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FATCA: the weapon against financiers

Tuesday, 06 January 2015 11:36

Why American law created for punishment of tax deviators can become a new sanction for the Russian financial sector?

The American politicians weekly report about need of extension of sanctions concerning Russia. The law on the taxation of foreign accounts of Americans (FATCA) can become one of the most sophisticated ways of punishment for financial sector.

FATCA since July 1, 2014 will allow the American Service of the internal income (IRS) to obtain data on clients from all countries of the world that pay taxes in the USA. The law was adopted in 2010, right after scandal over the Swiss bank UBS. The American officials accused him of assistance to USA citizens on evasion of taxes. As a result UBS made the settlement agreement with the American authorities and paid $780 million compensation. FATCA obliges to open data of natural persons on accounts with the remains more than $50 000 and over $1 million for the companies (including those, where taxpayers of the USA possess a share from 10%).

The president of the American chamber of commerce, the U.S. citizen Alexey Rodzyanko explains that Americans should pay extra tax if payments of the personal income tax in Russia is lower, than in the USA where the progressing scale is accepted.

FATCA can become the instrument of sanctions fight. "The USA suspended negotiations on the agreement on FATCA, according to our general approach to bilateral interaction with Russia" — explained the representative of the Ministry of Finance of the USA to the Forbes. As a result the Russian banks and finance companies (brokers, insurers and depositaries) won't be able to report through FTS and will be compelled to conclude agreements with IRS independently. The exception will be made only by the banks and the companies which became persons involved to the sanctions list.

If measures of influence of the USA had dot character and concerned only certain Russians and banks earlier, FATCA will mention all market and will become much worse than sanctions.

Brian Zimbler, the Associated Press partner of the Moscow law office firm Morgan Lewis, told about it last week.

Maxim Kandyba, the partner of PwC Legal CIS, explains that requirements of the law will be gradually introduced, and since July 1 the compulsory tax assesses the insignificant volume of operations from sources in the USA: interest and investment incomes, dividends, rent payments, and also payments for services. The tax on proceeds from sales of assets and the transit translations is planned to raise only since 2017.

Bank losses

Large banks can't ignore requirements of FATCA: in case of refusal from cooperation tax agents of IRS will forcibly write off 30% of payments in dollars on accounts of foreign banks. If the financial organization receives the status of the foreign participant of FATCA in IRS, the compulsory tax will affect payments only on the account of the concealer of taxes.

Auditors from the international companies consider rupture of the relations with contractors as a serious consequence for the Russian banks. According to one of them, "the largest financial institutions sound plans for refusal of operations with those who won't join FATCA".

Except closing of corresponding accounts abroad there are also other risks, the Compliance director of Promsvyazbank Svetlana Yermolaeva warns. In her opinion, absence of the necessary status in FATCA can lead to reduction of a pool of creditors and emergence of requirements for return of means of holders of the international loans. The matter is that the credit agreement usually obliges the parties to correspond to the applicable legislation to which FATCA will also belong since July 1, 2014.

According to the head of practice of investment consultation of FBK Roman Kenigsberg, means of the Russian credit organizations in nonresident banks where they hold more than 1 trillion rubles on corresponding accounts, and also placed the credits for the sum more than 3 trillion rubles became under blow.

"Application of the American law FATCA concerns 90% of the largest Russian banks from top-50 which de facto are backbone" — the chairman of the board of directors of Alf's Gradient group Pavel Gagarin says.

In 2012 non -profit partnership the National Payment Council (NPS) conducted survey of 36 largest banks and estimated an average loss for the credit organization for the first year of action of the law at 100 million rubles. Proceeding from it, top-50 banks can lose about $150 million. Losses consisted of 30% of taxes of the withheld payments, and internal costs of banks of compliance to the new legislation. It is the tenth share of percent in comparison with $100 billion with which the American sneaks want to fill up treasury by means of FATCA. 

The Sber Bank reported that has already spent some million dollars for systems of identification of clients and consultants. The head of VTB Andrey Kostin complained that accession to FATCA — labor-consuming and expensive activity.

Leaving from law consequences

The government will help banks: the authorities supported the bill on data transmission in IRS. The State Duma plans to accept it in spring session though the project last week was sent back for revision. Besides, banks will acquire the right to close and refuse opening of accounts to clients if it demands special control for observance of FATCA. Otherwise banks should choose between risk of application of penalties from the USA or responsibility for disclosure of bank secrecy in Russia.

The organizations interested in accession to FATCA were already registered in tax administration of the USA. "Otkrytie" bank has already passed registration to IRS- says Ekaterina Reznikova, the Risk director of the bank. Yunicreditbank, Raiffeisenbank and "Home Credit" acted in similar way, RBC reported.

Roman Malovitsky, the senior lawyer of lawyer bureau "Egorov, Puginsky, Afanasyev and Partners", too isn't inclined to dramatize a situation. "Problems with application of FATCA are known to banks for a long time — Malovitsky explains — and they had an opportunity to include the corresponding point in standard contracts — permission to disclosure of information on the client of IRS". He considers that for the majority of banks everything will be limited to additional procedures as the problem will be resolved at the level of Russian legislation.

FATCA will mention the companies which work with securities.

According to Dmitry Chystov, the head of group in the field of Compliance systems KPMG in Russia and the CIS , the problem will be actual for business which is started to the USA and the American stock market. If the company refuses to help Americans, its reputation will seriously suffer, Chystov claims.

According to Dmitry Klenov, the partner of UFG Wealth Management, any investments into securities will be under action of the law if business is carried out outside the USA and payment of the income will be carried out through the company which isn't cooperating with FATCA. The source in the Russian broker says that they serve the American clients through offshore jurisdictions, in particular the Seychelles, therefore FATCA in Russia won't affect them. The employee of investment fund says that after introduction of the law there will be an opportunity to invest through the companies which are incorporated in the states which refused signing of the agreement with the USA.


The countermeasure is provided in the Russian law on data transmission in IRS — "daughters" of foreign banks have to report annually till September 30 in FTS about accounts of the Russian tax residents. The bill was submitted for consideration of the State Duma by the member of the financial State Duma Committee Anatoly Aksakov, at the time of the publication of material it was inaccessible to comments.

According to the source in the Ministry of Finance, this bill has to start till July 1. "It is our answer to sanctions. Many Russians have not declared accounts about which it will be useful to find out. Foreign banks which want to continue to work in Russia, will provide such information" —a source in the Ministry of Finance assures. In case of non-execution of requirements the appropriate measures can be applied.

"It is important to record that refusal of providing information by foreign bank — this violation of the law, and there will be an opportunity to apply sanctions. The Central Bank for this purpose has great opportunities: formal and informal" — the member of the profile State Duma Committee, the deputy from "United Russia" Vladislav Reznik declared.

Into practice measures of influence could be put to daughters of foreign banks in Russia. The Central Bank has the right to limit their operations if the relevant foreign states limit activity of banks with the Russian investments.

"This provision of the bill was done for the organization of parallel exchange of information. Now it is considered as pressure tool, but, I hope, its use won't start. We can't be responsible for "mother" abroad" — the head of the Russian daughter of foreign bank perplexes.

Nevertheless he doesn't consider this bill as a real threat to the bank.

"The requirement to foreign banks has rather declarative character, and our regulator is not in power to check its performance" — one of developers of the bill says. According to the interlocutor of Forbes, this tool can help for control of execution of a ban on existence of Russian officials’ accounts in foreign banks. Not so long ago the president charged to develop such mechanism of the Central Bank.

Last week the financial State Duma Committee sent back the bill for revision. The decision wasn't unexpected, at the beginning of May the Presidential Administration asked the State Banks to explain once again: whether one more law is so necessary, after all they already have an opportunity to close accounts of nonresidents — the authorities don't want that the bill looked like capitulation before inevitability of FATCA.

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