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Russia To Boost Tax Revenues By Closing Down Offshore Tax Zones

by Tatiana Smolenska, Tax-News.com, Moscow

26 November 2003

The Russian draft budget for 2004 contains a proposal that will abolish tax breaks given in Russia’s offshore zones and will consequently boost revenues to regional governments by some 60 billion rubles according to the Deputy Prime Minister and Finance Minster Alexei Kudrin.

The Minister did not provide any specific details but presumably the changes will affect the offshore zones located in some of the country’s semi-autonomous republics on the fringes of the Russian Federation such as Dagestan, Altai and Kalmykia, which have been used by companies such as Yukos as part of a tax minimisation strategy.

In Kommersant newspaper, Finance Minister Alexei Kudrin was quoted as saying that he saw oil companies' use of tax loopholes as "amoral but not illegal," signalling that Yukos's past tax strategies would not be called into question.

Kudrin's remarks backed up a report issued last week by State Audit Chamber official Vladimir Panskov, who had conducted checks of Yukos affiliate Sibneft. Panskov said Sibneft's tax minimization tactics were "ethically not very pretty, but legal."

Panskov had checked Sibneft's use of 3rd party traders in the low-tax zones within Russia to minimise tax.

The State Duma approved the draft budget in its third reading last Friday, but it may face a fourth and final reading on November 28. To become law, the budget then must be approved by the upper house (the Federation Council) before receiving President Putin’s signature.

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