Russia’s finance ministry said it is scrapping an agreement with Cyprus aimed at avoiding double taxation after talks to modify the deal failed, Reuters reported.
It said that legal changes would make it more profitable for people to transfer money back to Russia.
Cyprus has been an important destination for Russian businesspeople because of its light regulation and taxes.
A double taxation treaty with Russia had provided attractive incentives for Russians to use Cypriot banks.
Earlier this year, President Vladimir Putin said all interest and dividend payments that leave Russia should be subject to 15% tax, up from the current level of 2%, to combat capital outflows.
In a statement, Deputy Finance Minister Alexei Sazanov said that talks with Cyprus on changing the agreement in line with Putin’s request had failed.
“Unfortunately, today we have to admit that the talks did not yield results,” Sazanov said.
“Restructuring one’s holding structures through Cyprus will, of course, become disadvantageous.
It will be more advantageous to transfer everything back to Russia.”
Sazanov added the ministry was working on improving the Russian legislative framework to facilitate the transfer of holdings to Russia.
Nicosia said on Tuesday that discussions were not over after reports that Russia was going to unilaterally terminate the tax deal.
“The Ministry of Finance states that the final round of negotiations has been scheduled for the 10 and 11 of this month. The Cyprus delegation will be headed by the Minister of Finance Constantinos Petrides,” said a ministry statement.
Cypriot government spokesman Kyriakos Koushos told the Cyprus News Agency “we are reservedly optimistic that during negotiations on the issue of the agreement for the avoidance of double taxation there will a positive conclusion”.