French tax

ITR Hub: Tax impact of the Russian-Ukrainian conflict

Companies facing a global supply chain crisis, coupled with rising inflation, have seen these problems have done a lot aggravated by the Russian-Ukrainian war. Its impact has rippled through global energy markets. Europe was already facing a gas crisis before the start of the war, and it is only getting worse.

Many governments have turned to reduce indirect taxes, including fuel tax and energy VAT, to alleviate the cost of living crisis. Meanwhile, American and European brands including Coca-Cola, McDonald’s and Starbucks have left Russia in protest.

The Russian government reacted with its own sanctions and even seized the intellectual property (IP) of foreign multinational companies leaving the country.

Companies leaving Russia had to take this risk into account as part of their transfer pricing (TP) policieswhile providing for greater uncertainty about reference data. There has been little certainty about the data because of COVID-19, but the war means there won’t be a return to normality for some time.

The war continues to have a terrible human cost and there are few signs of a peace agreement, while the economic consequences are still being felt around the world.

ITR coverage

RTI continues to monitor the fallout from the conflict for taxpayers. Here is a selection of our analysis of the implications of the Russian-Ukrainian war.

Russia’s IP Threat Poses TP Risk to Businesses

Businesses Face Greater Uncertainty About Benchmark Data After Russian-Ukrainian War

UK joins rest of Europe in cutting fuel taxes

Tension mounts over sanctions linked to Russian-Ukrainian war

Companies grapple with TP implications of rising inflation

Russian aggression offers several tax lessons for governments

Russia boosts tax incentives as companies leave the country

As our reporters provide more information on the tax implications of the Russian-Ukrainian conflict, we will continue to update the list of stories above for you.

Tax benefits

Crypto Industry Resists Russia Ban

Tax authorities wishing to clamp down on the cryptocurrency industry might have a stronger case now that crypto exchanges have resisted calls for a Russian trade ban amid the war in Ukraine.

Trading between Bitcoin and rubles jumped 132% in the days following the Russian invasion of Ukraine, according to analysis by data firm Kaiko. The biggest crypto exchanges, Binance and Coinbase, are resisting calls to impose a ban on Russian users, while stressing their support for specific sanctions.

“There are a few hundred people on the international sanctions list in Russia, mostly politicians, and we’re following that very, very strictly,” Binance CEO Changpeng Zhao said in an interview. BBC in March.

“We distinguish between Russian politicians who start wars and normal people; many normal Russians do not agree with the war,” he explained. “We are not political, we are against war, but we are here to help the people.”

On the other hand, Binance started bringing its services into compliance with EU sanctions in April. The crypto exchange deactivated Russian customer accounts and informed users that there would be a “ban” on Russian customers holding more than €10,000 ($10,900) in cryptocurrencies.

Binance allowed Russian individuals and businesses to withdraw their funds. Meanwhile, Russian-linked users with holdings below €10,000 can continue to operate.

Russia has the third largest crypto market in the world and the market can offer a lifeline as sanctions hit hard. Bitcoin has a market cap of $835 billion, while the ruble has a market cap of $626 billion and its value has plummeted since February.

Many tax authorities have pointed out that the industry has posed serious tax risks in recent years. The crypto industry is already facing crackdowns in several countries, including India, over allegations that these assets can be used to evade and avoid taxes. The crisis is expected to fuel calls for tougher measures.

Tax havens rocked by Russian sanctions

The Russian war against Ukraine meant the end of the Russian investment boom in European cities. For example, the French government seized the assets of Russian billionaires and the Italian government seized properties belonging to wealthy Russians.

The British government has won the support of the three Crown dependencies and 14 overseas territories, including the British Virgin Islands (BVI), to enforce its sanctions. Russian individuals and companies have long relied on low-tax jurisdictions to do business outside of Russia.

A 2018 Global Witness report found that Russian individuals and companies had around £34 billion ($45.5 billion) held in Britain’s Overseas Territories and Crown Dependencies. The same report revealed that the BVI was the second most popular destination for capital leaving Russia, just behind Cyprus.

The problem is that the scope of the sanctions list was initially limited. The listings included specific individuals and companies, whereas low-tax secret jurisdictions often allow obscure forms of ownership. Consequently, the identity of the owners of certain entities is often unclear.

At the same time, many countries do not support sanctions against Russia. These jurisdictions could benefit from a shift in Russian investment away from the United States and Europe.

Faced with US and European sanctions, Russian multinationals have no choice but to do business through African, Asian and Middle Eastern jurisdictions. Russia has its own low-tax zones that companies can retreat to, but multinational companies must operate outside the country.

Still, there are plenty of options for Russian companies despite the sanctions. For example, Russian investors may look to the United Arab Emirates for a lightly regulated, low-tax jurisdiction with a growing financial sector.

As the war continues, the global economy changes. The end result may be that Russia finds itself much closer to countries outside the US and EU.

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