Rotenberg's second law: a mechanism to support state oligarchs

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

On Friday, March 17, the State Duma, with the votes of United Russia, adopted an amendment to the Tax Code, which has already been dubbed in the press "The new Rotenberg law" (or, in other words, "Timchenko's law").

The essence of the amendment is that individuals who have come under international sanctions can voluntarily declare themselves non-residents of the Russian Federation and, thus, not pay taxes on income received abroad … The amendment was adopted practically without discussion in the Duma, just a few days after its initial introduction, so the society had no chance to understand this very controversial topic and express its attitude towards it.

According to the new amendment, individuals who are tax residents of other countries who are under the "restrictive measures" of other states (this is how sanctions are indicated in the language of legislation), regardless of whether they were on the territory of the Russian Federation or not, can renounce Russian tax residency … To do this, they need to submit an application to the Federal Tax Service, by attaching to it a document on tax residency in another jurisdiction.

Let me remind you that in Russia tax residents are defined as individuals who actually stay in the Russian Federation for at least six months (183 calendar days) for the next twelve months in a row, while in most other countries other criteria for tax residence are used (for example, place of residence families). Therefore, situations are possible when a person turns out to be a tax resident simultaneously in Russia and in some other country. In Russia, non-residents pay income tax only on income received in Russia - at a rate of 30% instead of the standard 13%; at the same time, Russian tax authorities should not be interested in their foreign incomes - neither in the sense of paying income tax, nor in the sense of filing reports. Residents must pay from both Russian and foreign income. However, in practice, double taxation does not occur due to the fact that Russia has international agreements on the avoidance of double taxation with all countries, except for some offshore jurisdictions.

Thus, the new amendment allows persons under sanctions to avoid declaring their foreign income and paying taxes on them to the Russian budget if they become tax residents in some offshore jurisdictions (and such residency can often simply be bought). In particular, persons under sanctions will be able to be exempted from the obligation to file reports on their controlled foreign companies (CFCs) - including companies registered in offshore jurisdictions.

The anti-Russian personal sanctions lists of the EU, the United States and other Western countries include mainly the military, politicians and civil servants - most of these people cannot have foreign citizenship or tax residency. So it is obvious that the new amendment was written in the interests of a very small number of specific people - namely, businessmen under the sanctions, such as, for example, Gennady Timchenko, Arkady Rotenberg, Igor Sechin. It is not very clear why the authorities needed to pass such an odious law, especially in the pre-election year. Apparently, this is being done to strengthen the loyalty of the business elite in the face of Western sanctions, which has acquired particular relevance right now, when it became clear that sanctions are serious and for a long time.

Such a bill could not fail to cause a flurry of criticism from the Russian society - one immediately recalls a similar "Rotenberg law", which was never adopted largely due to a sharply negative reaction from the public.

Let me remind you: bill 607554-6, referred to in the press as "Rotenberg's law", was introduced by the deputy from United Russia V. A. Ponevezhsky in September 2014 and assumed the payment of compensations from the federal budget to Russian citizens and organizations whose foreign property was subject to arrest or other penalties by decisions of foreign courts. In the media, the bill was associated with the name of Arkady Rotenberg, since his real estate and bank accounts were arrested in Italy (however, the businessman later said that even if the law was passed, he was not going to apply for compensation). In October 2014, the bill was adopted in the first reading, but the negative public reaction to it was so strong that the authorities did not dare to put it up for a second reading. The bill lay in the Duma for more than two years, waiting for the right moment, and only now - on March 16, 2017 (that is, almost simultaneously with the adoption of the new amendment on tax residency), the responsible committee (the Committee on Constitutional Legislation and State Construction) recommended rejecting the bill.

Thus, the "second Rotenberg's law" is essentially a replacement for the first "Rotenberg's law": the authorities tried to replace one law on preferences for a certain circle of persons with another - similar, but not yet so sensational. Moreover, lessons were learned from the failure to pass the Rotenberg law: this time the authorities tried to get the bill through the State Duma so swiftly that no one could understand anything. To do this, they had to act in a not quite standard way.

The standard procedure for considering a bill in the State Duma is as follows. The new bill is submitted to the Duma along with an explanatory note explaining its meaning and benefits; also (if the bill has financial implications) the set of documents includes a financial and economic justification for the bill, i.e. calculations of what impact the future law will have on the revenues and expenditures of the state budget. All this is discussed at the meetings of the relevant committee, taking into account the opinions of various ministries and departments, as well as public organizations related to the subject of the bill. And only after all these discussions, the bill is submitted to the plenary session of the Duma and can be adopted in the first reading. Adoption in the first reading means that the concept of the bill has been fixed and now only details that do not change its essence can be changed in it. This is done through amendments, which are usually given one month. Further, all the amendments made are considered by the profile committee and then by the plenary session of the Duma. The adopted amendments are introduced into the bill, and in this form it is adopted in the second (main) reading.

However, in this case, the authorities chose a different path. Instead of submitting an appropriate bill to the Duma, the chairman of the State Duma Committee on Budget and Taxes, Deputy Makarov, introduced it as an amendment to another bill, to which the proposed measure has practically nothing to do - except that both here and there we are talking about making changes to the Tax Code. Namely, an amendment on the tax residency of persons under sanctions was introduced into bill No. 46023-7 "On Amendments to Chapter 23 of the Tax Code of the Russian Federation (in terms of determining the tax base in relation to income in the form of interest on circulating bonds of Russian organizations) ", Which was then adopted by the Duma in the second reading. This move made it possible not only to reduce the time period for adopting odious changes under the guise of an amendment to several days, but also to dispense with the presentation of an explanatory note and a financial and economic justification of the proposed measure.

It should be noted that this is not the first case of the application of such a practice of "accelerated" consideration of controversial bills in the Russian State Duma, but this has not yet become the rule. However, the trend towards minimizing public debate when adopting laws is already quite tangible. The role of parliament in Russia is increasingly reduced to the automatic approval of decisions taken by the authorities, i.e. the division of the executive and legislative powers is increasingly blurred: the executive has already completely subjugated the legislative power. Therefore, in the future, we can expect the adoption of even more odious laws, since public opinion practically does not affect the course of consideration of bills by the State Duma.