Law to clamp down on offshore tax sheltering approved by Russian government

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Law to clamp down on offshore tax sheltering approved by Russian government

Despite its recent postponement of approving the new legal framework for the financial services industry, the Russian government has nevertheless proceeded with the approval of a new tax law to clamp down on Russian companies and individuals using offshore tax shelters, a legal arrangement that will no doubt affect both Russian investors as well as Russian retail brokers who have set up shop in foreign jurisdictions.

This particular law falls under a range of measures which has been initiated by President Vladimir Putin himself, as part of a process collectively known as “deoffshorisation”, having as its principal aim to bring Russian businesses and money back home and away from foreign jurisdictions.

The new law and the government’s new drive to repatriate Russian funds is attributed to the fact that the crisis in the Ukraine has highlighted the vulnerability of Russian assets abroad to Western-imposed sanctions, which has in turn culminated the pressure on Russians to move assets and corporate structures to Russia from abroad.

According to the provisions of the legislation, modifications to the tax code will be introduced, in effect forcing the Russian owners of companies based abroad to pay taxes in Russia, instead of doing so in the foreign jurisdictions. The “deoffshorisation” policy was firstly initiated in 2012 by President Putin, who has been annoyed by the decision of many Russian businesses to create offshore ownership structures, typically in tax havens such as Cyprus, which are reducing tax revenues in Russia.

It will interesting to see how the new arrangements might affect the operation of the many Russian-owned financial services firms and brokerages that have chosen to base their companies outside of Russia and how their revenues and corporate strategies will be altered to accommodate the new realities.

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