Declare offshore wealth? Russia tycoons
would rather ship themselves off shore
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[June 06, 2017]
By Polina Devitt
MOSCOW (Reuters) - Some of Russia's
super-rich have given up residency to escape a 2014 law requiring them
to disclose offshore assets, wealthy businessmen told Reuters, a
practice that could keep billions of dollars hidden from Moscow's tax
authorities.
Interviews with more than a dozen people familiar with the practice --
including prominent tycoons, wealth managers, lawyers and current and
former officials -- suggest a swathe of Russia's national wealth is now
in the hands of a new class of semi-exiled oligarchs, who keep bases in
their homeland but escape its tax net by spending fewer than 183 days a
year there.
"You can scold them, call them unpatriotic, but the fact remains: the
budget has lost out," Vladimir Potanin, one of Russia's ten richest men,
told Reuters about the practice.
Potanin, co-owner of Arctic mining giant Norilsk Nickel, said he has
remained a tax resident of Russia but watched as many of his peers moved
out in response to the 2014 law.
Two other people on Forbes Magazine's list of the 100 richest Russians
told Reuters they had given up Russian residency to escape the law,
speaking on condition that they not be identified to avoid hurting their
Russian business dealings.
Two more declined to say whether they had done so, but, like Potanin,
said they also knew many fellow oligarchs who had.
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No official data has been made public on how many people have given up
Russian residency to escape the law, or the overall size of the assets
they have shielded from Russian tax jurisdiction through the practice.
But Russian law firm Egorov, Puginsky, Afanasiev and Partners said it
had conducted a survey of around 300 wealthy Russians and found as many
as 40 percent of those with offshore companies had given up residency in
Russia. Another 9 percent transferred the assets to relatives who are
not tax residents.
The law, popularly known in Russia as "de-offshorizatsia", requires all
Russian taxpayers to declare their interest in offshore companies they
control, on which they can then become liable to paying tax in Russia.
It is similar to the standard practice in most western countries, but
represented a change for Russia, where previously taxpayers could hold
interests in companies abroad without declaring them.
The change was a high-profile initiative of President Vladimir Putin,
widely interpreted as a way to force Russians to do their patriotic duty
by investing in their homeland. While there is no suggestion that it is
illegal to avoid the law's requirements by giving up Russian residency,
those who have done so told Reuters they accepted they were thwarting
the law's aim.
In response to Reuters questions, Russia's economy ministry said the
de-offshorization law was in line with global practice.
It said improving the investment climate was a government priority, with
positive results, as demonstrated by Russia's improved ranking in the
World Bank's ease of Doing Business index. Russia is now ranked 40th, up
from 92nd in 2014.
The Kremlin declined to comment. The finance ministry did not reply to a
request for comment by the time of publication. In response to a list of
questions, the tax service said the number of tax cases it was pursuing
against Russians with foreign tax exposure was rising, but it did not
directly address the questions.
The impact of tax exiles giving up Russian residency is heightened
because so much of the country's wealth is concentrated in the hands of
relatively few people. According to Forbes, the 200 richest Russians
have $460 billion in wealth, equivalent to nearly a third of Russia's
nominal GDP.
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"People are forced to decide: do they keep their business in Russia or
become citizens of the world and take their assets offshore," said
Konstantin Korishchenko, a former deputy head of the Russian central
bank.
A former official who has kept close ties to the Kremlin and talks often
to Russian oligarchs said that by his estimate a third of Russia's top
500 businesspeople had left the country over the past three years, in
part because of the new law.
"IT'S IMPOSSIBLE NOW"
Some familiar with the practice said wealthy Russians were giving up
their residency because they feared that disclosing their offshore
companies would open them to the risk of the information being leaked to
business rivals, or even abused by corrupt officials for spurious
prosecutions or blackmail.
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![](../images/060617pics/news_q31.jpg)
Vladimir Potanin (L, front), chief executive of Norilsk Nickel
company, attends a session during the Week of Russian Business,
organized by the Russian Union of Industrialists and Entrepreneurs
(RSPP), in Moscow, Russia March 19, 2015. REUTERS/Maxim Zmeyev/File
Photo
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"The first thing that entrepreneurs say is that there is a big sense
of mistrust: mistrust toward each other, mistrust towards the
state," said Andrei Sharonov, dean of the Moscow School of
Management, Skolkovo, which offers an MBA program.
Sitting on the leather sofa in his office in one of Moscow's most
prestigious commercial addresses, one of the tycoons who gave up his
residency told Reuters he made the move reluctantly.
Leaving his homeland for most of the year was a wrench. But because
of the investment climate in Russia, he and his partners were
looking for buyers for their Russian businesses and focusing instead
on international holdings, he said.
"I would stay here and would continue paying taxes here if it was
not for this law," the businessman told Reuters. "It's impossible
now."
He now spends his time mostly in a European Union country where his
family has settled some time ago, or traveling to meetings around
the world. Such a lifestyle, he said, has become common among his
peers since the law was passed: "Lots of people lived here and paid
tax. Now they don't."
Another Russian businessman, a billionaire who also gave up his
Russian residency over the de-offshorization law, told Reuters he
and fellow tycoons were worried that it could be followed by further
measures, tougher on businesspeople.
After three years of deep recession, Russia's economy is stabilizing
but has not yet returned to the steady growth needed to begin making
up lost ground.
The de-offshorization law is one of several factors discouraging
investment in Russia, said Chris Weafer a senior partner at
Russia-focussed consultancy Macro-Advisory Ltd.
"It’s completely unrealistic to talk about raising growth rates to 4
percent, as Russian officials hope, without a sharp increase in
inward investment," he said.
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Businesspeople who spoke to Reuters said complying with the new
rules meant they incurred hefty fees to lawyers and accountants to
audit their offshore assets and prepare tax returns, they had to
deal with a mountain of paperwork, and at the end risked having to
paying more tax.
Several said privacy was also an issue, in a country where vendors
at flea markets sell CDs purported to contain leaked information
from the tax authorities' databases.
In the law firm's survey, almost two third of respondents said that
they or their clients had encountered problems with leaks of
confidential information from state services.
Ultimately, people do not trust the authorities to keep their
information safe, said the businessman on the Forbes list of 100
richest Russians who did not reveal whether he had given up his
residency.
"No one wants to show the money."
(Additional reporting by Darya Korsunskaya, Oksana Kobzeva, Svetlana
Reiter, Anastasia Lyrchikova, Alexander Winning, Andrey Ostroukh,
Kira Zavyalova and Olga Sichkar; editing by Peter Graff)
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