Putin Calls For Several Tax Changes

December 13, 2013 Taxation in Russia

MOSCOW – Russia needs to address the problem of illicit capital outflow and tax evasion, and more effort needs to be put into supporting economic growth in the Far East, according to the President Vladimir Putin.

In his annual State of the Nation Address delivered on December 12th to the Parliament of Russia, the President Vladimir Putin described the current economic, social, and financial situation in the country, and, among other topics, outlined upcoming changes intended to boost economic growth, fight the occurrence of tax evasion, and eliminate illicit capital outflows.

In the address, Vladimir Putin stated that in order to stem the outflow of capital from the country and to prevent the further occurrence of tax evasion, overseas business entities owned by a Russian citizens should be subject to taxation in Russia, and he added that the businesses “…won’t get state support, including loans from Vnesheconombank and state guarantees… they’ll also be banned from participating in state contracts and contracts for state-run entities.”

According to international experts, in order for Russia to effectively implement the measures described by the President, the country will need to enact a full set of tax residency tests and controlled foreign company regulations, as already enforced in all OECD countries.

The President’s Address also touched upon the importance of expanding the economy of the Russian Far East, with several targeted tax benefits to be implemented in the area, including 5 year grace periods from land, property taxes, and corporate income tax for businesses not involved in the extraction of raw materials, along with targeted tax allowances for the energy sector, and fast tracked provision of building permits.

Later on the same day, the Finance Minister Anton Siluanov commented on the described changes, saying that the efforts will likely be successful and bring in several billion ruble in tax revenues, and adding that the legislation to implement the new rules for the tax treatment of offshore entities will be tabled in Parliament in early 2014.

However, some criticism has also arisen of the points in the Address, with the former Finance Minister Alexei Kudrin already posting on Twitter that “…unfortunately, the proposed measures will hardly stop the outflow of capital,” with international taxation experts saying that the negative comments are a reference to the reality and difficulty of effectively implementing the changes.

Photo by: Jedimentat44