Local elections in Donbass still some way off, says Ukrainian ministerWorld October 28, 2:39
Israel’s emotions are over top regarding UNESCO resolutions on Jerusalem - GatilovRussian Politics & Diplomacy October 28, 2:28
Russia speaks against politicization of probe into chemical attacks in Syria - GatilovRussian Politics & Diplomacy October 28, 2:25
UN, OPCW’s conclusions on Syria’s involvement in chemical attacks unconvincing - ChurkinRussian Politics & Diplomacy October 28, 2:00
Russian DefMin surprised by UNICEF inaction amid growing terrorist activity in SyriaRussian Politics & Diplomacy October 27, 23:14
Russian Defense Ministry: Video of airstrike on Syrian school doctored upRussian Politics & Diplomacy October 27, 21:22
Putin says its too early for him to retireSociety & Culture October 27, 21:10
Putin urges US not to provoke Russia to actively protect national interestsRussian Politics & Diplomacy October 27, 20:20
NATO’s actions create risks to European security — Russian NATO envoyRussian Politics & Diplomacy October 27, 19:52
This content is available for viewing on PCs and tabletsGo to main page
MOSCOW, November 10. /TASS/. Russia is speeding towards the adoption of anti-offshore legislation. The State Duma (lower house of parliament) on Tuesday will hold the first reading of amendments to the Tax Code obliging both individuals and legal entities to notify the authorities of their foreign properties and profits. This step is in line with international trends and requirements posed by the Russian authorities, but experts tend to interpret it differently. Some argue it is the wrong time to tighten the screws, because the current pressures on businesses are already too high, while others claim that such restrictions should have been taken a while ago.
The anti-offshore bill, authored by a group of legislators from different factions and supported by the government, if adopted, will establish a legal basis for exposing commercial structures that are not Russian tax residents but in fact remain under the actual control of Russian legal entities or individuals. The newly coined term for these is “foreign controlling entity” or “controlling person.” Starting from 2015, the controlling entities or persons will be obliged to notify the tax authorities of their participation in a foreign company and also to declare and confirm profits, which then will be taken into consideration in levying taxes in Russia.
During the first two years following the adoption of new legislation, the measure will apply to those who control 50% of an offshore asset. In the longer term, the taxable stake will be lowered to 25% and possibly, even to 10%.
The legislators hope that at least 20-30% of capital now leaving the country will be repatriated in the form of taxes. According to expert evaluations, offshore companies are involved in 40% of Russia’s foreign trade. Over the past two decades, an estimated $800 billion to $1 trillion has been taken out of the country.
Not only small and medium companies, but also big business giants related with Russia’s state-run companies prefer to operate offshore in order to contain costs and run their businesses more effectively.
When the bill was discussed in the government, there emerged a dispute between the Ministry of Finance, an advocate of the “hard line,” and the Economic Development Ministry, which proposed de-offshorization only for the defense-industrial complex and for companies deriving 50% of their revenues over the past three years from state defense contracts. In the end, the hard-liners gained the upper hand. All crucial ‘system-forming’ enterprises should have domestic registration.
Experts are divided over whether the proposed measures will benefit the Russian economy.
The director of the FBC Institute of Strategic Studies, Igor Nikolayev, is quoted by the daily Novyie Izvestia as saying that the de-offshorization vector is correct, but its timing is very wrong, for it will merely increase tax pressure on businesses, which are already big enough.
Attempts at forcing major Russian companies to return to Russia would be fraught with considerable risks, such as inability to draw considerable financing from abroad or conclude certain foreign economic deals and soaring production costs, the daily Kommersant quotes senior counsel at the legal firm Sameta, Ksenia Levina, as saying.
“We are ten years late with the adoption of such legislation, but it has been drafted in full compliance with the world trend of tightening control of financial flows,” senior lecturer at the stock and investment market department at the Higher School of Economics Alexander Arshavsky told TASS.
He foresees no adverse effects harsher anti-offshore legislation might have on the Russian economy. “These measures are targeted not against those companies which are involved in active projects, but against those whose participation is passive, companies which merely get dividends. The income is generated in Russia and they get it through chains of offshore firms. The taxes they pay to the Russian budget is meagre. Some pay nothing at all," Arshavsky said.
ITAR-TASS may not share the opinions of its contributors