Russia’s finance ministry said on Monday it would scrap an agreement with Cyprus aimed at avoiding double taxation after talks to modify the deal failed, a decision that surprised Cyprus, which said talks were still under way.

Russia suggested the move could encourage Russian businesses registered on the island to transfer soon-to-be unprofitable holding structures back home. Any significant exodus would be a blow for the Cypriot economy.

The Mediterranean island, with its light regulation, use of English law and double taxation treaty with Moscow, has been an important destination for Russian entrepreneurs and firms.

But with Russia’s economy bruised by low oil prices and the COVID-19 pandemic, President Vladimir Putin in March proposed a 15% tax on all interest and dividend payments leaving Russia to combat capital outflows, to start from Jan. 1, 2021.

At the time, he warned that Russia would unilaterally withdraw from agreements with foreign partners who did not accept its suggestions.

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Read more: Reuters