Half of the offshore is not yet offshore // Business asks to be more careful to move related companies away from government orders

Business complains about the excessive tightening of the rules for the participation of companies in public procurement due to the Finance Ministry’s plans to deoffshorize government orders. We are talking about closing the state order for offshore subsidiaries with a share of offshore companies of more than 10% – Delovaya Rossiya proposes to increase the threshold to 50%, indicating the risks for bona fide companies that have entered the stock exchange. Lawyers consider it expedient to introduce soft requirements and gradually tighten them depending on the results. However, the Ministry of Finance has already softened the requirements in comparison with the original initiative – it demanded that companies associated with offshore companies should not be admitted to government orders at all.

“Kommersant” got acquainted with the letter of the head of “Business Russia” Alexei Repik to the head of the State Duma Committee on Economic Policy Sergei Zhigarev about the risks of deoffshorization of the public procurement sector. We are talking about the amendments of the Ministry of Finance to the law on the contract system (FZ-44), designed to restrict the participation in the state order of companies that have offshore companies and their beneficiaries as participants or founders – if the offshore company owns more than 10% of voting shares or 10% in the authorized capital …

In the opinion of the author of the letter, for a significant number of Russian companies the requirement will be unenforceable. “This will pose a risk to the entrepreneurial activity of domestic public joint stock companies, whose shares are freely traded on both Russian and Western stock exchanges. The process of transferring rights to shares of such companies is not controlled by the company itself, ”writes Mr. Repik. He proposes to soften the project: to restrict admission to public procurement only for companies with offshore shares over 50% of shares or authorized capital. In addition, the author considers such restrictions for strategic companies unacceptable and proposes to exclude them from the scope of the projected requirement.

Note that in February of this year, the Ministry of Finance prepared a tougher project to de-offshorize government purchases – with a complete ban on the participation of offshore subsidiaries registered in the Russian Federation. At the same time, lawyers then noted the simplicity of circumventing the ban: the requirements do not apply, for example, to the “granddaughters” of offshore companies, and the rules on beneficiaries face the difficulties of proving uncorporated ties (see Kommersant of February 20). At the same time, the president demands deoffshorization of the Russian economy. In 2015, on the initiative of the Ministry of Economy, which was then in charge of public procurement, a ban was already introduced on transactions of state customers with offshore companies. At the same time, the number of corruption scandals due to the withdrawal of state funds abroad is not decreasing. Considering that the work on the initial draft of the Ministry of Finance was probably suspended (after it was published on regulation.gov.ru, it never reached the State Duma), and its rules on deoffshorization were included in the optimization package in an already relaxed form, count on further weakening, probably not worth it.

However, corporate lawyers generally support the proposals for easing the norms. Alexander Erasov, an advisor to Bryan Cave Leighton Paisner, considers it a good idea to narrow the range of companies subject to restrictions (not to impose restrictions on companies with offshore shares of less than 50%). “Such a significant change in the rules of the game can negatively affect both business and the effectiveness of public procurement themselves, reducing competition in this area,” he explains. Rustam Vakhitov, partner in international taxation at Crowe Expertise, explains that the strict initial wording of the amendments (with a complete ban for subsidiaries) would allow for abuse in the form of artificial withdrawal of competitors from procurement participants through the purchase of several shares (in the case of public companies) to an offshore company … “Surely the goal of the legislator was, after all, to prevent participants from trading who were somehow controlled through offshores. It is reasonable to define some threshold for participation. What it should be is an open question, ”he adds. For example, a 25% share of participation is often used to determine significant control (registers of beneficiaries in the EU), the threshold of 10% is common in the banking sector, when notifying of participation in a foreign company for CFC purposes, etc. “It is reasonable to move progressively, gradually lowering the threshold of admissible participation of offshore companies and affiliated companies, while monitoring the achievement of regulatory goals, ”Rustam Vakhitov points out.

Diana Galieva, Tatiana Grishina

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