Russian State Duma and Ministry of Economic Development to proceed with the President’s proposal to prohibit offshore companies to bid at state tenders
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Russian State Duma and Ministry of Economic Development to proceed with the President’s proposal to prohibit offshore companies to bid at state tenders

On 12 December 2013, Vladimir Putin delivered the annual Presidential Address to the Federal Assembly. Mr. President announced a set of initiatives to crack down on Russian companies who register and pay taxes in offshore jurisdictions. And now the proposal to prohibit Russian companies registered in offshore jurisdictions to bid at state tenders is being implemented at the legislative level.

Proposed draft amendment of the two Federal laws regulating state tenders «On contract system in the field of central and local government procurement of goods, works and services» and «On procurement of goods, works and services by certain types of legal entities» was submitted to the State Duma on 24 January 2014.

The draft bill states that now only companies registered in Russian Federation will be allowed to bid at state tenders. Though the amendment bans offshore companies to participate in such tenders directly, it means that it will be still possible to act via their Russian subsidiaries. 

It is as well to remember that Russian subsidiaries will be subjected to the recently passed Law requiring the disclosure of the ultimate beneficiaries of the income from securities issued by the Russian legal entities to a tax agent (under Russian law it is a person paying a passive income to foreign owners of securities). In the event of a failure to provide such information a tax agent is to apply a withholding tax at a penalty rate of 30 percent; also in this case a reduced tax rate set forth by the Code or an international treaty of the Russian Federation will be inapplicable.

Russia’s Ministry of Economic Development and Trade also prepared draft bill prohibiting making of state or municipal contracts with companies located in an offshore jurisdiction and submitted a notice about it on the Unified portal for draft regulations on 24 January 2014.

 

 

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