Putin calls for taxation of round-tripping investments

Monday, 16 December 2013
Russia's President Vladimir Putin has announced plans to impose state taxes on foreign-registered companies owned by Russian investors, and to deny them access to state contracts or loans.

In his annual state of the nation address last week, Putin estimated that USD111 billion of Russian investment passed through offshore companies in 2012. This is equivalent to a fifth of the country's exports. Moreover, 55 per cent of foreign direct investment into Russia comes from Dutch or Cypriot companies, and most of that is thought to be 'round-tripped' from Russian investors.

He requested Russia's government to prepare legislation that will ensure these round-tripped funds were subject to taxation. ‘We need to think of a system to seize this money [and] a comprehensive system of measures for the deoffshore-isation of our economy,’ he said.

He also said Russia would look for tax information exchange agreements with foreign jurisdictions.

Putin himself admitted that he said something similar in last year's speech, but not much has changed since then. Capital flight is still a serious problem for Russia, with net-capital outflow reaching USD74 billion in the first 11 months of the year.

What is new is the admission that some of the principal users of foreign-registered investment vehicles are large state-affiliated companies. A recent example is Rosneft, whose USD55 billion acquisition of oil company TNK-BP earlier this year was conducted via an offshore company. According to Putin, nine out of every ten deals by big Russian companies take place in another jurisdiction. Thus another of his proposals is that foreign companies should not be allowed to bid for state contracts.

He told the audience: 'If you want to go offshore, be my guest, but the money stays here'. He called for 'absolute clarity concerning the structure of [company] ownership, with real shareholders and beneficiaries,'.

A spokesman for Putin later said his comments were mainly aimed at corruption-prone offshore schemes used by state companies. ‘It is obvious these schemes are being used so that some kind of structure affiliated to a state company gets deals or money,’ said the spokesman.

Sources

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