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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, Aug. 22


Get ready to pledge allegiance to the flag during National Flag Day, paying tribute to when, 23 years ago today, the iconic hammer-and-sickle was replaced with the tricolor that now flutters in the wind. Petersburgers will be treated to a free concert on Palace Square, a military parade and a culminating air show featuring Russias Russian Knights stunt pilots.



Saturday, Aug. 23


Uppsala Park plays host to Fairy Noon today, a performance of five separate fairy tales ranging from folk classics to more haunting selections. There will be three different renditions of the tales throughout the day and tickets start at 500 rubles ($13.80) for adults and 300 rubles ($8.30) for children.


Classic Finnish cartoon characters the Moomins expect to receive a warm welcome from Russian fans during todays Moomin Festival at the Pearl Plaza Shopping Center at 51 Petergofskoye Shosse. Become a kid again or introduce a new generation to the beloved creation of Finnish writer Tove Jansson.



Sunday, Aug. 24


The tortured genius of Dutch master Vincent van Gogh gets his day in the centers Konnushnaya Ploschad during Make Art Like Van Gogh, a daylong celebration of the artist that will allow amateur artists to try and replicate the work that made the famed painter world-renowned.


Experience a variety of dances highlighting the diversity of the world around as at the final day of the Ethno-Dance International Dance Festival that has been at the St. Petersburg Humanitarian University of Trade Unions this past week. Tonights performance will feature Egyptian dancers accompanied by local orchestras.



Monday, Aug. 25


Today kicks off the Elena Obraztsovoy International Competition for Young Vocalists in the large hall of the Shostakovich Philharmonic. Talented youngsters will showcase their range over the next six days before a winner is chosen on Aug. 30.



Tuesday, Aug. 26


Love movies but hate all those words? Then check out Rodina Cinema Centers Factor of Consensus film forum this evening. Silent movie classics from the beginning of the 20th century will be screened and accompanied by a pianist, who will provide the soundtrack for the ongoing action. The screenings begin at 7 p.m. Check Rodinas website for more details.



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