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Putin Signs Law in 11th Hour to Satisfy U.S. Treasury

Published: July 1, 2014 (Issue # 1817)



  • United States Department of the Treasury headquarters in Washington D.C.
    Photo: Facebook.com / U.S. Treasury

With just one day left before the Russian financial system was to fall foul of the U.S. Treasury, President Vladimir Putin has signed a law allowing Russian banks to send information about U.S. tax payers to their native government and appease a contentious piece of legislation known as FATCA.

This will come as a relief to Russia's largest banks, who will face the equivalent of a 30 percent tax on various key investments in the U.S. — including the interest and dividend payments on U.S. securities, stocks and bonds — if they fail to comply with the U.S. regulations.

The Foreign Account Tax Compliance Act, or FATCA — which goes into force on July 1 — was initially devised in 2010 as a way to keep U.S. corporations and individuals from avoiding U.S. taxes by funneling money into accounts abroad. The law requires foreign banks to inform the IRS of any accounts held by U.S. taxpayers, to provide information about these accounts on the treasury's request and even to withhold money from clients suspected of tax evasion.

For over a year, the U.S. has been busily negotiating information-sharing agreements with countries worldwide. Eighty-six have already reached official or preliminary arrangements with the U.S., including China, who joined the list just last week, and known tax havens such as the Cayman Islands.

Russia is not on the list. The two sides were deep in negotiations up until March, but the Treasury Department quietly abandoned the talks after Russia's annexation of Crimea and the international condemnation that followed. Russian financiers were left in the lurch and on course to collide with FATCA's rapidly approaching July 1 deadline.

"I have not heard of any other countries who were in a similar situation, who were both deeply integrated into the international financial system and did not have an opportunity to finish the negotiations," said Konstantin Kochetkov, international partner and FATCA expert at the Moscow office of international law firm Morgan Lewis.

Fearful of the penalties for violating FATCA, Russia's second largest banking group, VTB, even decided to "phase out" relations with its 2,000 U.S. clients last month. VTB president Mikhail Zadornov told Interfax on Monday that the bank no longer plans on cutting off its U.S. clients.

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ALL ABOUT TOWN

Sunday, Oct. 26


Zenit St. Petersburg returns home for the first time in nearly a month as they host Mordovia Saransk in a Russian Premier League game. Currently at the top of the league thanks to their undefeated start to the season, the northern club hopes to extend the gap between them and second-place CSKA Moscow and win the title for the first time in three years. Tickets are available at the stadium box office or on the club’s website.



Monday, Oct. 27


Today marks the end of the art exhibit “Neophobia” at the Erarta Museum. Artists Alexey Semichov and Andrei Kuzmin took a neo-modernist approach to represent the array of fears that are ever-present throughout our lives. Tickets are 200 rubles ($4.90).



Tuesday, Oct. 28


The Domina Prestige St. Petersburg hotel plays host to SPIBA’s Marketing and Communications Committee’s round table discussion on “Government Relations Practices in Russia” this morning. The discussion starts at 9:30 a.m. and participation must be confirmed by Oct. 24.



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