Russia Drops the ‘S’ Word.

In its first public statement on the new U.S law designed to combat tax evasion by U.S taxpayers and due to come into force in 2013, Russia has declared that FATCA breaches one of the fundamental incidents of sovereignty, namely the sovereign equality of states.The statement, issued on behalf of the Ministry of Finance by the Foreign Affairs Department went on to say that FATCA compliance would lead to a breach of Russian banking secrecy laws by its financial institutions giving rise to liability for damage caused.

Russia’s public comment on the U.S law also confirmed that it is not compelled by any law – domestic or international – to enforce the claims of the U.S. tax authorities.

FATCA Conflicts with Tax Treaties

In further support of their FATCA concerns Russia also cited the following comments attributed to the OECD Committee on Fiscal Affairs of which it is a regular observer:

  • FATCA conflicts with the provisions on exchange of information and confidentiality contained in tax treaties concluded by the U.S. with foreign countries; and
  • FATCA compliance will breach the national legislation of OECD member countries in relation to bank secrecy laws

What Russia Will Not Do

Though willing to work with the U.S Inland Revenue Service (IRS) on FATCA once implementation arrangements are finalised, Russia has nonetheless made it clear that:

  • Any exchange of information with the U.S should be on a reciprocal basis and based on the provisions of the 1992 Russia-U.S tax treaty;
  • The exchange of information should be subject to all of the limitations stipulated by current Russian law; and
  • There will be no amendments to Russian legislation for the sake of compliance with FATCA.

Key Take-Away

For the several Offshore Financial Centres (OFCs) with existing tax treaties and tax information exchange agreements (TIEAs) with the U.S which clearly set out the regime for the reciprocal exchange of taxpayer information ‘on request’ Russia’s statement is a helpful reminder that even in the context of the fight against tax evasion state relations are still governed by fundamental rules of international law and that in many countries the domestic tax law does not provide for compulsory assistance in the tax collection efforts of foreign tax authorities.


21 thoughts on “Russia Drops the ‘S’ Word.

  1. I write a leave a response when I like a article on a website or I have something to valuable to contribute
    to the conversation. Usually it is triggered by the passion communicated in the post I read.
    And after this post Russia Drops the ‘S’ Word.

    franhendy’s Offshore Blog. I was excited enough to drop a thought 😛 I actually do have a couple of questions for you if it’s
    allright. Could it be simply me or does it look like a few of
    these responses look as if they are written by brain dead
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  4. I rarely leave remarks, but after reading some of the responses on Russia Drops the ‘S’ Word.

    franhendy’s Offshore Blog. I actually do have a couple of questions for you if you don’t mind.
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  5. At least Russia is saying it will not violate it’s own laws to implement this horrendous legislation. There is so little value to other nations who only tax based on residency in this, one has to wonder what amount of bullying has been involved. In Canada I suspect it will be Harper so badly wanting his pipeline that will be the tipping point. The pipeline deal isn’t popular here or in the U.S. FATCA will be even less so. Really for all practical purposes FATCA should go back to the drawing board. Canada can’t comply without violating our Charter of Rights and Freedoms. In Canada that document is every bit as important as the constitution is in the U.S. I can’t imagine the U.S. going along with such a demand from any other nation on earth. This has caused so much hard feelings and ill will already here and it’s not even implemented yet. Wait till the average Canadian finds out what is really going on here.

    President Obama needs to think long and hard about causing such ill will against the U.S. all over the world with this. Most Canadians don’t yet realize that their bank rates will rise and that fines and fees and money will flow out of the Canadian economy. When every nation wakes up to this issue, the U.S. is going to appear quite the bully. Sad to say it but, this really is imperial over reach.

    What Russia has done is protect it’s existing law it looks like to me here so what real value is any IGA to the U.S. since under most privacy laws and constitutions a bank cannot share this sort of data. In Canada they aren’t even supposed to ask you what country you were born in for bank services. The first time they do it, law suit and Charter Challenges begin. Harper knows this. He better tread carefully here. The government in Canada has already been put on notice by Canada’s leading constitutional expert.

    FATCA was not intended to be implemented in this way. Even FBAR wasn’t originally meant to be used for expats. This is a run away train with very little gain for anyone except the U.S.


    1. This is exactly the problem with unilateral extra-territorial measures designed to fix an internal problem using external factors. Russia’s lukewarm response was the first response by every sovereign country in the world I suspect but then the Banks got scared of the 30% w/h tax and then governments got scared of a whole host of other things. Russia is reminding the world what it means to be a sovereign state and the rights and responsibilities that go with it. This includes protecting the economic rights and privacy of their citizens. Russia may be lots of things but on this point Putin is right.


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