Russia to Set Up Tax Havens to Circumvent US Sanctions

Russia to Set Up Tax Havens to Circumvent US Sanctions

Following the Trump administration’s sanctions on more than fifty Russian government officials and some of the country’s wealthiest individuals, the Russian government is considering establishing two tax havens where to provide services to the affected parties.

Earlier this week, according to Sputnik News, local newspaper Vedomosti reported that the Russian government is looking to create “two offshore financial centers (OFCs) with special legal systems in the Kaliningrad Region and the Primorsky Territory to support business circles targeted by US sanctions.”

More specifically, these OFCs would be located, as reported by Christopher Copper-Ind of International Investment, in “Oktyabrsky Island in the Kaliningrad Region and Russky Island in Primorsky Territory, close to Vladivostok.”

As explained by Sputnik News, the creation of these local Russian tax havens “will allow money withdrawn from Russia to be quickly returned via the OFCs,” and make it easy for the affected parties “to return their companies to Russia without putting any risk to the firms' legal and financial infrastructures or disclosing sensitive information.”

Additionally, firms who opt to set up their operations in these Russian tax havens will benefit from a series of tax breaks.

This initiative will be discussed and is expected to be approved by Russian Parliament during the legislature’s upcoming spring session occurring in May.

Reactions to US Sanctions on Russia

A Few Reactions to US Sanctions on Russia

Opposition figureheads have said that the Russian government was not prepared for the sanctions and are now scrambling to find a way out.

“Russia has no strategy on how to react to this situation, to these new economic circumstances,” said Evgeny Gontmakher, an economist with Russia’s opposition to Putin.

Some economists, though, think that the sanctions will ultimately benefit the Russian government as it has been pushing for Russian magnates to bring their assets home.

Oleg Kouzmin, chief economist at Renaissance Capital in Moscow, told the New York Times that, “as one of our clients said, when sanctions were introduced it was the wrong way to destroy Russia,” joking that “the West should roll out the red carpet for assets from the oligarchs, effectively stalling the Russian economy.”

The New York Times’s Neil MacFarquhar, however, writes that moving their funds back home “would be only a short-term fix…because Russia is not a big enough or attractive enough market for significant, sustained investment.”

For now, Russia’s Deputy Prime Minister Arkady V. Dvorkovich asked for calm during an economic presentation last week.

“The main thing now is to minimize uncertainty while securing the stable functioning of the companies, where hundreds of thousands of people work,” Dvorkovich said.

As reported by The New York Times, these sanctions were implemented to put pressure on Russia for interfering in the US presidential elections in 2016 and “prevents the oligarchs from traveling to the United States or doing business or even opening a bank account with any major company or bank in the West.”

These penalties “also [restrict] foreign individuals from facilitating transactions on their behalf.”

Russian businessmen Viktor Vekselberg, Oleg Deripaska, Alexey Miller, Suleyman Kerimov, Kirill Shamalov and Andrey Kostin were the most recent additions to the list of sanctioned individuals.

What are your thoughts on the Russian government’s plan to set up tax havens to circumvent US-imposed sanctions? Will this ultimately work?

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