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Chronology of deoffshorization in Russia (as of November 2014)


The term "deoffshorisation" has begun appearing in media since the end of 2012, when president of Russia Vladimir Putin called for more measures against outflow of capital abroad. Talks about potential anti-offshore laws hanged in the air, but capital was still outflowing, tax revenues were not increasing, while Cyprian troubles led to movements of Russian capital to more reliable destinations.

The process of deosshorization started on December 12th, 2013. In his message to the Federation Council, president spoke on the idea that it would be good if Russian companies registered in offshore jurisdictions paid taxes in accordance with Russian rules. Most likely, the leader had offshore companies owned by Russians and led by Russian residents (or in their interest) in mind. "We must figure out the way to extract this money", - that was a precisely formulated demand, to which the government replied in March 2014.

On March 19th 2014, the Ministry of Finance published the draft of the Law on Controlled Foreign Companies (CFC), which were defined as foreign entities, where Russian residents hold more than 10% of shares.

Russian business, represented by the Union of Industrialists and Entrepreneurs of Russia (UIER), reacted in April 2014 with a package of amendments to the new law. Entrepreneurs proposed not to apply the law of CFCs to active income of foreign companies. In the end of May, Ministry of Finance presented the new draft of the legislation, in which definition of CFC was narrowed, but participation ceiling remained the same: 10% of shares.

In June 2013, prime-minister Medvedev met with UIER top-officials. As a result, Premier asked Council of Ministers to correct the legislation in accordance with propositions made by business-elite - in particular, to clarify terminology, to eliminate stage-by-stage approach to implementation of measures and to narrow down the definition of controlling person.

Meanwhile, on June 21st, 2014, the government of Russia hardened the rules of financial control in order to prevent unlawful financial operations. In August 2014, new sanctions against hiding information on double citizenship were introduced. In September, Federal Council contemplated law that would make subsidizing of offshore companies and their participation in public procurement impossible. At the same, Ministry of Finance decided to introduce fines for hiding foreign bank accounts.

The clouds are piling up over offshore companies and their Russian owners. In line with the trend, the hard version of CFC legislation (without corrections proposed by entrepreneurs) was sent to State Duma on October 23rd; the softening amendments offered by Ministry of Finance were rejected by the deputies in November.

Finally, the new legislation on CFCs passed on November 18th.


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