President Vladimir Putin is pushing harder on Russia’s richest citizens to repatriate offshore assets amid a slump in the ruble and the imposition of sanctions by the US and the European Union, The Business Times said.
Under new tax rules signed into law by a presidential decree in November, Russian residents will from this year pay a tax of 13 per cent on earnings reported by foreign companies and trusts they control. Should authorities prove those entities are managed from Russia and don’t have significant assets or employees abroad, the tax rate increases to 20 per cent, the report said.
Russian policymakers are struggling to contain the country’s worst currency crisis since 1998 after oil prices slumped and the US and European Union imposed sanctions over the conflict in Ukraine. The new tax comes three years after Putin backed efforts to persuade Russian entrepreneurs and officials to repatriate as much as US$1 trillion held in offshore centers from Cyprus to Switzerland, the Times said.
USM Holdings, a British Virgin Islands-registered company co-owned by billionaire Alisher Usmanov, said on Dec 19 it had transferred controlling stakes in wireless operator OAO MegaFon and iron-ore producer Metalloinvest Holding to Russian units because the companies “have strategic importance for the Russian economy”, according to the report.
Usmanov is Russia’s second-richest person with a net worth of US$14 billion.
Such moves are helping reverse an outflow of assets from Russia over the previous 20 years. The Russian central bank deployed emergency steps including interest-rate increases and spent US$88 billion in interventions to prop up the ruble, which has declined almost 50 per cent against the dollar in the past 12 months, the Times said.
All of Russia’s 20 richest people controlled a portion of their fortune through holding companies registered overseas, according to the Bloomberg Billionaires Index. The billionaires control US$181 billion of assets, the report said.
Russian companies that continue working through overseas entities face higher taxes, said Alexei Ryabov, a partner at Ernst & Young (CIS) BV branch in Moscow. Previously only dividends from foreign companies were subject to tax of 9 per cent, the Times said.
Meanwhile, an editorial in the Japan Times said it would be financial suicide for Russians to rely on Putin’s promise to protect the assets of oligarchs from sanctions, or his promise to forgive financial indiscretions by Russian businesspeople in return for repatriation of their offshore accounts.
Just a few months ago, Putin assured everyone that Russia’s economy would weather the European and American sanctions easily. Likewise, during the 1998 financial meltdown, Russian oligarchs lost big, and most never recovered. Russia’s government cannot be trusted to safeguard anyone’s wealth, with the possible exception of that of its own members, the editorial said.
Yet refusing the Kremlin’s embrace is equally destructive. After all, in Putin’s Russia, political dissent brings financial ruin. In 2003, Russia’s wealthiest oligarch Mikhail Khodorkovsky, a vocal advocate of democratization and tireless critic of Putin, was imprisoned on trumped-up charges of fraud and tax evasion, and his Yukos Oil Company was driven to bankruptcy, broken up and sold off to Kremlin cronies, according to the editorial.
Ten years later, the message remains the same: If you obey your government, your follies will be forgiven. Failure to fall in line will be your downfall — regardless of how wealthy or well-known you are, the editorial said.