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Putin urges use of legal methods against offshore transactions

June 11, 2014, 10:39 UTC+3 MOSCOW
“We should not only frighten companies and get them out of offshore areas but we should also create economic and legal conditions,” the Russian president says
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Vladimir Putin

Vladimir Putin

© ITAR-TASS/Mikhail Metsel

MOSCOW, June 10. /ITAR-TASS/. President Vladimir Putin called for using not so much economic as legal methods against offshore transactions.

He described offshore jurisdictions as “an epidemic of the world economy” and said this practice was used and abused in the United States and affected continental Europe more than others.

“Offshore practices must be fought because budgets lose profits which are generated elsewhere and remain unseen for the state,” the president said at a forum entitled “Internet Entrepreneurship in Russia”.

In his opinion, there are two ways to press for de-offshorisation. One is “fiscal policy and tax optimisation”. However he admitted that current Russian legislation did not meet present-day requirements.

“We should not only frighten companies and get them out of offshore areas but we should also create economic and legal conditions,” Putin said.

Finance Minister Anton Siluanov said earlier that the plan should be based on the principle that taxes must be paid where economic operations are registered. The tax authorities will seek to identify companies that operate in Russia but pay taxes in other jurisdictions in order to avoid taxes, he said.

The Finance Ministry also intends to revise decisions and effective agreements on the avoidance of double taxation with low tax jurisdictions in order to make taxpayers disclose their ultimate beneficiaries if they want to obtain certain benefits. “He will get benefits if he makes a disclosure. If he doesn’t, he has to pay taxes in full. We are going to build this principle into our tax legislation,” Siluanov said.

He believes that Russia will get tens of billions of roubles from de-offshorisation of its economy. “I think we can talk about tens of billions of roubles,” he said.

The minister noted that a set of measures was being prepared, covering three areas. First, companies will have to pay taxes in Russia if they run their operations in the country.

Second, access to government contracts and subsidies should be limited for companies that do not disclose their beneficiaries. “It is an absolutely correct decision that companies should disclose their owners so that we knew where they are registered and pay taxes,” the minister said.

Third, controlled foreign companies that do not pay dividends to their Russian parent companies and thus make it impossible to tax these amounts.

Valentina Matviyenko, Chairperson of the Federation Council, upper house of Russian parliament, said she was hopeful that legislation for de-offshorisation of the Russian economy would be ready this year, but thinks that companies will need a transitional period to adapt to new rules.

She recalled that this issue had been raised by President Vladimir Putin in his Address to the Federal Assembly (national parliament) in December 2013. Putin said de-offshorisation of the economy should become a key task next year.

“Incomes received in offshore zones should be taxed by our rules, and tax payments should go to the Russian budget. We have to think about how to take this money,” the president said.

Companies registered in offshore zones will not be entitled to state support, including loans from Vnesheconombank, and government contracts. “In other words, if you want to earn money in Russia, register here,” he said.

As of now, “42% of our foreign trade turnover, and that’s over 10 trillion roubles, go though offshore companies… and we cannot put up with this of course. We must change the situation,” Matviyenko said, adding that this could be done only by amending legislation.

Incomes received in offshore zones should be taxed by our rules, and tax payments should go to the Russian budget. We have to think about how to take this money Vladimir Putin Russian President She stressed the need for effective measures to de-offshorise the economy. “Many experts say that more than one trillion US dollars were taken to offshore zones over the past 20 years,” she said, adding that “this is a sphere that is very hard to regulate at the state level.”

“There are several dozen schemes of tax, investment and corporate optimisation in offshore zones. This is a whole world where one can easily hide his income and evade fair taxation,” Matviyenko said.

She called for “taking a balanced approach and making such taxation rules for offshore companies that would encourage them to move into Russian jurisdiction… Information about the ultimate beneficiaries of offshore companies should be disclosed, countries should exchange information and many other steps should be taken.”

At the same time, Matviyenko believes that de-offshorisation will require “some sort of amnesty or rather some transitional period so that all companies could adapt to the new legislation and carry out necessary legal procedures to comply with the laws to be adopted in Russia.”

“There should be a dialogue with the business community, a call for patriotism, especially to large national companies. I do not admit of a situation where our state-owned corporations would carry out operations in offshore jurisdictions through their subsidiaries,” Matviyenko said, adding that “this must be ruled out completely.

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