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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

Wednesday, Oct. 22


English teachers can expect to receive a few useful pointers today from Evgeny Kalashnikov, the British Council regional teacher, during the EFL Seminar this afternoon hosted by the British Book Center. The topic of todays seminar is Grammar Practice.


Young Petersburgers will get the chance to jumpstart their careers at Professional Growth, a job fair and forum featuring more than 40 major Russian and international companies vying for potential candidates for future positions. The forum not only is a chance to network but also to learn more about the modern business world and to understand what it takes to get the job you want.



Thursday, Oct. 23


AmChams Public Relations Committee meeting is scheduled to meet this morning at 9 a.m. in their office in the New St. Isaac Office Center.


Sportsmen get their chance to stock up on all kinds of gear at the Hunting and Fishing 2014 exhibition starting today at Lenexpo. Everything from rods and reels to boats, motorcycles and equipment for underwater hunting will be on sale so that any avid outdoorsman can always be prepared.



Friday, Oct. 24


SPIBAs ongoing Breakfast with the Director series continues today, featuring Tomas Hajek, Managing Director of the Northwest Division at Danone Russia. Hajek will be discussing collaborations between businesses from different cultures. The meeting is at 9 a.m. at the Domina Prestige St. Petersburg hotel and all who wish to attend must confirm their participation by Oct. 23.


Get your gong on at Sounds of the Universe, a concert at the city planetarium this evening incorporating six different gongs to create relaxing songs that will transport you upwards into the stratosphere. Tickets are 700 rubles ($17).



Saturday, Oct. 25


AVA Expo, the eighth edition of the event revolving around all things pop culture, returns to Lenexpo this weekend. Geeks, nerds, dweebs and dorks will have their chance to talk science fiction and explore a variety of international pop culture. Tickets for the event can be purchased on their website at avaexpo.ru.



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 clubs 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 SPIBAs Marketing and Communications Committees 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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