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. Last Updated: 07/27/2016

Tax Police Target Housing Market

Seeking unpaid taxes hidden in apartment rental contracts, Moscow tax authorities have begun demanding information from companies about their employees' places of residence.

The Moscow Tax Inspectorate has sent a letter to many foreign companies requesting the names of employees, their local addresses, the names of their landlords, the monthly rental cost of their apartments and the housing allowances they receive. The companies must report on the past three years as soon as possible, the letter says.

"We have every right to collect this kind of public information," said Marina Taskina, an employee at the inspectorate.

The taxman is no fool, lawyers said. Led by new chief Boris Fyodorov, the State Tax Service has launched a highly publicized campaign to uncover individual tax cheats.

Low tax collection is the main culprit in Russia's budget deficit crisis, which this week forced the government to borrow $17.1 billion from the International Monetary Fund and other lenders.

Tax evasion has become the norm, as Russians grapple with a convoluted tax code and search for loopholes around the high rates.

The elite and virtually untaxed housing market is too big a target to miss, lawyers said. Last month, State Tax Service employees knocked on the doors of 452 apartments in the prestigious Stalin skyscraper on Kudrinskaya Ploshchad, asking residents for proof of ownership or rental contracts. They found that 38 apartments were being rented, but only 10 were declared by owners as sources of income.

"This is a gold field for the tax authorities to go after," said Alex Chmelev, a tax partner at Baker & McKenzie. "It's an area wrought with fraud. ... Why shouldn't someone earning $80,000 a year or so on an apartment they got for free have to pay taxes on that?"

The recent letter sent out by the Moscow inspectorate aims to ferret out landlords who collect thousands of dollars each year on their Soviet-issued apartments, lawyers said. Chmelev said that frequently landlords will ask tenants to sign two contracts -- one stating a discounted rental price which they use to underclaim taxes, and one stating the real price, which the tenants use in their tax returns.

The contracts will also expose company employees who pay less rent than they receive for housing allowance. Tax legislation says foreigners do not have to pay tax on housing allowance, but many pay less in rent than their allowance and pocket the difference. That difference should be taxed.

"There are many legitimate ways to reduce personal income tax," stated Cameron Greaves, a tax partner at Coopers & Lybrand. "It seems unreasonable to try to do it by abusing a privilege in the legislation. It could lead to that privilege being revoked."