Russian investors leave tax heaven

Published by the Bank of Russia statistics Foreign direct investment (FDI) from the Russian Federation abroad gives an idea of ​​the reasons for the decline in the indicator for 2020 by 76%, to $ 5.3 billion. Obviously, the main one is the economic consequences of COVID-19 and the growth of geopolitical tensions. But, as shown by the Central Bank’s data, in the country context, the dynamics of investments was heterogeneous, and a noticeable part of the decline may be explained by the prospects for changes in tax agreements with transit jurisdictions.

In 2020, the net outflow of direct investments of investors from the Russian Federation from Cyprus amounted to $ 1.5 billion (thanks to debt instruments, reinvestment of income and investment in capital remained positive) against an inflow of $ 14.3 billion in 2019. $ 6.5 billion was withdrawn from the Netherlands (due to debts and reinvestment, investments in capital added more than $ 1 billion) against an outflow of $ 0.2 billion in 2019. The change in the double taxation treaty (DTT) with Cyprus from 2021 and the prospect of breaking it with the Netherlands from 2022 probably triggered an increase in investments in Switzerland, Jersey and Ireland compared to 2019. At the same time, FDI from Russia to Singapore and Hong Kong decreased (see chart). Alexander Tokarev from KPMG expects Switzerland, Hong Kong and Singapore to receive proposals from the Russian authorities to revise the DTT on the Cypriot model. Switzerland is not so popular for registering holding companies, but it is very much in demand for registering trading companies. The growth of investments in Germany is also noteworthy, but it is most likely due to the construction of the Nord Stream-2 pipeline.

On the whole, it follows from the Central Bank’s data that the importance of countries (primarily offshore ones), which traditionally accounted for the bulk of Russian FDI abroad, is significantly decreasing – faster than all outgoing direct investments are falling. Thus, the share of FDI in eight countries (Cyprus, Switzerland, the Netherlands, Germany, Jersey, Great Britain, Ireland and Singapore) in all FDI from the Russian Federation decreased from 63% in 2014, 73% in 2018 and 90% in 2019. year to 45% in 2020, and the total volume of investments in these countries fell by 88% compared to 2019.

Alexey Shapovalov