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Offshore companies privatize Russian foreign trade

November 25, 2013, 12:10 UTC+3 World Service) ¶ 25/11 Tass ¶ MOSCOW

In Cyprus alone, more than 170,000 Russian companies are registered

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MOSCOW, November 25. /ITAR-TASS/. The Moskovsky Komsomolets newspaper describes an alarming situation in the Russian economy. Last year, 42% of the country’s foreign trade turnover was registered through offshore companies, due to which the federal budget losses reached nearly 1 trillion rubles.

The Federation Council upper house of parliament held hearings on deoffshorisation of Russia’s economy. Auditor of the Russian Audit Chamber Sergei Shtorgin said that the majority of large and a considerable part of small Russian enterprises use offshore companies: “For example, in Cyprus alone more than 170,000 Russian companies are registered. A whole market for the sale of offshore companies has developed in Russia: the cost of the services ranges from $550 to $1,800.”

In general, the top five of offshore jurisdictions where Russian companies feel at ease, according to the Audit Chamber, is comprised of Switzerland, Hong Kong, Ireland, Cyprus and the British Virgin Islands.

In the view of the auditor (his view is shared by almost all experts), Russian businesses are hiding in tax havens not only in an attempt to ease the fiscal pressure, but also because of fundamental reasons: the imperfect legislation and judicial system, insecure property rights (nobody is insured in Russia against successful hostile takeovers attempts), the “cold” investment climate and an underdeveloped stock market.

Nevertheless, the main purpose of the tax havens (which is an issue of concern of all the G20 countries) is tax evasion or at least the so-called “optimization” of the tax burden. One of the most widespread options is a drastic profit tax reduction by oil companies (including state-run).

The Moskovsky Komsomolets daily writes that “the defeat of offshore companies should not be expected any time soon. The Russian authorities obviously tend at present not to improve the investment climate and protect the property rights (which might undermine confidence in the offshore companies), but to take repressive, in essence, measures. A bill on returning to the Interior Ministry and the Investigative Committee the right to open tax evasion criminal cases based on the materials of their own inspections, and not those of the tax inspection authorities, as it had been established in 2011, has already been submitted to the State Duma lower house of parliament. If the bill is passed, a new wave of Russian companies’ fleeing to offshore zones can be expected, even if the number of offshore zones is considerably cut thanks to the G20 efforts.

Itar-Tass is not responsible for the material quoted in these press reviews.

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