Putin Signs First Bill To De-offshore Russian Wealth: Russian President Vladimir Putin has signed a law he has been demanding for two years, to attempt to start de-offshoring the hundreds of billions in Russian wealth in offshore havens, led by the British Virgin Islands, Cyprus, and the Benelux. This follows economist and Putin advisor Sergei Glazyevs widely publicized estimate last week that Russia was suffering $120-150 billion in capital flight in 2014, with nearly an equal amount in foreign debt payments by Russian corporations looming. The law, as described in Itar Tass and other reports, places a tax penalty on income of companies registered abroad by Russians (with at least 50% ownership by those Russians, a threshold which goes down rapidly after 2015 to reach 10%), which companies have not distributed their profits to shareholders so as to make those shareholders subject to tax. It is not a tax amnesty but a penalty of 20% tax surcharge for failure to declare and pay in Russia on undistributed profits abroad. The Deputy Chairman of the Federation Council, Sergei Shatirov, is quoted by Tass to the effect that a large part of the Russian economy is directly or indirectly linked to offshore havens. The billionaire oligarchs who control many of Russias largest extractive and manufacturing companies, do so through closely held holding companies located in offshore havens. The Federation Council drafted the law in December 2013; Putin had called for it in December 2012. Shatirov estimated $3-4 billion in revenue from this tax in 2015 according to Itar Tass, a small figure. But the issue, as Glazyev has repeatedly stated since his 15 points in June, is national credit. Glazyev has estimated that half of the wealth that flows offshore does indeed return to Russia, but as loans and investments in businesses or securities, a kind of ironic foreign direct investment. Glazyevs focus has been on the need to create national credit for investment in infrastructure and industry. Recapturing taxation income is one step. If the new law were to lead to incentives for investment of the offshore wealth in Russian government bonds for such purposes (Russias sovereign debt is currently quite low), another step toward national credit could be taken. SEE Glass Steagall
Posted on: Thu, 27 Nov 2014 18:55:10 +0000