Owning an off-shore company is no crime

Looking for new income sources for the budget, the Government started patching up the legislation and reviewing tax agreements with other countries. Advocate Alexey Popov, Partner at the Law Firm "YUST", spoke on the problems created for good faith business by the war on tax evadors, on the reasons why honest Russian companies flee to foreign jurisdictions, and who are the true fighters against shady business in Russia. Mila Kuzmich, correspondent of the PRIME Agency of economic information, interviewed A.Popov.

Question: Prime Minister Vladimir Putin, speaking on the reserves for tax maneuver, mentioned dealing with the cases of tax evasion through “one-day” firms and off-shores, thus bracketing these terms. The fight against “one-day” firms has been going on for a long time; can one say that a campaign against off-shores is beginning?

Answer: It is obvious that Mr.Putin mentioned the off-shores precisely within the context of combating tax machinations conducted through the off-shores. One should understand that owning an off-shore company and conducting business through it is not in itself a crime. Now it is another thing, when an off-shore company is artificially inset in the structure of economic operations exclusively for the purpose of accumulating a lion’s share of profits and of applying a zero or decreased tax rate provided for by an international agreement. For example, a Russian immovable property sale by sale of shares of the off-shore company, in whose name the property is registered, gives rise to fully reasonable questions of the Russian tax authorities. My conclusion would be that the Prime Minister has nothing against the cases of interaction with off-shore companies or the organization of business through an off-shore company, which do not lead to illegal tax evasion: he only means that it is uacceptable to illegally use the off-shores for the purpose of deceiving the Russian budget.

Question: What else does Russian business need off-shores for, besides tax planning?

Answer: First of all, most off-shore jurisdictions strive to maintain a high degree of confidentiality of the information on real owners of the business. Second, large Russian companies acting though “respectable” European off-shores, gain access to cheaper credit resources. Besides, creating and running an off-shore company implies lower administrative costs, easier assignment of security rights, possibility to execute shareholders’ agreements, as well as application of foreign law and dispute settlement in foreign courts. Plenty of reasons.

Question: Does that mean that the reasons for resorting to off-shores are mainly due to the imperfections of the national corporate legislation?

Answer: This is only one of the reasons, albeit an important one. The main reason for Russian capitals “fleeing” the Russian jurisdiction if the exceptionally high corruption level. The consequence of this is that the entrepreneurs are afraid of losing their business in Russia, for example, to a raider attack, and that resorting to a Russian court does not always help to protect the business.

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