Russia Cracks Down On Offshore Tax Havens
MOSCOW — There is nothing new about offshore tax shelters. In ancient Athens, after the government decided to levy a 2% tax on all trade operations, merchants started avoiding the city, conducting business on the surrounding islands instead. Those Greek islands became the first offshore tax havens.
The current offshore landscape evolved in the middle of the 20th century, as former British colonies decided to follow the Swiss banking example and provide clients with completely anonymous accounts, in addition to very low tax rates.
Many of these banking havens would eventually be targeted by law enforcement agencies who suspected them of laundering money for criminal organizations. Still, despite the attention, it hardly managed to kill the offshore model. Now most reputable banks and companies don’t like to deal with firms that are “registered” in Belize or the Cayman Islands, but they don’t have anything against the “special economic zones” that abound in Ireland, Gibraltar, Hong Kong or the United Arab Emirates.
In other words, the “civilized” world has a problem with illegal tax avoidance zones, but no problem with special financial advantages. Just last September, the Group of 20 nations voted on a list of 15 measures to take against tax avoidance, meant to close loopholes in national laws and facilitate international cooperation. Within two years, most expect that all of the G20 members will move to a standard system to share data about taxpayers, and eventually will share information from tax declarations.
It seems like Russia, which is in the middle of trying to reduce the use of “offshore” accounts, fits right in the trend. But some experts wonder if the efforts to reduce dependance on offshore accounts might come at the expense of domestic business development.
Taxes and bribes
The Duma recently adopted a law to try to reduce the number of companies and individuals who use offshore accounts and businesses to avoid paying taxes at home. Needless to say, not everyone is happy.
It’s hard to criticize Russian entrepreneurs for wanting to save money. Let’s start with the fact that low taxes in Russia are a total myth. The taxes on profits stand at 20% (compared to 10% in Cyprus). There is also an 18 percent VAT, and payroll taxes. Starting next year, taxes on dividends are going to go up. And those are just the “official” taxes. There are also the “unofficial” taxes, that also go up all the time: These are the charges levied by corrupt government officials or law enforcement officers who want to get “their piece of the pie.”
Under these circumstances, it’s not surprising that businesses move offshore, to protect themselves and manage the situation more effectively. Businesses of all sizes make the move offshore. There are up to 100 companies that are part of Gazprom’s structure that are registered in offshore havens or countries that offer financial benefits. The three leaders in foreign investment in Russian in 2013 were Cyprus, Luxembourg and the British Virgin Islands.
