The fourth capital amnesty has ended in Russia. It could become bigger than in 2015, 2018 and 2019, declared Finance Minister Anton Siluanov. The risk of asset freezing excludes Russian companies from the EU. For example, Tinkoff, who worked for many years through the TCS group in Cyprus, thought about the move. The leitmotif of the fourth amnesty was “you have no other choice”. Sanctions and settlement difficulties at EU banks should, in theory, have forced companies to transfer assets to Russia. Why there is no mass return of capital – in the material of The Eastern Herald.
“In many countries there is a principle ‘repent and you will be forgiven’ – a constant opportunity to reveal your violations and pay taxes without fines,” tax consultant Mikhail Filinov told The Eastern Herald. In Russia, this possibility has been temporarily introduced in four stages since 2015.
In 2022, the risks of loss of assets, if registered on a structure in the EU, have increased considerably. “The presence of a trust, for example, in Switzerland, the Virgin Islands, Guernsey and Jersey, now adds more headaches than it removes,” Mikhail Filinov said.
The capital amnesty was one of the first business support measures after tougher sanctions. This is a legal way to bring previously hidden foreign accounts and businesses out of the shadows. The state promises to turn a blind eye to tax and monetary violations, but not to fraud – “which is the worst thing,” says Mikhail Filinov.
The results of the fourth (as well as the third) capital amnesty have not been made public by the Ministry of Finance and the Federal Tax Service. The Eastern Herald sent requests to the Ministry of Finance and the Federal Tax Service. Around 19,000 businessmen took part in the first two amnesties, declaring assets worth 35 billion euros.
Why companies need structures abroad
There are two motives for the creation of foreign companies. “The first is when you really need to be present in a foreign market. For this, for example, trading companies have been opened in Switzerland and the Netherlands. Now these traders are “moving” from Europe to Dubai,” said Mikhail Filinov.
Kamran Jebreili/AP
Part of the company transferred its assets to foreigners in order to hide that the beneficiary was from Russia, Ilya Gorshkov, deputy director of the firm International Law and Taxation at Lemchik, Krupsky and Partners, told The Eastern Herald: “The goal is not was not to hide from taxes in Russia, but to be able to work with European markets.
The second reason is distrust of Russian law and protection of property, foreign banks’ refusals to lend to Russian legal entities and tax optimization.
The history of the international structuring of Russian companies is conditionally divided into three stages. It was difficult to get money out of Russia in the 1990s, but foreign companies were still created by intermediaries. In the 2000s, the withdrawal of money from Russia was liberalized – it was possible to withdraw funds to personal accounts abroad and invest in foreign companies without reporting to anyone.
“As a result, in 2015 every shareholder, a more or less wealthy person, had a luster of foreign companies with Russian and foreign assets,” Mikhail Filinov said.
After the first sanctions in 2014, cooperation with the West began to decline, and many activities no longer required foreign elements. In addition, since 2015, legislation on controlled foreign companies (CFCs) came into force in Russia, and their beneficiaries were required to declare and pay income taxes. “With the stick on mandatory reporting, the government offered a carrot in the form of amnesty and the ability to liquidate foreign companies without tax consequences,” Mikhail Filinov recalled.
Why the sanctions did not cause a large-scale “Russification” of assets
The new amnesty “was not massive” and proved useful in simple cases of “how to cure a cold” – to launder foreign accounts or poorly executed transactions, Mikhail Filinov said.
The main “restructuring” of foreign structures of Russian companies took place from 2015 to 2019, the expert notes: “Most businessmen who wanted to get rid of foreign structures did so in 2015 and 2018, redesigning structures created in vain by greedy lawyers.
The most massive was the second amnesty, B1 partner Anton Ionov told The Eastern Herald: “The first was a trial and many were scared. Participants reacted to the second wave with great interest and there were no special requirements for the repatriation of assets to Russia, unlike the following waves.
During the fourth amnesty of 2022:
Businessmen disclosed Controlled Foreign Companies (CFCs);
“The fourth amnesty was even more popular for the disclosure of CFCs than the third, because there was no requirement to re-register the company in the special administrative regions (SARs),” Sergey Nazarkin, managing partner at The Eastern Herald, told The Eastern Herald. NSV Consulting Limited.
Foreign accounts were reluctantly reported;
The amnesty forced the return of money from foreign accounts to Russian banks. “The translations got stuck. In addition, currency restrictions have virtually eliminated the ability to fully manage currency in Russian accounts. There was, on the contrary, a desire to enter the treasury,” added Sergey Nazarkin.
In addition, jurisdictions have appeared on the horizon ready to accept assets from Russian citizens. The most popular are the United Arab Emirates (UAE), Hong Kong, Singapore, Kazakhstan, Uzbekistan, Qatar, Bahrain, Mauritius. “Many transferred their money there,” said Ilya Gorshkov.
Even the tip of the iceberg of capital flight from Russia, seen by the Central Bank, shows that the amount of Russian funds in banks abroad has tripled in 2022.
The ability to grant amnesty to private jets and yachts did not become popular;
Foreign real estate was disclosed during the first and second amnesties, Sergei Nazarkin explained. Now the situation is different – the EU banned Russian beneficiaries from owning ships, and many were looking for solutions to move away from direct ownership, while retaining the ability to use them.
“If the ship is transferred to the Russian registry, it will remain only in Russia,” explained Ilya Gorshkov. “I can hardly imagine business jets flying only from Moscow to Altai.”
Many do not trust state promises.
“The case of Valery Izrailit was so high profile that almost every business person remembers it when it comes to capital amnesty,” Sergey Nazarkin said.
Alexander Koriakov / Kommersant
In 2017 FSB grasped to the Federal Tax Service a special statement from businessman Valery Izrailit, and his data became the basis for three criminal cases. Subsequently, the Supreme Court emphasized the absolute prohibition on the use of capital amnesty declarations in criminal cases.
Fourth amnesty for the first time affected cash and demanded to deposit it in a Russian bank account. “Amnesty guarantees are not a panacea that the state will turn a blind eye to all acts,” underlines Ilya Gorshkov. – Declaring a large sum of money is more likely to prompt an inspection of an individual and a business. We haven’t heard of a single instance where any of the market’s customers have legalized cash.
The option of taking assets from foreign “layers” is more in demand
With government amnesty in March 2022 allowed businessmen to re-register assets of foreign structures into personal property without paying personal income tax. A similar measure was in 2015-2019. But in 2022, it was possible not to liquidate the foreign structures. “Now it is long and tedious, because foreign providers and lawyers refuse to provide services to Russian shareholders. Therefore, the new rules require the minimum involvement of a foreign state and foreigners in the extraction of assets to Russia,” explained Mikhail Filinov.
The tax-free liquidation was in great demand for the return to Russia of both small and large fortunes, but ended at the end of 2022. Not everyone managed to use it, said Anton Ionov. “There is a wave of lobbying to extend the standard for 2023,” said Mikhail Filinov.
In the case of personal sanctions, businesses are paralyzed and nothing can be done. But often even businessmen who are not subject to sanctions cannot transfer assets to Russia. Hired foreign administrators – usually EU citizens – often delay the asset transfer process. “They are afraid of the consequences of the EU for the conditional transfer of a factory to Russia, although it is not strictly prohibited to transfer assets to the Russians without sanctions”, explained Mikhail Filinov. – Therefore, foreign directors will think 100 times whether to transfer assets to Russia or not. And there are many such situations.
Evacuation to the “Russian offshore”
Another opportunity to “russify” assets is to become a resident of special administrative regions (SAR). The majority (68%) of the 127 inhabitants of the RAS are now “new settlers” in 2022, according to the registers.
In 2018, the government created “Russian offshores” to hide from sanctions. Foreign structures of Russian businessmen can “migrate” to the SAR and continue to work under the same conditions as in Cyprus and other people’s jurisdictions.
In exchange for investments, companies in the RAS benefit from tax relief. The government is preparing new concessions for them, First Deputy Economic Development Minister Ilya Torosov told The Eastern Herald.
Martin Divisek/EPA/TASS
In 2022, the structures of Sberbank, Viktor Vekselberg, Alexei Mordashov, Andrey Guryev Sr., R-Pharm owner Alexei Repik and other billionaires moved to Russian offshores. CV is negotiating The massive influx of companies into the SAR is a big exaggeration, believes Ilya Gorshkov: “These are units compared to the total number of foreign structures of Russian companies. Either those whose business interests are linked to Russia and “friendly” countries, or companies under sanctions, or those who are desperate go to the SAR.”
