Half of the Russian capital is moved out to tax havens | KPMG | RU

KPMG research: half of the Russian capital is moved out to tax havens

Half of the Russian capital is moved out to tax havens

KPMG experts concluded that at the current stage of the tax system development it is appropriate to focus on foreign trade transactions as the capital outflow leads to losses that are at least comparable to the internal tax losses.

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According to the preliminary CBR estimate, as of the end of 2014 capital outflow from Russia amounted to 152 billion USD, which is a 2.5 time increase as compared to 2013 resulting from the sanctions introduced and plummeting oil prices. What is more, half of funds moves from Russia to countries with a preferential tax regime.

One of the basic ways of sending money abroad is to reduce profits gained by Russian companies. One of the ways to accumulate cash abroad is to decrease prices of goods and services exported to preferential taxation countries or to increase import prices. For example, in 2013 Russia obtained nuclear reactors and other equipment from the Netherlands amounting to 1 billion USD, while the actually shipped goods were worth 170 million USD. It could have resulted in reducing the tax base of companies by 904 million USD.

Other findings of the research are briefly given below:

  • There's a common global trend for reducing the rates of the corporate income tax from 32.6% to 25.3% and personal income tax from 46.5% to 43.3%, while concurrently increasing the rates of consumption taxes (VAT) from 18% to 19.1% (on the average for OECD).
  • The overall trend for changing the global structure of taxes and their reduction led to their common increase relative to the GDP by 8.7 p.p. on the average for OECD for the most recent 46 years, reaching 34.1% in 2011.
  • Income gained by Russian businesses is contributed to the capital of companies in preferential tax treatment countries and is returned to Russia in the form of loans. Repayment of interest on loans also reduces the companies' profits.
  • Countries with a preferential tax regime account for 75% of investments into Russia, which is an evidence of actual re-investments of the Russian capital.
  • Although domestic transactions account for 80% of the M&A market, half of them is structured so as to involve foreign companies.
  • 50% of dividends of the Russian businesses are paid to foreign companies primarily registered in tax havens. Dividends paid by Russian companies in 2013 totaled 41 billion rubles.
  • In 2013, half of the external debt of Russian companies (44 billion USD) originated from beneficial tax regime countries.
  • 40% of all external private sector borrowings (approx. 212 billion USD) are attributed to companies that were hit by sanctions and, therefore, compelled to look for alternative borrowings.

The full report is available here (only the Russian version).

About KPMG in Russia and CIS

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries with more than 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG has been operating in Russia more than twenty years. For the last years KPMG in Russia and the CIS has been one of the fastest growing practices in KPMG worldwide.

In the CIS, KPMG now has offices in Moscow, St. Petersburg, Yekaterinburg, Kazan, Nizhny Novgorod, Novosibirsk, Rostov-on-Don, Krasnoyarsk, Perm, Almaty, Astana, Atyrau, Bishkek, Kiev, Lviv, Yerevan, Tbilisi and Baku, employing together over 4,000 people.

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