Russia on the list on non-cooperative jurisdictions: tax implications for Czech companies

With effect from 21 February 2023, the Council of the EU extended the list of non-cooperative jurisdictions for tax purposes to include the British Virgin Islands, Costa Rica, the Marshall Islands, and Russia. For the first time, this may have wider tax implications, especially for Czech entities that hold a share in a company that is a Russian tax resident. We draw attention to two taxation issues that Czech companies may have to deal with in connection with Russia's inclusion on the blacklist.

The Council of the EU has previously ordered its member states to implement at least one of the proposed protective measures in their tax legislations against countries on the list of non-cooperative jurisdictions. These include, for example: the non-deductibility of expenses; tightening the rules for the taxation of a controlled foreign company if the controlled company is in a non-cooperative jurisdiction (CFC rules); applying withholding tax or restricting the exemption from income tax of dividends from abroad.

The current list of non-cooperative jurisdictions, which includes 16 countries, is published by the Ministry of Finance in the Financial Bulletin (available here). The list is revised twice a year by the Council of the EU. The reason for Russia's inclusion on the blacklist is that it has a harmful preferential tax regime for international holding companies and has not yet eliminated this problem.

CFC rules

As a protective measure, the Czech Republic has chosen the tightened rules for the taxation of controlled foreign companies (or simply subsidiaries). These CFC rules were implemented into the Income Tax Act in an amendment effective as of 1 January 2021. All income (i.e., not only selected passive income as is the case of the standard CFC regime) of a Russian subsidiary (controlled foreign company) shall be included in the tax base of the Czech parent company (controlling company) and thus appropriately taxed in the Czech Republic.

The CFC rules will be relevant for Czech controlling companies that directly or indirectly hold a stake exceeding 50% in a Russian company.

The rule will have to be applied to all Russian controlled companies whose taxable period ends at any time after 21 February 2023 (provided that Russia is still on the blacklist at the end of the controlled company's taxable period).

Please note that due to the inclusion of the jurisdictions on the list, it is no longer necessary to further examine whether a controlled company carries out a substantial economic activity or to perform the effective tax rate test for the controlled company. All income must be included in the tax base of the Czech controlling company even if the controlled company meets the criterion of performing a substantial economic activity or the effective tax rate test.


Czech companies should not overlook another obligation arising from Russia's inclusion on the blacklist: the reporting of cross-border arrangements reportable under DAC 6. This is one of the hallmarks defined by the law: if a Czech company generates tax deductible expenses vis-a-vis a Russian associated company (or any other associated company residing in a blacklisted jurisdiction), this transaction (arrangement) shall be reportable under DAC 6 (even without having to meet the main benefit test).

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