No Longer Safe: Russia to Go After Swiss Tax Havens

This article originally appeared at German Economic News. Translated from German by Nils Hansen

Russia has preliminarily listed Switzerland as well as 118 other countries as tax havens. If the list is approved by the authorities in November, double taxation looms for Russian enterprises in Switzerland. That is also a risk for the Swiss economy.

Its ties with foreign business has long been a trade mark of Switzerland as a business place, in the banking system and elsewhere. Irrespective of the crisis in Eastern Europe there could be a number of changes next year. This week, the Russian tax authority FNS has published a new draft for a regulation.

According to the draft, there are a total of 119 countries and territories which do not conform to the standards of exchange of tax information with Russia, as claimed by Russia’s authorities.
For this reason these places can now be found on the preliminary list of tax havens. Besides Estonia, Great Britain and Liechtenstein, Switzerland is now also on the list. Countries like Cyprus and Luxemburg, however, are not on the list.

Should the planned regulation be confirmed on November 9^th following a re-assessment, the list would be in effect from January 2016 on. That means that from next year, Russian investors would be threatened by considerable tax disadvantages. Thus, companies active in countries which are listed as tax havens and belonging to Russians or Russian companies by more than 25%, would have to face double taxation: Both in Russia and in the country in which they are active.

It is unclear if this means that in turn, for instance, Swiss companies active in Russia should also be double taxed. There are currently around 600 [Swiss; translator’s note] companies active in Russia, the Swiss ambassador in Moscow, Pierre Helg, told the Thurgauer Zeitung in the beginning of the year.

As the Moscow-based economic journal Vedemosti reports, Russian enterprises would not have the possibility to restructure their investments abroad in a reasonable way with respect to taxes payable in the short time until 2016. Experts interviewed by the journal anticipate ‘serious consequences’ for Russian businesses because of the new list.

Many of the Russian businesses are active in trade. From this, Austria benefits as much as Switzerland as a potential location. Double taxation might lead to Russian investors increasingly withdrawing. That would be quite noticeable within the country’s economy.
Still, parts of the Swiss economy have been able to considerably benefit from EU sanctions against Russia. For instance, until 2014 Germany, France, Poland and the Netherlands have been the main cheese suppliers for Russia. Since the import ban on cheese, [Swiss; translator’s note] deliveries have increased six fold. At the end of October, eight Swiss businesses have additionally been granted permission to deliver more cheese and case-ready meat to Russia, according to the Federal Inspectorate for Animal and Plant Health.

‘Russia is a core country of Swiss foreign economic policy’ says a statement by the Swiss Secretariat for the Economy (SECO). Trade volume in 2014 was 3.6 billion Swiss Francs. Mainly machines, drugs and watches are exported to Russia. Conversely, Russia delivers raw materials like gemstone, precious metals and basic chemical products for finishing in Switzerland.

Switzerland is the twelfth most important foreign investor in Russia. At the end of 2013, direct investments amounting to 15.02 billion Swiss Francs were flowing into Russia, according to the Swiss National Bank. Rosstat refers to total Swiss investment of about 24.5 billion US dollars (2013). The largest investments are Nestlé SA, ABB, Holcim and Kronotec AG (wood processing), but also financial services firms.

Geneva and Zug are known to be important commercial centres for oil, gas and commodity trade with Russian investors. However, Russian investors have also, amongst other things, acquired shares of Swiss businesses like Sulzer AG and Holcim AG.
‘Capital flows from Russia into Switzerland have slightly decreased in 2013 and have amounted to 48.5 billion USD, according to Rostat (2012: 50.7 billion USD); this corresponds to 24.0% of total volume of Russian foreign investment during the last year’, says SECO.