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Putin Signs Counterpart U.S. Tax Law

Published: July 2, 2014 (Issue # 1818)


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 has come as a relief to Russias 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 came into force on Tuesday 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 treasurys 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 Russias annexation of Crimea and the international condemnation that followed. Russian financiers were left in the lurch and on course to collide with FATCAs 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, Russias 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.

In its final form, the new law, signed by Putin on June 28 and published Monday on the governments legislation portal, will allow Russian banks to meet FATCAs requirements but only under the constant and empowered scrutiny of domestic authorities.

Within three days of registering with foreign tax authorities, Russian financial organizations including banks, life insurance agencies, stock market traders and more will have to inform state market watchdog Rosfinmonitoring, the Federal Tax Service and the Central Bank that they have done so.

The banks will have to declare any foreign clients subject to foreign account legislation, such as FATCA, to these agencies, as well as announcing any requests for information from a foreign tax authority. Any information sent abroad must first be sent to them 10 days in advance.

Rosfinmonitoring will also have the authority to unilaterally block information transfers abroad.

Banks will only be able to provide a taxpayers information if the foreign citizen consents to it, but if they refuse, the banks will have the option of severing its contract with that client. Companies are considered foreign if more than 10 percent of their charter capital is controlled by entities registered outside Russia and its Customs Union partners Belarus and Kazakhstan.

A total of 515 Russian banks had registered with the IRS by early June, according to the U.S. Treasury.





 


ALL ABOUT TOWN

Friday, Nov. 21


Learn more about Russian labor laws at Labor Law Seminar 2014 at the Courtyard by Marriott St. Petersburg Center West Pushkin Hotel this morning at 166 Kanala Griboyedova. Sponsored by Baker and McKenzie and the Pepeliaev Group, the event begins at 9 a.m. and will discuss amendments to existing laws, employment terms, risks of termination and other pressing matters.


Educate yourself about educational careers at Education and Career XXI November 2014, a two-day fair hosted at Lenexpo convention center on Vasilievsky Island that welcomes students and educators alike to develop relationships between scholarly institutions and learn more about the educational market in Russia and abroad.



Saturday, Nov. 22


Russian Premier League-leaders Zenit St. Petersburg return from the international break to take on Kuban Krasnodar at Petrovsky Stadium this evening at 7 p.m. Tickets for the game can still be purchased on the clubs website, at the Petrovsky Stadium box office or in any of the clubs merchandise stores.



Sunday, Nov. 23


Get in the holiday spirit at todays Winter Bazzar at the Astoria Hotel. Featuring gifts from around the world such as French eclairs, Dutch cheeses and Indian jewelry, the annual event organized by the International Womens Club will feature 18 international stands and raise money for charity through the sales of a diversity of products that further illustrate the citys international connections.



Monday, Nov. 24


Dr. Axel Schulte, Department Head at Fraunhofer Institute for Material Flow and Logistics in Dortmund, Germany, is the featured speaker at the SPIBA Industrial Committee lecture on The Fourth Industrial Revolution: Digitalization of the Supply Chain. The event begins at 4 p.m. at the Graduate School of Management at 3 Volkohvsky Pereulok and registration is required by Nov. 21 either by emailing office@spiba.ru or calling 325 9091.



Tuesday, Nov. 25


Tag along with AmCham during their Industrial St. Petersburg Tour program today. This incarnation of the ongoing series will visit Philip Morris Izhora and include an Environmental Health and Safety Committee meeting.


Find out how to expand your business east during the Business With China forum beginning today and concluding tomorrow at the Lenexpo convention center. The largest Russian forum dedicated to business with the Asian giant, topics that will be discussed include logistics, customs clearance, trade financing and many more.



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