The largest companies are interested in moving to Russian offshores

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A number of the largest Russian companies – Gazprom, Gazprom Neft, Rosneft, Alrosa, Sibur, Severstal, Sberbank, VTB – are interested in Russian offshores. Their proposals, as well as the initiatives of the Russian Union of Industrialists and Entrepreneurs (RUIE) to adjust the regime of special administrative regions (SAR), were sent to the government. An appendix with the terms of business is attached to the amendments to the SAR law published in April (Vedomosti has read the document).

Business representatives suggested, for example, expanding the possibilities for exemption from the Russian income tax on income from foreign mining companies operating in the format of a production sharing agreement (PSA), reducing the requirements for the minimum volume of investments, the number of staff and office space in the offshore territory, spreading the rate tax of 10% not only on income received from a holding company registered in the SAR, but also on dividends, to reduce the threshold for participation of the parent organization in the capital of its foreign subsidiary, at which its transfer to the SAR is allowed, from 100 to 50%; to deduct from taxes when re-registering a structure in the SAR, the amount paid for “leaving” a foreign jurisdiction (the so-called exit tax), etc.

SAR – territories with preferential tax treatment for investors, created in 2018 to repatriate capital and protect businesses from sanctions. There are two such regions in Russia – on Oktyabrsky Island in the Kaliningrad Region and on Russky Island in Primorsky Territory. In early 2021, the Ministry of Finance planned to adjust the regime – it offered additional benefits in exchange for investments. The ministry included in the bill a discount for businesses on taxes on capital withdrawal – from 15 to 10%, a decrease in income tax to 5%, exemption from income tax on exchange rate differences, zeroing of the tax on income of mining companies generated in the format of joint ventures or concessions agreements.

In exchange for benefits, the companies will have to invest at least 300 million rubles in the infrastructure of the islands (social, transport, energy, etc.). for two years, as well as rent or buy an office with an area of ​​100 sq. m and hire a staff of at least 15 people.

Companies that have proposed their measures are indeed considering transferring any of their structures to the SAR. This “Vedomosti” said three sources familiar with the discussion in these organizations. But the list is far from exhaustive: many more organizations are in a high stage of readiness to relocate, but do not advertise their plans until the official decision at the board of directors, said the source of Vedomosti. It is undesirable for them to announce their intentions prematurely. Any comments can be interpreted by the authorities as the final verdict, and businessmen are not eager to justify themselves in the event of a revision of plans, the source of Vedomosti explained.

Another interlocutor close to the government clarified that the cabinet of ministers is counting on the massive transfer of foreign structures of the largest Russian organizations to the SAR: an informal recommendation to the relevant ministries – primarily the Ministry of Finance and the Ministry of Economics – to accelerate the inflow of companies into Russian offshores came from the “top management”, he knows interlocutor of “Vedomosti”. However, the process will begin no earlier than next year, since the final understanding of how the regime will change will appear only after the adoption of all amendments to the law in the autumn session.

A Sberbank spokesman declined to comment. Gazprom, Gazprom Neft, Rosneft, Alrosa, Sibur and VTB did not respond to Vedomosti’s request.

The Ministry of Economic Development plans to offer additional preferences to the residents of the SAR, the representative of the department conveyed the words of Deputy Minister Ilya Torosov. In particular, to weaken the requirements for the “age” of the business – to allow re-domiciliation (re-domiciliation – the return of the head structure of the company to its native jurisdiction for its main business – Vedomosti) to companies created before 2020 (now only organizations with a registration date have this right earlier 2018). In addition, according to Torosov, in order to increase the attractiveness of the SAR, the Ministry of Ecology considers it necessary to give foreign citizens the opportunity to transfer personal funds to Russia. According to the Ministry of Economic Development and Trade, 47 companies are now registered in the SAR, nine of them “stopped by” in the first half of the year.

The Ministry of Finance, as well as the government apparatus, did not respond to questions.

Great interest

The companies’ proposals are now being discussed with the relevant ministries – we hope that most of them will be supported, said the president of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin. The changes will increase the demand for ATS, including for redomiciliation. Taking into account business proposals will be an important step to increase the attractiveness of the Russian jurisdiction and re-register the holding structures of Russian companies in it, Shokhin summed up.

The interest of the super-large business in the CAP is great, noted Galina Naumenko, partner of PwC’s tax and legal practice. Large companies are also carefully analyzing the situation, but so far the CAP is not set up to be “massive”, she added. According to her estimates, about 30-50 companies will “visit” the islands over the course of a year. The most likely candidates for registration in Russian offshores are foreign projects of Russian oil and gas holdings, Naumenko believes. These are typically Dutch structures with PSAs in third countries, the expert explained. They will receive a release of foreign income associated with such projects, which, of course, will attract a number of these structures to Russia, Naumenko summed up.

A number of Russian oil and gas companies have indeed already announced plans to re-register some of their subsidiary structures in the SAR. In particular, after the decision to denounce the agreement between Russia and the Netherlands on the avoidance of double taxation on the transfer of holdings from the Netherlands to Russian jurisdiction, Gazprom pondered, said Deputy Chairman of the Board of the company Famil Sadigov on June 16. And in July, Rosneft re-registered the Cypriot Colmati Trading Limited to the territory in the SAR on Russky Island, Interfax reported, citing changes in the list of the oil company’s affiliates.

An increased interest in the CAP is now observed among both medium and large and super-large Russian businesses, agreed Ivan Nasonov, Senior Manager of the International Tax Services Group at KPMG in Russia and the CIS. According to KPMG’s observations, since the introduction of the ATS regime, most Russian groups have not made a decision to re-domicile their foreign companies, primarily due to the lack of extensive practice of using ATS. Now, when it began to appear, as well as taking into account the expected new tax benefits and the revision of the agreement on the avoidance of double taxation, the number of new residents may increase significantly, Nasonov believes.

Historically, the regime was formed for holding companies – they were provided with preferential conditions for taxation of dividends and income from the sale of shares (stakes), believes EY partner Marina Belyakova. Taking into account the expected amendments, for example, exemption from tax on income from exchange rate differences, lowering the rate on interest and other passive income to 5%, the regime may become interesting for financial companies, the expert noted. However, the massive transition to Russian jurisdiction in the first few years, most likely, will not happen, Belyakova believes. Besides the fact that the regime is relatively new, the expected requirements for investment and recruitment of personnel can only be met by big business, the expert added. Finally, many are embarrassed that it will be possible to leave the Russian jurisdiction only by the decision of the government, the expert summed up.

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