(Reuters) Russia's government has approved a new tax law to clamp down on Russian companies and individuals using offshore centres.
The law is part of a range of measures initiated by President Vladimir Putin, and collectively known as 'deoffshorisation', which are aimed at bringing Russian businesses and money home from foreign jurisdictions.
Pressure on Russians to move assets and corporate structures to Russia from abroad has intensified this year because of the crisis in Ukraine, which has highlighted the vulnerability of Russian assets abroad to Western sanctions.
The new law would introduce modifications to the tax code that will force Russian owners of companies based abroad to pay taxes in Russia.
The government's approval means the law will now be submitted for consideration by parliament, where it could yet be amended but is unlikely to face strong opposition.
The 'deoffshorisation' policy was initiated in 2012 by Putin, who has been annoyed by the decision of many Russian businesses to create offshore ownership structures, typically in offshore centres such as Cyprus, which are reducing tax revenues in Russia.
Putin has also backed measures to make officials and parliamentarians divest offshore property and bank accounts.
Under the new law, foreign companies and other organisations with Russian owners would be classed as 'controlled foreign companies'.
Any Russian company or individual that owns 25 percent or more of a foreign organisation would be categorised as a 'controlling entity'. This threshold would drop to 10 percent if the total shareholding of Russian tax residents amounted to 50 percent of the foreign company.
Russian-owned companies operating in jurisdictions where they are paying an effective profit tax of 75 percent or more, however, would be exempt from the new law.
The government said it would be appropriate to consider raising the ownership thresholds and lowering the effective tax rate threshold to preserve Russian companies' competitiveness. It nevertheless backed the law, originally prepared by the Ministry of Finance, in its current form.
"We consider that these measures, considered by the law, as a whole will facilitate cutting the use of low tax jurisdictions for receiving unjustified tax advantages, and will also allow taxation of undistributed profits of controlled foreign companies," the government said in a statement on its website.
Commenting on the news, Stuart Pinnington, Group Head of Corporate Services at JTC Group, and a fluent Russian speaker, said: “The draft measures introduced by President Putin have been a hot topic of debate for all offshore practitioners who work with Russians. With the effect of sanctions imposed on Russia, considerable push back from Russian corporate bodies and the wider ranging implications for the Russian economy, there have already been a series of changes made to the proposed measures. In my opinion, the changes will continue with many Russian advisers believing that Parliament could only accept a heavily amended and softer bill, whilst others believe it may be rejected in its entirety.
“So what does this means for Jersey? Well a lack of certainty and clarity of scope means that it’s largely business as usual. Russians continue to establish Jersey structures for financing transactions, acquiring property or as joint venture investors with other parties. What many forget is that Russians do not use offshore jurisdictions such as Jersey simply for tax reasons (they already have some of the lowest income tax rates in the world), but because they want certainty that the deals will get done. They like the professional approach of the advisers here, the proximity to London for transaction closing and the fact that counterparties are happy to contract with Jersey companies.”