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. Last Updated: 07/27/2016

Foreign business hits back on tax

At least three foreign business groups will send letters to top government officials this week urging modifications to a new Russian tax law that could force foreigners to hand over 60 percent of their worldwide personal incomes.


Following a May 15 deadline for the first installment of 1992 tax payments, the American, German and British business communities have drafted letters warning the government that implementation of the tax law will choke foreign investment and force those companies that choose to stay to seek alternative ways of doing buisness in this country.


The 250-member American Business Club will dispatch a letter to "six or seven top officials", said George Reese, country managing partner for Ernst & Young and a member of the club's steering committee. A draft of the letter outlines the tax's likely effect on foreign investment.


"We want to tell the government that they will not achieve what they wanted, which was to increase revenue in the short term", he said.


Reese estimates that expatriate employee's salaries would have to jump 80 percent in order to pay the new tax without taking pay cuts, a tall order for companies in a market where investment currently far exceeds revenue.


"The market here just doesn't justify an increase in rates", he said.


If the new tax is implemented, Americans will have to pay up to 268 percent more tax than they would in the United States, said Michael Adams, chief executive officer and general director of Young & Rubicam/Sovero and a spokesman for the club.


"If the Russian government wants to encourage investment here", he said, "the last thing it should do is penalize companies and individuals who want to make it happen".


The German Business Association, one of the expatriate community's largest business groups whose membership includes every German firm in the former Soviet Union, will reissue a letter it sent in January to Yegor Gaidar, who was then the finance minister. The new letter, to be submitted to Economics Minister Andrei Nechayev, focuses on increased costs that foreign companies will incur reimbursing employees, according to Peter Schwegmann, the association's speaker.


About 25 British companies agreed in a meeting last week to write individual letters to the government urging action, said Anne Vaughan, director of the 600-member British-Soviet Chamber of Commerce. The organization's president. Dr. Norman Wooding, is sending a letter as soon as possible from London to Finance Minister Vasily Barchuk, Vaughan said.


"We don't want it to be a whiny letter", she said. "We want to point out how this tax law will affect the country".


While foreigners rally to the cause, the government remains silent, offering little hope that the issue will be resolved by June 30. This is the half-year period of 183 days that the government has decreed as the definition of residency that determines whether an individual pays taxes.


Alexei Ulyukayev, a top economic adviser to the government, told The Moscow Times on Monday that a dispute remains unresolved between the Finance Ministry, which under Gaidar supported a special conversion rate of 10 rubles to the U. S. dollar in calculating foreigner's tax, and the Central Bank, which argues that it needs the revenue it stands to reap from foreign taxpayers.


The tax policy, if implemented, will force companies to rotate employees, rethink investment plans and seek creative ways to evade the tax, executives say. While few may flee, "people and companies are going to look at places like Kiev", Adams of Young & Rubicam/Sovero warned.


"Russia has to remember it's in competition for investment dollars", he said. Given the country's mounting economic problems, "this tax machine only adds insult to injury".