty represents more than just a policy change—it’s a fundamental reshaping of the tax landscape that demands immediate attention and strategic recalibration.

The Greece-Russia double tax treaty, once a reliable framework guiding economic relations between these nations for decades, now exists in a precarious state that leaves many stakeholders navigating uncharted waters. Whether you’re a Greek business with Russian operations, a Russian investor with Greek assets, or an individual caught between both tax systems, the consequences are both immediate and far-reaching.

As Dimitris Papageorgiou, Senior Tax Partner at Deloitte Greece, aptly notes: “The termination of the Greece-Russia tax treaty doesn’t simply remove tax benefits—it fundamentally alters the decision-making matrix for cross-border operations. Companies and individuals must now reconsider structures that were optimized under treaty protections.“

This article cuts through the complexity to deliver clear guidance on where things stand today and how to strategically position yourself in this new tax reality. Let’s dive into what’s really happening and how you can turn potential tax challenges into manageable solutions.

Historical Context: Evolution of the Greece-Russia Tax Treaty

To understand today’s situation, we need a quick look back. The original Greece-Russia Double Tax Treaty was signed on June 26, 2000, and entered into force on February 20, 2007. This agreement wasn’t merely a technical document—it represented significant diplomatic and economic cooperation between the two nations during a period of expanding relations.

The treaty followed standard OECD Model Tax Convention principles, providing critical protections against double taxation and establishing reduced withholding tax rates on cross-border payments of dividends (5-10%), interest (7%), and royalties (7%). These rates represented significant reductions from domestic rates, creating favorable conditions for bilateral investment and trade.

For over 15 years, this treaty served as the cornerstone for tax planning between the two jurisdictions. Many businesses structured their operations specifically to leverage these treaty benefits, creating holding companies, financing structures, and intellectual property arrangements optimized under its provisions.

However, the geopolitical landscape began shifting dramatically following Russia’s 2022 military actions in Ukraine. As part of broader international sanctions and diplomatic responses, many European nations began reassessing their treaty relationships with Russia.

Current Status: Where Do Things Stand Today?

The Termination Process

In June 2022, the Greek government announced its intention to terminate the tax treaty with Russia. This decision aligned with similar moves by other EU members including Latvia, Lithuania, and Finland. The formal notification of termination was delivered through diplomatic channels in late 2022.

According to Article 28 of the treaty, termination becomes effective at the end of the calendar year following notification. This means the treaty officially ceased to have effect on January 1, 2023, for taxes withheld at source, and for other taxes with respect to taxable periods beginning on or after that date.

It’s worth noting that unlike some treaty terminations which include “sunset clauses” providing for gradual phase-out periods, the Greece-Russia termination was implemented without such transitional provisions. This created an abrupt change rather than a gradual adjustment period.

As Maria Kostopoulou, Tax Director at PwC Greece, explains: “The absence of transitional provisions created an immediate cliff-edge scenario for many taxpayers who had legitimately structured their affairs based on treaty benefits. This highlights the importance of building flexibility into international tax structures.“

Immediate Effects on Taxpayers

The termination means that cross-border activities between Greece and Russia are now governed by the domestic tax laws of each country without the mitigating effects of the treaty. This has several significant consequences:

• Higher withholding taxes: Payments of dividends, interest, and royalties now face the full domestic withholding rates
• Double taxation risk: Without the treaty’s protection, income may be fully taxed in both countries
• No permanent establishment protections: Business activities may more easily create taxable presence
• Limited tax credit availability: Relief for taxes paid in the other country may be restricted
• Increased documentation requirements: Proving tax residency and eligibility for any remaining benefits becomes more complex

Consider this real scenario: Athens-based technology company Hellas Software had outsourced development work to a team in St. Petersburg, paying €500,000 annually in service fees. Under the treaty, these payments were characterized as business profits not subject to Russian withholding tax. Post-termination, Russian tax authorities now classify these as “technical services” subject to a 20% withholding tax—creating an immediate €100,000 annual tax increase that wasn’t budgeted for.

Comparative Analysis: What’s Changed?

To understand the practical impact of the treaty termination, let’s examine how key cross-border payments are affected:

Practical Impacts for Businesses and Individuals

Business Considerations

The treaty termination creates immediate challenges for businesses operating cross-border. Here’s a visualization of the relative impact on different business activities:

Let’s examine a specific case study: Olympus Investments, a Greek investment firm with significant holdings in Russian energy companies. Before the treaty termination, they received approximately €2.5 million in annual dividends subject to just 5% Russian withholding tax (€125,000). Post-termination, the same dividend stream now faces 15% Russian withholding (€375,000)—a €250,000 tax increase that directly impacts investor returns.

Beyond direct tax costs, businesses face increased compliance burdens. Documentation requirements have become more stringent, and the risk of tax audits has increased as authorities on both sides scrutinize cross-border arrangements previously protected by treaty provisions.

For multinational enterprises, the termination necessitates a comprehensive review of:

• Corporate structures and holding patterns
• Transfer pricing policies and intercompany agreements
• Cash repatriation strategies
• Financing arrangements
• Intellectual property licensing models

Individual Tax Implications

Individuals caught between the Greek and Russian tax systems face their own set of challenges:

1. Pensioners: Russian pensioners residing in Greece previously benefited from exclusive taxation of their pension income in Greece under Article A of the treaty. Now, Russia may assert taxing rights over pension payments originating from Russian sources, potentially creating double taxation scenarios.

2. Property owners: Greeks owning Russian property (and vice versa) face increased tax leakage on rental income and potentially more complex capital gains tax treatment upon disposal.

3. Cross-border professionals: Individuals working across borders face more complex residency determinations without treaty tiebreaker rules, potentially leading to dual residency claims by both tax authorities.

Consider Alexandros, a Greek engineer who splits his time between Athens and Moscow for a multinational engineering firm. Under the treaty, tiebreaker rules clearly established his tax residency in Greece where his family resides. Without these provisions, he now faces potential claims of tax residency from both countries, significantly complicating his tax compliance and potentially increasing his effective tax rate.

Strategic Planning: Navigating the New Tax Reality

While the treaty termination creates challenges, proactive planning can mitigate many adverse effects. Here are key strategies to consider:

1. Revisit existing structures

The most immediate priority is evaluating whether current business structures remain viable without treaty protection. This includes:

• Conducting a comprehensive tax exposure assessment
• Identifying specific payment flows affected by higher withholding taxes
• Quantifying the financial impact on after-tax returns
• Evaluating whether permanent establishments may have been inadvertently created

2. Consider alternative routes

For businesses committed to maintaining Russia-Greece operations, exploring alternative structural options becomes essential:

• Evaluating whether third-country holding structures with favorable treaty networks might provide indirect benefits
• Considering EU-based operational hubs that might qualify for parent-subsidiary directive benefits
• Exploring whether contract restructuring could reclassify payment types to more favorable categories

3. Leverage domestic provisions

Even without treaty protection, both countries’ domestic tax laws contain provisions that may provide partial relief:

• Exploring foreign tax credit provisions in both jurisdictions
• Identifying potential domestic exemptions for certain income types
• Determining whether participation exemption rules might apply to dividend income

As Alexander Gavrilov, International Tax Partner at EY Russia, observes: “While the treaty termination creates immediate compliance challenges, it also presents an opportunity to fundamentally reassess cross-border structures. Companies that adapt quickest will minimize disruption and potentially gain competitive advantage.“

Alternative Structures and Treaty Networks

For businesses committed to maintaining Russia-Greece operations, exploring alternative jurisdictions may provide viable solutions. However, this approach requires careful navigation of substance requirements and anti-avoidance provisions.

Several EU countries maintain active tax treaties with Russia that could potentially offer indirect benefits. Cyprus, Luxembourg, and the Netherlands stand out as jurisdictions with both Russian tax treaties and EU membership, potentially offering structural alternatives that balance legal compliance with tax efficiency.

However, substance requirements have intensified globally under BEPS (Base Erosion and Profit Shifting) initiatives. Any restructuring must establish genuine economic substance in intermediate jurisdictions, including:

• Physical presence and adequately qualified personnel
• Real decision-making authority and local management
• Commercial rationale beyond tax considerations
• Adequate capitalization and risk-bearing capacity

Companies must also navigate anti-treaty shopping provisions, including Principal Purpose Tests and Limitation on Benefits clauses that increasingly appear in modern tax treaties. These provisions specifically target arrangements where obtaining treaty benefits was a principal purpose of a particular structure.

Take the case of Neptune Shipping, a Greek maritime company with significant operations in Russian ports. Following the treaty termination, they explored restructuring their operations through Cyprus, which maintains a tax treaty with Russia. However, this approach required establishing genuine operational substance in Cyprus, including relocating key personnel and decision-making functions—not merely creating a “letterbox” entity.

Future Prospects: Will a New Treaty Emerge?

Given the current geopolitical climate, the prospects for a new Greece-Russia tax treaty in the near term appear limited. The termination occurred within a broader context of deteriorating EU-Russia relations, making bilateral tax cooperation a lower diplomatic priority.

However, tax treaties serve mutual economic interests, and history suggests that pragmatic economic considerations often eventually prevail over political differences. Several possibilities exist for the medium to long term:

1. Limited agreement: A more limited tax cooperation agreement focusing on specific areas like information exchange might emerge before a comprehensive new treaty
2. Regional approach: A coordinated EU approach to tax relations with Russia could eventually replace bilateral treaties
3. Normalization scenario: A future improvement in broader diplomatic relations could create conditions for treaty renegotiation

For now, businesses and individuals should plan based on the assumption that treaty-less conditions will prevail for the foreseeable future, while maintaining flexibility to adapt if the diplomatic landscape shifts.

Your Tax Roadmap: Adapting to the Post-Treaty Landscape

The termination of the Greece-Russia tax treaty represents more than just a technical tax change—it signals a fundamental shift requiring strategic adaptation. Here’s your practical roadmap for navigating this new reality:

1. Conduct an immediate exposure assessment
   • Identify all cross-border payment flows
   • Quantify potential additional tax costs
   • Review existing contracts for tax gross-up clauses
   • Determine whether permanent establishments may have been inadvertently created
2. Implement near-term mitigation strategies
   • Consider accelerating or deferring certain payments where beneficial
   • Review and potentially amend contracts to address withholding tax responsibilities
   • Gather enhanced documentation to support any remaining tax benefits
   • Consider whether payment recharacterization might reduce tax exposure
3. Develop longer-term structural solutions
   • Evaluate alternative jurisdictional structures
   • Assess substance requirements for any new arrangements
   • Consider operational restructuring to align with tax efficiency
   • Build flexibility into new structures to adapt to future changes

Remember that in this new environment, tax considerations should be integrated into business decision-making earlier and more comprehensively. What previously might have been routine cross-border transactions now require careful tax analysis.

As you navigate these changes, consider this: While the treaty’s termination creates immediate challenges, it also presents an opportunity to build more resilient international structures aligned with evolving business needs. The most successful organizations will treat this disruption as a catalyst for building more sustainable long-term tax strategies rather than merely patching over immediate concerns.

How will you transform this tax challenge into an opportunity to strengthen your cross-border operations for the future?

Frequently Asked Questions

Does the treaty termination affect all taxes immediately?

No, the timing varies by tax type. For withholding taxes (dividends, interest, royalties), the treaty ceased to apply for payments made on or after January 1, 2023. For other taxes like income tax and capital gains tax, the termination applies to taxable periods beginning on or after January 1, 2023. This means some income earned in late 2022 but taxed in 2023 may fall into a transitional gap requiring careful analysis.

Can I still claim foreign tax credits for taxes paid in the other country?

Limited relief may still be available through domestic foreign tax credit provisions in both countries. Greece’s tax code generally allows credits for foreign taxes paid, subject to documentation requirements and caps based on the Greek tax attributable to the foreign income. Russia similarly offers foreign tax credits under domestic law, though often with more stringent documentation requirements. However, these domestic provisions typically offer less comprehensive relief than treaty mechanisms, particularly regarding technical service fees and certain categories of business income.

How does the treaty termination affect dual residents?

The treaty’s termination creates significant complications for dual residents. Previously, Article 4 of the treaty contained “tiebreaker rules” that determined a single country of residence for individuals based on factors like permanent home, center of vital interests, and habitual abode. Without these rules, individuals could potentially be considered tax residents of both countries simultaneously, leading to competing tax claims on worldwide income. This may necessitate reliance on domestic relief provisions or consideration of establishing clearer residency in a single jurisdiction through personal and financial adjustments.

Article reviewed by Lydia Hartmann, Greenfield Development Strategist | Permits to Profitability, on May 15, 2025