All news

Press review: What are Telegram’s prospects and Cyprus may lose its offshore luster

Top stories in the Russian press on Friday, June 19

Izvestia: Telegram may become major advertising player after Russia lifts block

After two years of an unsuccessful struggle with Russia’s cloud-based instant messaging service, in agreement with the Prosecutor General’s Office, Russia’s telecom watchdog dropped demands to restrict access to Telegram. According to experts interviewed by Izvestia, officials decided not to leave Telegram’s multi-million audience outside the legal framework, and the service’s owner Pavel Durov probably made some concessions in terms of cooperation with the authorities. The decision favors both Telegram, which so far lags behind other major messengers in the share of the Russian market, and the state in terms of its image. According to the newspaper, lifting the restrictive measures on Telegram will allow the messenger to increase its audience in Russia, as well as boost its advertising revenue by 10%.

In essence, the regulator has hinted to the market that the messaging service is cooperating with security agencies, owner of the Katkov & Partners law firm Pavel Katkov told Izvestia. At the same time, Head of the Roskomsvoboda non-governmental association Artem Kozlyuk doubts that Telegram could transfer encryption keys and embark on actively cooperating with the authorities. If this happens, the cloud-based service will lose its reputation, which will affect its financial performance, the expert noted. At the moment, it is difficult to understand the motivation of the authorities, but the "absolute inefficiency of previously taken measures regarding the messenger is clear — everyone uses Telegram, including government agencies," the newspaper wrote.

Mark Sherman, B&C Agency’s managing partner, told Izvestia that Telegram would significantly widen its audience when large banks, corporations and other structures open up their own Telegram channels. "This is a reaction to society’s demands, therefore, this will be perceived positively from the standpoint of the image of the state," the expert noted. There is a lot of talk about the economy’s digitalization, and Telegram is a tool that has gained recognition abroad, he added.

Leading Analyst at RAEC Karen Ghazaryan noted that unlocking the messenger will allow large businesses, especially those with state participation, to officially purchase advertising on Telegram. This will increase the volume of the messenger’s advertising, and hence revenue. According to experts, Telegram channels can bolster advertising revenue by 10% this year, which in itself is already a lot in Russia’s declining advertising market.


Kommersant: US Secretary of State talks to Beijing from position of strength

US Secretary of State Mike Pompeo held a private meeting in Hawaii with Beijing’s main curator of relations with Washington, Chinese Communist Party (CCP) Politburo member Yang Jiechi. The negotiations at a Honolulu military base became the first high-level bilateral contact between the countries after the coronavirus pandemic, during which the strategic rivalry between both nations sharply intensified, Kommersant wrote. Meanwhile, US President Donald Trump has been cranking up pressure, but at the same time he does not want a harsh break with China. His goal is to achieve maximum concessions in trade and economic relations, in order to call this his main foreign policy asset before the US presidential election, the newspaper wrote.

The parties chose not to announce the agenda of the talks. However, the meeting was particularly interesting due to the fact that the talks in Hawaii coincided with a scandal after Trump’s ex-National Security Adviser John Bolton in his yet unpublished memoirs claimed that Trump had personally asked his Chinese counterpart, Xi Jinping, to help him win the 2020 US presidential election.

In this situation, Pompeo became the main conductor of the White House’s general line to exert maximum pressure on Beijing, Kommersant wrote. Amid the scandal, less than a day before the talks in Hawaii, Trump signed a bill allowing sanctions against Chinese officials who, according to Washington, infringe on the rights of a national minority. The Chinese Foreign Ministry called the bill a gross interference in the internal affairs of China.

"In this US presidential election year, Donald Trump seeks to show the US that only his politics towards China can ensure US national interests, as he understands them. Therefore, today he does not need long talks with Beijing, but harsh conditions for the Chinese leadership. This policy combines direct pressure with elements of a diplomatic game so as not to bring down the stock market," Director of the Center for Political Studies Andrey Fedorov told Kommersant. "While Trump’s opponents are trying to accuse him of a secret conspiracy with Beijing, the president does not lose hope of presenting relations with China as his main foreign policy boon," the expert noted.


Vedomosti: Russia may break off tax treaty with Cyprus

Russian businesses operating through offshore companies in Cyprus could face not only a sharp rise in the tax burden, but also double taxation. Russia’s negotiations on changing the tax agreement with the Mediterranean island country have reached an impasse and it may be terminated, a federal official and several consultants told Vedomosti. The decades-old mechanisms no longer suit Moscow, the newspaper wrote, adding that President Vladimir Putin demanded to increase the rates in tax treaties to 15% starting from 2021 or terminate them. The second option threatens the agreement with Cyprus.

The Cypriot Ministry of Finance has not yet agreed to revise the agreement, sources told Vedomosti. According to one of the consultants, Cyprus proposed maintaining the current rates by tightening control over the foreign structures of Russian business. If negotiations come to a deadlock in the coming months, Russia will be forced to initiate laws to denounce the agreement this fall, a spokesperson for the Russian Finance Ministry said.

Cyprus is the most popular low-tax jurisdiction among Russian businesses, through which capital is transferred to the offshore zone and back to Russia. According to the Bank of Russia, in 2019, Russia invested $14.5 bln in Cypriot companies, and received $8.1 bln in direct investments. The deal with Cyprus makes it possible to reduce taxes on dividends and interest paid on loans abroad to 5% and 0% from 15% and 20%, respectively.

Russian businesses with funding that went through Cyprus, will suffer as taxes on interest on loans will grow to 20%, Natalia Kuznetsova, a partner at Deloitte told Vedomosti. For some companies and people, breaking the agreement will result in double taxation.

Director of Tax and Legal Advice Department of KPMG in Russia and the CIS Alexander Tokarev told Vedomosti that the absence of a deal with Cyprus may lead to the Mediterranean island country being blackballed by Russia’s Finance Ministry and the Federal Tax Service if, for instance, in response Cyprus ceases to share tax information with Russia, he explained.


Vedomosti: Council of Europe experts concerned about amendments to Russian Constitution

The Venice Commission (an advisory body on constitutional law under the Council of Europe) is concerned that the new version of Article 79 of the Russian Constitution expands the Constitutional Court’s capacity to declare decisions based on international treaties not enforceable in the Russian Federation, Vedomosti wrote, referring to the statement published on the Council of Europe website. The Commission recommends leaving this amendment out, or at least a change in its wording.

The commission’s experts recall that by joining the Council of Europe and ratifying the Convention on Human Rights, Russia has committed itself to complying with the decisions of the European Court of Human Rights, and the Convention states that the enforcement of court decisions is mandatory. Experts are also up in arms about the fact that the Constitution proposes giving the Federation Council the right to dismiss judges from the Constitutional Court, which makes the judiciary subject to political pressure, the Council of Europe fears.

"An interesting conclusion, we will review it," Deputy Chairman of the State Duma, Head of the Russian delegation to the Parliamentary Assembly of the Council of Europe Pyotr Tolstoy told Vedomosti. He recalled that the Commission’s conclusions are advisory in nature. However, in general, this document "does not meet the interests of our country", since it proceeds from the priorities traditional for the West, he added.


Izvestia: Russia loses ground in global competitiveness rating

Russia lost five positions in the ranking of the world’s most competitive economies, according to a study by the International Institute for Management Development (IMD), based in Geneva. According to the authors of the list, the main problem is the low efficiency of business, and more precisely — entrepreneurs’ low opinion about themselves. The way out of this rut for Russia is to increase labor productivity and actively invest in infrastructure, Izvestia wrote.

Russia, according to the results of the current study, took the 50th place, between Greece and Romania. Among BRICS members, the country is located right in the middle, below China and India, but above Brazil and South Africa. Among the countries of the former USSR, Ukraine (55) is located below Russia, while Estonia (28), Lithuania (31), Latvia (41), and Kazakhstan (42) surpassed Russia. That said, Kazakhstan also lost eight positions in a year.

The Moscow School of Management SKOLKOVO was involved in measuring Russian indicators. Vladimir Korovkin, a professor from this educational institution, told Izvestia that Russia showed a decline in several indicators at once, including demography (long-term population and labor growth) and macroeconomics (including exchange rate stability, budget surplus, gross fixed capital formation and GDP growth), as well as innovation (the use of digital tools).

Among all the individual indicators, Russia’s place for business efficiency was the worst — 61st, where the quality of management looked especially bad. According to Korovkin, entrepreneurs and companies are too critical of themselves. "In my opinion, 61st place on this list is quite expected for a country in which modern business is only 30 years old," he told the newspaper.


TASS is not responsible for the material quoted in these press reviews.