Information transparency against off-shores: experts’ opinions

Moscow, June 14 – PRIME. Bilateral agreements are a necessary but insufficient measure for countering the flight of the capital to the low-tax jurisdictions. Still, experts say, this is a timely and useful step in the light of the importance of “de-offshorization” of the Russian economy.

Vladimir Putin, President of the Russian Federation, interviewed by RIA Novosti, declared that Russia suggests executing such agreements with off-shore and low-tax jurisdictions as a measure of “de-offshorization” of the economy.

SEE HERE: Vladimir Putin’s interview for RIA Novosti >>

The issues of exchange of tax information between Russia and other states are currently being resolved at the bilateral level.

The exchange of information between the tax authorities and anti-off-shore activities may become key subjects of the discussion of the G20 summit in Saint Petersburg in September of 2013. The OECD will present at the summit its suggestions regarding the organization of the automatic exchange of information between tax services of various countries. The taxes will become an item of the agenda of the G20 summit for the first time.

THE ENTIRE WORLD AGAINST OFF-SHORES

The President said in the interview: “The fight on tax evasion through off-shores is a very complicated and labor consuming task. Not only national but also international regulation instruments are important for this. As an anti-off-shore measure, Russia suggests executing bilateral agreements with the off-shores and low-tax jurisdictions”.

Most experts share the view that the anti-off-shore measure will be efficient and timely.

Evgeny Zhilin, Associated Partner of the Law Firm "YUST", says: “I think that the measure by itself will be efficient, since the anti-off-shore tendency is evident if the whole world – information is disclosed in all jurisdictions, where the capital flees from taxes”.

However, he reminded that money like silence, and the off-shore business is based on the closing of the information from the access of the majority of other jurisdictions. The main juridical and political complications will be related to this, and it will consume much time.

Fedor Lukianov, Chairman of the Council on the external and defense policy, believes: “The Western countries are in no hurry. They are mostly content with the way it is”.

But the expert says that the very fact of that the President of Russia mentioned this means that Russia intends to take the initiative.

F.Lukianov said: “The words of the Russian President are aimed at making the process somehow accessible for all participants. It sometimes so happens that leading Western countries take certain decisions concerning the fight on off-shores without taking into account any interests of the third countries, which may be affected. The Cyprus story was very indicative. And Russia suggests an attempt to expand the number of those participants, who formulate the rules”.

THE FLY

However, the experts are convinced that the exchange of information is not sufficient without solving of Russia’s internal problems, including the required deep institutional reforms in the Russian legal system and in the area of property guarantees.

Sergey Aleksashenko, Director of macroeconomic research of the HSE, said: “By all means, agreements need to be made, but the problem is not solved by the agreements alone. The correct diagnosis is required: aspirin is not effective against appendicitis, even though it is a very good medicine”.

The economist believes that Russian businessmen take their funds out of Russian not only due to smaller taxes but also, inter alia, in order to protect their property rights from law enforcement structures. He states: “If there is no protection, money will always find somewhere to escape to, npo matter if it is an off-shore or some other tax jurisdiction like France or the Netherlands”.

Reduction of the tax burden as a motive to leave for off-shores is important for real estate and financial services companies and the exporters. Andrey Manko, Head of Department of analysis of financial institutions of RIA Rating, is convinced: “The other business, including the state-owned companies, goes to the off-shore countries because of the more favorable legal system”.

The expert adds that this is the reason why the new bilateral agreements, in addition to the existing ones, will not actually change anything.

THE PROCESS WILL GO ON FOR LONG

In his interview for RIA Novosti, the President stressed that the fight for the recovery of the funds from the off-shores will be hard and labour-consuming. And the experts believe that it is recommendable that the mechanism of disclosure of such information be extended to separate companies as well as to entire groups of potential offenders.

E.Zhilin believes: “On the other hand, this is quite difficult to formalize juridically, as the information, which is supposed to be exchanged, is very delicate. It is connected with a number of internal national limitations, like attorney-client privilege or bank secret”.

The lawyers think that drastic changes to the legislation of the off-shores will be required to correctly ratify such agreements.

The analyst Manko suggests a way out: “If there is an objective to quickly “beat” the off-shores, it is better to denounce the bilateral double taxation treaties with the off-shore countries rather than execute new agreements. Thus the financial motive for leaving the Russian jurisdiction will be eliminated”.

And the experts are unanimous that the situation cannot be left as it is and one should not be idle. E.Zhilin concluded: “The process is slow, but inevitable, because if funds evade taxes, one should attempt to bring it back to our country in this complicated period, or at least demand that all applicable taxes be paid”.

See here the source of the publication.