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Meeting with President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin

February 14, 2014, The Kremlin, Moscow

Vladimir Putin met with President of the Russian Union of Industrialists and Entrepreneurs [RSPP] Alexander Shokhin.

Cooperation between the state authorities and the business community on improving legislation and regulation and the RSPP’s involvement in drafting proposals on implementing the President’s Address to the Federal Assembly were the subjects of discussion.

* * *

President of Russia Vladimir Putin: Mr Shokhin, we are meeting as agreed. I know that you have some thoughts, ideas and proposals on the relations between the state authorities and the business community with regard to work on improving the laws and regulations.

Please, go ahead.

President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin: We are concentrating now on drafting proposals for implementing the Presidential Address to the Federal Assembly. It contained many concrete signals aimed directly at the business community. You even specifically named some business associations, including the Russian Union of Industrialists and Entrepreneurs as the partner in the dialogue that should produce the needed proposals. 

In particular, we are currently working on a proposal for de-offshorisation of the Russian economy. This was one of the key components of the economic part of your Address. We think it would be good to carry out the approach that you formulated in the words: “register where you wish, but keep your money in Russia.”

To be more specific, the idea is probably not so much to try to stop people from registering in offshore jurisdictions, but to have them pay their taxes here in Russia if this is where their companies are actually doing business.

We have analysed other countries’ experience. In some cases, offshore jurisdictions are not being used for tax avoidance purposes or for tax evasion, but for other reasons, for example, if foreign partners or investors want to use Common Law to protect their rights. We should therefore focus specifically on the tax aspect of the issue, and in this area there are mechanisms we can use.

In Britain, for example, companies in these cases register their tax plans and schemes with the tax authorities. We are already building up similar experience since the enactment of the Transfer Pricing Law. Taxpayers and companies can conclude the relevant agreements with the Federal Tax Service. If we use this kind of system, these companies could probably claim state support, bid for public procurement contracts and take part in state programmes and so on.

Of course, we need to work out all the mechanisms and details. We will work together with the Finance Ministry, the Government in general and the Economic Development Ministry. I think that by May, if not earlier, we will have proposals ready to be not just ideas but become law. 

”The whole world has begun working on de-offshorisation now. We are talking about it in regard to our own economy, but it is an issue that all developed countries without exception are now addressing. It is becoming a key issue.“

Another problem we are working on – not a problem in fact, but a constant area of activity for an employers’ union such as ours – is the business community’s participation in developing the system of professional education. We are working on several different areas here. First is to draft the professional standards that can then be used as a basis for state educational standards and educational programmes in the system of higher and secondary education.

In this respect, we ask you to speed up the establishment of a national qualifications development council. You proposed this council’s creation. We think that if it does go ahead, employers should play a key role in this national council and take full responsibility for drafting and promoting professional standards, including in the education system.

It is important in this area to develop what usually gets called the dual education system, when future skilled workers and specialists have the chance to gain paid work experience at leading companies or when part of the study process takes place directly at the production site. 

Of course it is important to set out in law the employers’ tasks and responsibility in this respect. We have drafted a new version — or rather, the deputies have done so, but working together with us – of the law on employers’ associations, and its provisions set out new demands on these associations, including as regards drafting professional standards and taking part in the social partnership system. We have made a stab too at making these employers entitled to some kind of preference, for example, counting expenses for membership and activity in employers’ associations as part of cost price, as is done in the case of a number of other provisions. 

Coming back to the tax question, Mr President, I cannot overlook the matter of the draft law that changes procedures, or rather reintroduces the old procedure, for opening criminal cases for tax crimes. We thank you for giving the instruction to look for compromise solutions with the business community. I think that in a number of areas we are very close to reaching a consensus with the law enforcement and investigate authorities and the financial authorities, in particular the tax service. 

The idea is to raise the threshold for tax crimes that qualify as serious and especially serious. At the moment the situation is such that big companies that break the tax laws are immediately qualified as especially serious criminals and the according criminal penalties are applied to them.

We calculate that if we raise the threshold at least two-fold, we could at the very least get more companies to actually make their tax payments instead of using criminal prosecution against them. This could also help to spread the system of active repentance. If a company pays the taxes it failed to pay earlier, admits its tax guilt and pays the fines, we should not need to open a criminal case.

Another matter is that taxpayers can take the tax authorities to court. This right should probably be maintained and have some influence on the final result. In many cases the taxpayers win. But so far, not only have we not reached a compromise but have not even found something closer to a common approach on the issue of how to integrate the tax authorities’ participation in one form or another before the investigative authorities open a criminal case. 

”If a company is registered in an offshore and claims some kind of state support, the state authorities have the right to know who the final beneficiary will be. This issue of the final beneficiary is extremely important.“

There are various options here and compromises are possible, but we need time to set them out as actual regulations. We therefore want to continue this work. Given that all of the parties concerned are doing the relevant work right now, I would like to see us have some more time so as to complete this work. 

Looking just at the Presidential Address to the Federal Assembly, we have a number of proposals concerning your ideas and the contents of the Address. In particular, we have proposals on improving the state’s regulatory and supervisory role and making it more efficient. We think that the idea of introducing a single register of inspections or a corresponding inspections portal is very promising in terms of making state and municipal inspection and oversight work more efficient.

We think the principle should be that if the inspection is not listed in the register and has been given no number, the inspectors should not launch it. Furthermore, the register could also contain all information on prosecutors’ authorisations of unscheduled inspections.

Under the law, there are a number of areas of activity where unscheduled inspections can be carried out only with prosecutors’ permission. It would be good to include this information too on the portal and in the register. The same also goes for the results of inspections and the measures taken. A universal inspection portal of this kind would certainly help to make the whole system more transparent and efficient, and perhaps it would be worth writing up part of these ideas as actual laws. 

There is every reason to have a framework law on inspections and state and municipal oversight activities in Russia. We are ready to work with the Presidential Executive Office and the relevant federal bodies on preparing this draft law.

There are a few other subjects I would also like to mention if I may, Mr President.

Vladimir Putin: Let me just say a couple of words in response to your proposals. Let’s start with the most sensitive issue. You said that the old procedure for opening criminal cases into tax violations has been reintroduced. 

But we are not planning to return to the old procedure.

Alexander Shokhin: Well yes, but they sometimes say that…

Vladimir Putin: They sometimes say it, but this is not the case. What is the problem here after all? The problem is that the tax authorities were essentially granted powers that they should not have. They did not open criminal cases against tax crimes, but they did give a legal assessment of whether or not such and such an action is liable to criminal penalties or not. This is not the proper function of the tax authorities.

Of course, you could say that the investigative bodies do not have enough specialists. This is an argument I hear often, but it is not a legal argument. The investigative bodies do need these specialists, but this does not mean that we should give these powers to another agency. We simply need to beef up personnel at the relevant investigative departments. That is my first point.

Second, on your proposal to raise the threshold [for serious and especially serious tax crimes], this is probably an idea that we certainly could discuss. I am not ready to speak about the details right now. We would first need to talk with the specialists, the tax authorities and the law enforcement agencies. But if you recall, I did propose that the tax authorities should in any case give their assessment, and that if the relevant investigative departments do open such cases, they would have to get the tax authorities’ opinion too.

”On the question of professional standards, I completely agree with the proposal to offer incentives of some kind to businesses that become actively involved in this work. I fully agree that it is the business community that should play the leading role in the future national professional qualifications council and in this area of work in general.“

It is the courts that give the final assessment of this or that action, and the courts are the only ones with the power to decide who is right: business, the taxpayer, or the tax authorities or the relevant investigative body. After all, figuratively speaking, there is an arbitrator, essentially the court itself. But of course the devil is in the details, as they say, and so of course there must be more work on the details, including possibly raising the threshold. I do agree with this.

On the subject of offshores and access for companies registered in offshores to public procurement tenders and public contracts, you know that the whole world has begun working on de-offshorisation now. We are talking about it in regard to our own economy, but it is an issue that all developed countries without exception are now addressing. It is becoming a key issue.

We discussed this very actively at the G20, and at the G8 in Britain. Countries that have not taken part in developing offshore zones themselves are especially active in raising this issue. Germany, for example, is addressing this issue very seriously, and this directly concerns us too. We can and do need to discuss all of the different issues, but whatever the case, if a company is registered in an offshore and claims some kind of state support, the state authorities have the right to know who the final beneficiary will be. This issue of the final beneficiary is extremely important. We need to know who owns the company, because it might be registered in Cyprus say, when in actual fact its real owners are sitting in some ‘grey’ or ‘black’ offshore, no one knows who they are, and they do not want to reveal themselves. This always gives rise to suspicions and questions. That is the first point. 

Second, as you know, there are all kinds of different schemes. A subsidiary company could make a loan to its parent company for example. If the loan is taxed not under Russian tax law but that of the offshore zone, under lower rates, then the dividends are also taxed under lower rates. We have double taxation avoidance treaties with many of these countries, Cyprus for example, and the company has seemingly paid all of its taxes under Russian law, but it has paid them there, not here. There are many such things that we must study very thoroughly.

You said that a Russian company’s partners might want to have deals governed by British law, but this does not necessarily mean they need to register the company in an offshore zone. The company could be registered in the Russian Federation and be a tax resident here. You could have contracts governed by British law and could shift arbitration proceedings to Stockholm say. Our Russian laws allow for this, and so there is no need to go to an offshore. In short, there are many questions here that first need thorough study. 

On the question of professional standards, I completely agree with you. I even agree with the proposal to offer incentives of some kind to businesses that become actively involved in this work. What’s more, I fully agree that it is the business community that should play the leading role in the future national professional qualifications council and in this area of work in general. 

Alexander Shokhin: Thank you.


February 14, 2014, The Kremlin, Moscow