Russia is looking closely at the possibility to remove Cyprus from its two tax “black lists”, Deputy Finance Minister Sergei Shatalov told journalists in Moscow.

He explained that the proposed move was connected to preferential tax treatment in Cyprus, as well as to the fact that it did not provide Russian government tax bodies with comprehensive information on Russian residents' operations there.

Shatalov noted that the Cypriot Finance Ministry took the proposed measure seriously and expressed readiness to provide information on Russian residents more fully and rapidly. The parties intend to hold two rounds of talks on the matter, the first one in September and the second in October-November, Shatalov said.

The issue at stake is the Russian Finance Ministry ruling on approving the list of states and territories granting the preferential tax treatment and/or not disclosing the data on financial transactions. The ruling that emerged in December of 2007 sets forth 41 offshore territories and it is tied up with the Tax Code amendments that took effect January 1, 2008.

Those amendments specify a zero tax on dividend profits generated by companies from an interest in other companies (i.e. their subsidiaries). Prior to 2008, the rate had been 9% or even 15% if the dividend had been paid by a non-resident company.

Those payments’ immunity from taxes was initiated by Vladimir Putin, who ordered the State Duma to create incentives for incorporating holdings in Russia in 2007.

The government and parliament conditioned the benefit to a number of terms. First, a holding should have a stake in the company paying dividend worth at least 500 mln rubles (over $20 mln). What’s more, the company shouldn’t be incorporated in the offshore territories specified in the Finance Ministry’s list of 2007.

The Russian Finance Ministry elaborated that list in view of two criteria – the country’s refusal to inform about financial transactions and the profit tax that is at least by a third lower than the rate in Russia (24%). Cyprus was added to the black list exactly for the lack of information, Shatalov said.

Cypriot Finance Minister Charilaos Stavrakis had previously told the Financial Mirror that the prospects of removing Cyprus from the two black lists was proceeding smoothly and he expressed his optimism that the whole issue should be solved by October when President Christofias will pay an official visit to Moscow.

Financial Mirror, 09/07/2008