Prohibition on EU companies providing ERP software and other services to their Russian subsidiaries: new Sanctions Regulation provides for much requested extension of transitional arrangement

published on 11 July 2024 | reading time approx. 2 minutes

The blanket exemption for the provision of certain services – including ERP software – to Russian subsidiaries of EU companies has been extended from 20 June 2024 to 30 September 2024. This should give affected companies more time to adjust their intra-group accounting, reporting and other service structures or to timely obtain the necessary authorizations from their competent national authorities to continue providing such services. For companies based in EU Member States that have issued a “General Authorization”, such as Germany, the effect is that the required reference to such General Authorization will only need to be made for services to be provided after 30 September 2024.

The EU‘s 12. sanctions package changed the requirements for providing services to Russian legal entities. Until then, a blanket exemption applied to the provision of services to subsidiaries under the 100 percent control of one (or more) EU parent companies (“Subsidiaries”).

From 20 June 2024, the ban on the provision of services to Russian legal and natural persons would have applied to Subsidiaries as well.

The affected services include

Provision of business management software (ERP software) and industrial design
Audit, accounting and tax consulting, PR
Legal and IT consulting
Market and opinion research
All types of technical assistance and intermediary services related to the above.

The issuance of authorizations to continue the provision of these services is handled very differently in different local EU countries, resulting in unequal treatment of companies and legal uncertainty within the EU.

In Germany – in order to anticipate the expected flood of applications – the competent authority BAFA has reacted with the General Authorization No. 42 of 20 February 2024. Thus, the services concerned are authorized in general form, so that a formal authorization in individual cases pursuant to Article 5n (10) (c) and (h) of Regulation (EU) No. 833/2014 (Russia) is not required, but a single notification to BAFA no later than 30 days after the start of the provision of services is sufficient (see the February 2024 issue of our “Sanctions Newsletter”).

However, on 24 June 2024, Council Regulation (EU) 2024/1745 was published in the Official Journal of the European Union. This regulation extended the deadline for the provision of services to legal entities established in Russia and owned by legal entities registered in the EU, EEA, Switzerland or other partner countries, e.g. the UK, USA, until 30 September 2024.