Offshore participants in government procurements ought to reveal their owners

YEREVAN, July 17. /ARKA/. Russia’s government has approved the package of legislative changes which make offshore companies’ access to the state’s money more complicated. 

They no longer will be provided by guarantees and they will be obliged to reveal beneficial owners in government procurement auctions. 

The demands turned out to be less tough than expected – the economic development ministry wanted to prohibit low-tax jurisdiction suppliers to bid for government budget contracts.  

The bill prohibiting offshore companies to take part in government procurements has been worked out by members of the State Duma, Russia’s parliament, soon after Russian President Vladimir Putin, in his address to the Federal Assembly in December 2013, pointed out the necessity of ridding the country’s economy of the offshore element.  

However, the bill was criticized by the president’s legal agency and experts, and the economic development ministry embarked on elaboration of own package, which was unveiled in early April for public discussion. The ministry proposed to leave any company from the finance ministry’s black books (41 countries) with no access to government contracts. 

But the government’s final stance turned to be softer than expected – it decided to permit offshore companies to take part in government and municipal procurements, but only if they reveal their beneficiaries, Interfax quoted First Deputy Prime Minister Igor Shuvalov as saying on July 14 in his message to the president. The first deputy prime minister’s administration refrained from comments, RBC reports.

If offshore companies, in an attempt to evade restrictions, establish a chain of subsidiaries, then it will lose the tax preferences specified in international agreements on avoiding double taxation, said Mikhail Orlov, KPMG partner.   

He finds the new requirements are more just than the total prohibition of participation in government procurements.  

“This is in tune with the government’s interests – to find out who is really engaged in economic activity in Russia’s territory,” Orlov said. “It means the government admits that the offshore usage is not a sin that needs to be washed away, but this is just a special characteristic of doing business.”

If an offshore supplier, contractor or performer provides false information, he said, the customer ought to cancel the contract. 

An addition, the finance ministry has developed a package of amendments to the Budget Code which leave offshore companies no access to budget loans and government’s guarantees. 

In the 2014 government budget, 691.5 billion rubles are earmarked for repayment of state guarantees on loans. 

The economy ministry approved the package without any remark, RBC reports..-0----