International financial sanctions and low oil prices force the Kremlin to look for additional sources of budget replenishment. Effective January 1, 2015, Russia is increasing the rates of dividend tax, single tax on small business, real estate tax, transport and water taxes, and introducing local dues.
Furthermore, in 2015, the new amendments to the Tax Code of the Russian Federation, introducing the concepts of ‘controlled foreign corporation’ and ‘controlling person’ — the so-called law on de-offshorization — will come into force. It is not a secret that many Russian assets are owned by Russian citizens through offshore companies. Until recently, this has allowed Russian businessmen to transfer profits, made in Russia, abroad and thus avoid paying the Russian income tax. In order to increase budget income, Russian authorities decided to put an end to such practices.
Consequently, by April 1, 2015, Russian citizens will be required to notify tax authorities of holding more than 25 percent of the share capital in a foreign company, including through a trust. Moreover, as of the end of the fiscal year 2015, profits of controlled foreign companies will be subject to Russian taxation.
In order to sweeten the increase in the burden of taxation, in his annual address to the Federal Assembly president Putin promised to carry out a full tax amnesty for capital returning to Russia. Today, only a few remember that such a law on tax amnesty was already adopted once in 2006 but was a complete fiasco with only 3.7 billion rubles in taxes collected throughout the country. It is obvious that today, just as eight years ago, Russian businessmen have no inclination to disclose to the authorities their assets hidden in offshore accounts. Their motives are rather clear — it happens only too often that the Kremlin takes away what it likes: ‘Stolichnaya’ vodka brand, NTV Network, Yukos and Bashneft oil companies. The list of private businesses nationalized during Putin’s presidency continues to grow.
Who needs yet another tax amnesty in Russia that “accidentally” came at the same time as the law requiring Russians to declare their foreign assets? It seems unlikely that Putin could be so naive as to believe that the trust between private business and the Kremlin has increased in the last eight years. It all becomes clear when one takes into consideration the current “hostile environment”. The Western sanctions affect Putin’s friends in a targeted manner, and the US government “hunts” for the assets of Kremlin oligarchs. Thus, those who need the amnesty announced by Putin are, first and foremost, corrupt Russian officials, whose illegal profits have until recently been safely hidden in offshore accounts in Western banks and are currently at risk of being frozen as a result of the introduction of new sanctions. Therefore it is proposed to legalize the money stolen by Putin’s officials and to keep it at home in order to protect it from “enemies.” However corrupt these people are, they are always very loyal to the current regime. Consequently, Kremlin is prepared to introduce as many tax amnesties as they might need.
