Offshore as an exception – WWN No. 39 (7484) dated 03/09/2023

In order to use the opportunity envisaged this year to get out of the ban on receiving budget subsidies by companies with offshore participation, the Ministry of Finance suggests that businesses independently apply to government agencies for such relief, justifying their need and describing the consequences of refusal. Decisions on exceptions will be made on the principle of “two keys”, by the Ministry of Finance and the Ministry of Economy, which, apparently, will balance the interests of economic and budgetary policy. To reduce sanctions risks, joint orders of departments on such “withdrawals” will not be officially published and registered by the Ministry of Justice.

The Ministry of Finance has prepared a procedure for making a decision on the targeted withdrawal of companies with an offshore share in the capital of more than 25% from the ban on providing them with subsidies from the budget. As follows from the draft government decree, the decision will be made on the principle of “two keys”: obtaining the consent of both the head of the Ministry of Finance and a representative of the Ministry of Economy with the rank of at least a deputy minister. Apparently, the financial department will weigh the risks for budget spending, and the economic department will proceed from its tasks of developing the economy and supporting business.

The resolution is supposed to be approved in the development of the law adopted at the end of 2021, which tightens the conditions for providing state support in the form of subsidies and budget investments. Organizations in whose capital the share of direct or indirect participation of offshore companies is more than 25% (previously it was 50%) cannot apply for such money. It was assumed that the new rules would be applied from 2022, however, at the request of the business, the tightening was postponed for a year – in order for companies to adapt to it. At the same time, the approach to determining an offshore link was revised – instead of a list of states and territories that do not disclose data on financial transactions, a wider list of jurisdictions used for intermediate ownership was applied (in particular, it included Cyprus, Hong Kong, Ireland, Montenegro and Switzerland).

Last year, the RSPP asked for a revision of this list (since it also included countries in which Russian business expected to localize production) and for the non-application of new rules for at least 2023 (including due to sanctions, see “Kommersant” April 25, 2022). As a result, in November 2022, the law establishing the temporary features of the operation of budget legislation provided for the possibility not to apply this ban when issuing subsidies to companies “for financial support of measures related to preventing the impact of the deterioration of the geopolitical and economic situation on the development of industries.” This easing is valid until the end of 2023 – in the manner determined by the White House.

As follows from the draft resolution describing this procedure, Russian companies have the right to apply to government agencies that distribute subsidies (for example, to industry departments) with a request not to apply the ban to them, justifying the need for such a decision and describing the consequences of refusal. You will need to provide information on the structure and composition of shareholders (including persons under whose control the company is), describe what exactly the non-compliance with the conditions for granting subsidies is, and report on “ongoing and planned” measures to eliminate it.

The received documents will be forwarded to the Ministry of Finance and the Ministry of Economy. The criteria by which these departments will decide to lift the ban are not disclosed by the project (apparently, it will be about the degree of “criticality” of the company’s participation in a particular project, for example, in import substitution).

It is interesting that the decision will be formalized by a joint order of a non-normative nature that does not require official publication and state registration with the Ministry of Justice. This is obviously due to the risks of the company falling under sanctions if the decision is made public. In general, such “manual” management, albeit probably on a very limited scale, is somewhat out of the way of the mechanism of interaction between business and the state through information systems that has been created in recent years. In addition, it intensifies the competition between the previous deoffshorization plans and the idea of ​​supporting businesses in the face of sanctions.

Evgenia Kryuchkova