The amended Civil Code was introduced to the State Duma last week and could significantly alter by the second reading. “Changes will be quite a few, especially in Section One”, said Head of the State Duma Legislative Committee Pavel Krashennikov yesterday, following a Russian Lawyers Association session at the Ministry of Justice. It includes the basic principles of civil law, ownership, companies, obligations. It is expected that by the second reading the deputies may amend the Civil Code nearly a thousand times.

Besides, following the Civil Code adoption, there may be amendments to insurance, banking laws, the Land, Housing and Family Codes, as well as environment protection law. The debated article on charter capital could also be amended. “There is an opinion that the RUB 10 thousand threshold for limited companies is too low. I think these sums should be left out of the Civil Code and stipulated elsewhere in corporate legislation”, said Krashennikov.

A crucial amendment could be the return of mandatory offshore companies beneficiaries disclosure in the amended Civil Code. This will mark compliance with Vladimir Putin’s political wish voiced last December: “financial drain through fly-by-night operations is impermissible, we should put an end to the offshore legacy of the wild privatization era, otherwise we cannot build a business environment and reputation for our country”.

A source among Edinaya Rossiya deputies said that this approach is supported by Head of the Audit Chamber Sergey Stepashin, who estimates annual state budget loss to offshores at 1-2 trillion roubles in tax money.

This initiative also has caused backlash among the MIFC Taskforce experts, who took active part in the Civil Code modernization. The proposed scheme is unbalanced and inoperative, says MIFC Taskforce member Denis Spirin. “The idea is unfounded and easily avoided by certain companies, while others fail to comply with the requirement”, he thinks.

Chairman of Business Russia Boris Titov is also certain that the norm is faulty. He thinks that the perfect budget filling solution for offshores is raising taxes for offshores versus taxes for residents. “In Spain, for instance, property tax for residents is considerably lower than for offshores. If you want to register property offshore – be our guest, but you have to remember that you will be taxed more here because you pay nothing offshore”, he suggests. Only then can economic de-stimulation of offshore operations for Russian companies be effective, Titov says.

The methods of offshore counteraction in the West are different, says Senior Associate at Goltsblat BLP Anton Panchenkov. “Most developed jurisdictions have domestic offshores: Delaware in the USA, Luxembourg in the EU, even Cyprus to a certain degree. Unlike weird and raw concepts like special economic zones, offering the real economy tax breaks would work much better”, states the lawyer.

Corporate and contract law, Project Group №2