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Eastern Europe
May 18, 2018 www.intellinews.com I Page 19
President Vladimir Putin has been on an extended campaign to persuade or force Russia’s companies to bring their domiciles and money back to Russia but without much success. Due to taxes and political risk concerns, amongst other things, many large Russian companies prefer to domicile themselves in tax havens such as Cyprus or the British Virgin Islands (BVI). The irony of
the latest round of US sanctions is it has pushed many oligarchs to move assets and cash back to Russia and is helping Putin’s de-offshorisation policy.
Medvedev said the new zones are something of an experiment and the legal regulation will be tested in these “experimental zones,” but may spread to the economy as a whole.
The Central Bank of Russia (CBR) has expressed concern with the scheme, which creates a
legal loophole for companies that bypasses its regulations on currency operations in Russia; companies will not be considered currency residents of Russia and will be able to carry out transactions with foreign currency and securities without restrictions and the required revenue repatriation. The CBR fears that such preferences will violate the principle of unity of the currency control system, and may fuel massive capital flight. Moreover, the regulator pointed out that the bill on special zones does not take into account Russia’s anti-money laundering legislation.
The scheme is reminiscent of the special tax-
free zones set up by president Boris Yeltsin in the 1990s that were designed to bring in investment to Russia’s poor regions. All that happened was these regions turned into a massive tax black hole that depleted the government’s revenues to the point where it was in a perennial crisis.