Why Russia is irate about the Cyprus bank tax

Discussion in 'Europe and Russia' started by amoy, Mar 19, 2013.

  1. amoy

    amoy Senior Member Senior Member

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    Tax on deposit up to 9.9%?! When I read of this my heart is bleeding. What a Robin Hood!
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    Why Russia is irate about the Cyprus bank tax - Mar. 19, 2013

    Russian officials are up in arms over a possible levy on Cyprus bank accounts, which Russian president Vladimir Putin denounced as "unfair, unprofessional and dangerous." There's good reason for their concern: Nearly a third of all the money in Cyprus' outsized banking sector is Russian.

    For years, Russian firms -- both private and state-run -- have been using Cyprus as a tax haven.

    Attracted by a corporate tax rate of 10% -- half that of Russia's -- Russian investors have funneled money into Cyprus shell companies since the early 1990s. The money is then repatriated through investments in Russian ventures. Cyprus is actually the leading source of foreign investments into Russia, according to data from the Russian central bank.

    The tax-dodging scheme is similar to ones used by corporations and individuals from a host of nations in tax shelters worldwide.
    "Most of it is legal, if not necessarily moral," said Marios Zachariadi, an economics professor at the University of Cyprus.

    Related story: 5 reasons Cyprus bailout matters

    Cyprus' favorable tax rates have made the island a haven for many investors. The country's banking sector boasts €70 billion in deposits, Zachariadi said. That's nearly four times the size of the country's total economy.

    Most of the deposits belong to Cyprus nationals. The country attracts many wealthy retirees, drawn to the nation's warm weather and favorable tax code. But a big chunk of the stashed cash -- almost half -- is foreign.

    Of that, some $31 billion belongs to Russian businesses, banks and individuals, according to ratings agency Moody's, which made its estimate in U.S. dollars.

    Zachariadi said Greek Cypriots and the Russians have had a special relationship for centuries, with the Russians helping the Greeks during their war for independence in the early 1800s. Cyprus was one of the first counties to welcome Russian money after the collapse of the Soviet Union. Both nations share a rocky history with the Turks.

    It's easy to see why some in Russia are unhappy with a new proposal from the European Union to levy a one-off tax on Cyprus bank deposits of up to 9.9% in exchange for €10 billion in bailout money to help the government pay its bills. If most of Russia's deposits get hit with the top tax rate, which applies to accounts holding €100,000 or more, the country's citizens stand to lose more than $3 billion.

    Russian President Vladimir Putin slammed the bank-tax proposal, while Prime Minister Dmitry Medvedev called it "just like a confiscation of someone else's money."

    There's a suspicion that not all of that money was obtained honestly. Cyprus is believed to be a harbor for ill-gotten gains. The country "remains vulnerable to money laundering; reporting of suspicious transactions in offshore sector remains weak," the U.S. Central Intelligence Agency wrote in its country brief.

    Expanded surveillance around money laundering is one of the things being discussed as part of a bailout.

    "Some of the Russian money in Cyprus is almost certainly illicit," said Alexander Kliment, a Russian specialist with the Eurasia Group. "Whether the Russian money there is dirtier than anyone else's is impossible for me to say, but that is certainly the popular perception in Europe."
     
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  3. asianobserve

    asianobserve Elite Member Elite Member

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    Russian cronies who have profited under post-Soviet governments keep their stash in Cypriot banks. And now with the tax they're about to lose automatically 9.9% of these moneys. The Russian depositors obviously has complained to their political connections in Kremlin about their little problem in Cyprus.
     
  4. satish007

    satish007 Senior Member Senior Member

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    funny russia save so many money in Cyprus bank.
     
  5. asianobserve

    asianobserve Elite Member Elite Member

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    Filthy rich Russians have money everywhere except Russia. :rofl:
     
  6. pmaitra

    pmaitra Moderator Moderator

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    I think the article talks about tax on deposit, not tax on interest. I am sure you would want to have a 9.9% tax levied on your deposits, no?
     
  7. amoy

    amoy Senior Member Senior Member

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    So hilarious -

    http://www.northwalesweeklynews.co.uk/2013/03/19/raf-flies-in-cash-for-cyprus-brits-55243-33023923/

    A plane carrying one million euro (£852,600) has arrived in Cyprus as part of a "contingency measure" to help troops and their families.

    The Ministry of Defence (MoD) said the RAF flight will provide people with emergency loans in the event that cash machines and debit cards stop working completely. The MoD stressed it was determined to minimise the impact of the Cyprus banking crisis on "our people" and it will consider further shipments if required.

    The aircraft, which landed at 7.50pm UK time, arrived just hours after the Cypriot parliament rejected a critical draft Bill that would have seized part of people's bank deposits. Cyprus will now have to come up with an alternative plan to raise the money to qualify for a vital international bailout or the country could go bankrupt.
    The Government had re-assured British troops posted to Cyprus that they will be fully compensated for any plans to raid their savings.

    As well as sending out the emergency fund, the MoD asked personnel if they would prefer this and future months' salaries to be paid into UK bank accounts.
    It said in a statement: "An RAF flight left for Cyprus this afternoon with one million euro on board as a contingency measure to provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely. We will keep this under review and consider further shipments if required.

    "The MoD is proactively approaching personnel to ask if they want their March, and future months' salaries paid into UK bank accounts, rather than Cypriot accounts. We're determined to do everything we can to minimise the impact of the Cyprus banking crisis on our people."

    The position of more than 3,000 British service personnel was thrown into doubt on Monday when Treasury Minister Greg Clark only went as far as saying that they would not suffer "unreasonable losses" as a result of the planned levy. However, George Osborne told Cabinet that UK Armed Forces personnel and civil servants posted to Cyprus will be "compensated in full" for any losses as a result of the planned levy on savings. The Chancellor's comments confirmed a pledge he made on Sunday that "people who are doing their duty for our country in Cyprus will be protected from this Cypriot bank tax".

    Nicholas Papadopoulos, the chairman of the Cypriot parliamentary finance committee, said banks would remain closed "for as long as we need to conclude an agreement", but stressed this would be "in the next few days". Banks had been ordered to remain shut until Thursday while the Bill was debated and amended, to prevent a bank run.

    Under the original deal reached in Brussels late on Friday, to qualify for the 10 billion euro (£8.5 billion) bailout from other eurozone countries and the International Monetary Fund, Cyprus had to raise 5.8 billion euro (£5 billion) in additional funds by taxing all bank accounts. After prompting an outcry from depositors, Cypriot politicians amended the Bill earlier today to exempt small depositors with up to 20,000 euro (£17,000) in the bank.
     
  8. SajeevJino

    SajeevJino Long walk Elite Member

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    Cyprus scrambles to avert meltdown, EU threatens cutoff


    Cyprus considered nationalizing pension funds and ordered banks to stay shut till next week to avert financial chaos after it rejected the terms of a European Union bailout and turned to Russia for aid.


    [​IMG]

    Crisis talks among the political leadership in Nicosia are set to resume on Thursday after late-night meetings to discuss a "Plan B" broke up on Wednesday without result.


    EU officials voiced frustration but little sympathy for an ambitious but now bust banking system that extended itself well beyond the island; Russia, whose citizens have billions to lose in those Cypriot banks, called the EU a "bull in a china shop".

    President Nicos Anastasiades, just a month in office and wrestling with his country's worst crisis since the Turkish invasion of 1974 that divided Greek- and Turkish-speaking Cypriots, is due to meet party leaders at 9:30 a.m. (2.30 a.m. EST).

    The deputy leader of his Democratic Rally warned time was running out: "We don't have days or weeks, we have only hours to save our country," Averos Neophytou told reporters.

    Banks, shut since the weekend, are to stay closed for the rest of the week and so not reopen till Tuesday after a holiday weekend, a government official told Reuters, extending the misery of Cypriot businesses already feeling the pinch.

    Without a resolution, the fate of the small nation of just 1.1 million has shaken confidence in the single-currency euro zone and raised geopolitical tension between the EU and Russia.

    Finance Minister Michael Sarris extended a stay in Moscow, where Russian officials said he asked for a further 5 billion euros on top of a five-year extension and lower interest on an existing 2.5-billion euro loan from Moscow.

    In a vote on Tuesday, the island's tiny legislature threw out a proposed tax on bank deposits in exchange for a 10-billion euro bailout from the EU, a stunning rejection of the kind of strict austerity accepted over the past three years by crisis-hit Greece, Portugal, Ireland, Spain and Italy.

    Russian Prime Minister Dmitry Medvedev, who was preparing to meet an EU Commission delegation in Moscow on Thursday, said the bloc had behaved "like a bull in a china shop" and likened its proposals, which would force Russian customers to contribute to the rescue of Cypriot banks, to Soviet-era confiscations.

    But the European Central Bank kept the pressure on, warning that it would have to pull the plug on Cyprus unless the country, one of the smallest of the 17 members of the euro zone, took a bailout quickly.

    Despite the looming threat of default and a banking collapse, Cypriots on Tuesday balked at EU demands for a levy on bank deposits to raise 5.8 billion euros, once taboo in Europe's handling of the stubborn debt crisis.

    LEVY STILL IN PLAY?

    Anastasiades chaired meetings throughout Wednesday with party leaders, ministers and officials from the troika of EU, ECB and International Monetary Fund lenders. The government said a "Plan B" was in the works.

    Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.

    With Cypriot Energy Minister George Lakkotrypis also in Moscow, officially for a tourism exhibition, speculation was rife that access to untapped offshore gas reserves could be on the table as part of a deal for Russian aid.

    Finance minister Sarris said talks with his Russian counterpart, Anton Siluanov, would continue, but there had not yet been any offers, "nothing concrete."

    Cyprus is a haven for billions of euros squirreled abroad by Russian businesses and individuals - a factor, too, in the reluctance of Germany and other northern euro zone states to bail out Cypriots without a contribution from bank depositors.

    The island's banking sector has been crippled by its exposure to bigger neighbor Greece. Athens said Greek branches of Cypriot banks would also stay shut till the weekend.

    SLOWING TRADE

    The proposed levy on deposits would have taken nearly 10 percent from accounts over 100,000 euros. Smaller accounts would also have been hit, although the government proposed softening the blow to spare savers with less than 20,000 euros.

    Chancellor Angela Merkel, facing an election this year in Europe's main paymaster Germany, said it was fair to expect those with savings over 100,000 euros - the normal limit for EU state deposit insurance - to contribute to a bailout.

    While taxing even small savers was politically explosive, the Cypriot government had balked at sparing them by imposing a higher tax on big depositors - fearing for an offshore banking business that accounts for a big share of its economy.

    European officials were growing increasingly exasperated. But the idea of bankruptcy for a member of the euro zone, however small, raises fears for confidence in the currency.

    "There is no obligation to accept help," said Polish Foreign Minister Radoslaw Sikorski, whose country does not use the euro. "Cyprus has the possibility of living with its own mistakes."

    Cyprus scrambles to avert meltdown, EU threatens cutoff | Reuters
     
  9. SajeevJino

    SajeevJino Long walk Elite Member

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    Russia Says Door Still Open for Cyprus Rescue Deal


    Russia is still willing to provide Cyprus with financial aid to help it overcome its economic woes, but only after the European Union and the island nation work out a joint plan for its recovery, Russian Prime Minister Dmitry Medvedev said on Friday.

    “We have not closed any doors; we have not said that we will not discuss anything,” Medvedev told journalists.

    “We will be ready to discuss different options for supporting this state … but only after a final scheme is worked out with the participation of EU states and Cyprus,” he added.

    Medvedev was speaking just hours after Cypriot Finance Minister Michalis Sarris flew home from Moscow following an unsuccessful attempt to persuade Russia to grant his country financial aid in return for investments in its national banks and gas projects.

    Russian Finance Minister Anton Siluanov said earlier on Friday that Russian investors had “demonstrated no interest” in the Cypriot proposals.

    Medvedev’s comments came as a spokesperson for the Cypriot government, Christos Stylianides, said talks between lawmakers and international creditors were approaching the “finish line.”

    "The next few hours will determine the future of the country,” he said.

    The European Central Bank has said that unless Cyprus raises billions of dollars by Monday it could lose emergency funds and face inevitable financial collapse.

    The urgency for a multibillion-dollar loan from Russia emerged after the Cypriot parliament rejected on Tuesday a levy on bank accounts that international creditors, including the European Union and the International Monetary Fund, had set as a condition for providing a 10-billion euro ($13-billion) bailout for Cyprus.

    International creditors said on Saturday that their rescue package for debt-laden Cyprus was contingent on a one-off deposit levy to yield an additional 5.8 billion euros ($7.5 billion) in revenues for the cash-strapped Cypriot budget.

    Overall, Cyprus needs about 17 billion euros in aid to shore up its budget and recapitalize its banks, which were forced to write down billions of euros in “voluntary” Greek debt restructuring.

    Russia Says Door Still Open for Cyprus Rescue Deal | World | RIA Novosti
     
  10. indian_sukhoi

    indian_sukhoi Regular Member

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    That was expected,...........Maybe Russia will bail out Cyprus in return for rights on Cyprus Oil in Future.


    That would be good move
     
    SajeevJino likes this.
  11. SajeevJino

    SajeevJino Long walk Elite Member

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    Cyprus MPs Pass Bills on Capital Movement, Investment Fund


    The Cypriot parliament passed bills Friday to entitle the government to restrict withdrawal of funds from bank accounts in exceptional cases and to establish a “solidarity fund.”


    [​IMG]


    The legislation is aimed at finding a way for the island nation to secure a 10 billion euro ($13 billion) loan from the European Union (EU) and the International Monetary Fund (IMF). Cyprus has to find 5.8 billion euros ($7.5 billion) to receive the bailout package.

    In line with another bill approved Friday, the country’s troubled lenders are to be divided into “good” and “bad” banks.

    Cypriot Finance Minister Michalis Sarris flew home from the Russian capital Moscow on Friday following an unsuccessful attempt to persuade Russia to grant his country financial aid in return for investments in its national banks and gas projects.

    But Russian Prime Minister Dmitry Medvedev said Friday Moscow is still willing to provide Cyprus with financial aid to help it overcome its economic woes, but only after the EU and the island nation work out a joint plan for its recovery.

    The European Central Bank has said that unless Cyprus raises billions of dollars by Monday it could lose emergency funds and face inevitable financial collapse.

    The urgency for a multibillion-dollar loan from Russia emerged after the Cypriot parliament rejected on Tuesday a levy on bank accounts that international creditors, including the EU and the IMF, had set as a condition for providing the 10-billion euro bailout for Cyprus.

    Overall, Cyprus needs about 17 billion euros ($22.1 billion) in aid to shore up its budget and recapitalize its banks, which were forced to write down billions of euros in “voluntary” Greek debt restructuring.

    Cyprus MPs Pass Bills on Capital Movement, Investment Fund | Business | RIA Novosti
     
  12. SajeevJino

    SajeevJino Long walk Elite Member

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    Shock in Cyprus as savers face bailout levy


    People in Cyprus have reacted with shock to news of a one-off levy of up to 10% on savings as part of a 10bn-euro (£8.7bn; $13bn) bailout agreed in Brussels.

    Savers could be seen queuing at cash machines amid resentment at the charge.

    The deal reached with euro partners and the IMF marks a radical departure from previous international aid packages.

    President Nicos Anastasiades defended it as a "painful" step, taken to avoid a disorderly bankruptcy.

    It had, he said in a statement, been a choice between the "catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis".

    The Cypriot leader, who was elected last month on a promise to tackle the country's debt crisis, will address the nation on Sunday.

    Lenders are said to be gambling that the risk of a bigger banking crisis elsewhere in the eurozone has receded.

    While Cyprus may be one of the eurozone's tiniest economies - its third-smallest - there could be serious repercussions for other financially over-stretched economies, such as those of Spain and Italy, BBC Business editor Robert Peston writes.

    The point of the levy is to warn lenders to banks that they should take care where they place their funds, and avoid banks that overstretch themselves - as Cypriot banks did, he adds.

    Cyprus is the fifth country after Greece, the Republic of Ireland, Portugal and Spain to turn to the eurozone for financial help during the region's debt crisis.

    The country has been in financial difficulties since the collapse of the Greek economy, where Cypriot banks had huge investments.

    It appears that the heavy presence of Russian money in Cypriot banks was a factor in imposing the levy.


    'Robbery'

    People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said.

    Those with greater sums will lose 9.9%.

    Depositors will be compensated with the equivalent amount in shares in their banks.

    Reports suggest that depositors will be able to access all of their money except the amount set by the levy.

    The levy itself will not take effect until Tuesday, following a public holiday, but action is being taken to control electronic money transfers over the weekend.

    Co-operative banks, the only ones open in Cyprus on Saturday, closed after people started queuing to withdraw their money.

    At one bank in the Limassol district, a frustrated man parked his bulldozer outside and threatened to break in.

    Alan, a British expatriate saver in Cyprus, told BBC News: "This is robbery and we must get the EU to stop this.

    "We retire and bring our savings to a bank in Cyprus and they can just take our money away without permission and then say we have shares in a bankrupt bank."

    Maria Zembyla, from Nicosia, said the levy would make a "big dent" in her family's savings and "erode the investor confidence".

    "Russians that currently keep the economy afloat will leave the country along with their money," she added.

    According to Reuters news agency, almost half of the depositors in Cyprus are believed to be non-resident Russians.

    Russian money

    There has also been speculation that Russia could help finance the bailout by extending a 2.5bn-euro loan already made to Cyprus.

    Cyprus Finance Minister Michael Sarris will travel to Moscow for meetings on Monday, reports say.

    "My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate," said the EU's top economic official, Olli Rehn.

    European regulators and politicians are convinced that a vast amount of cash in Cypriot banks belongs to Russian money launderers, our business editor writes.

    Few German politicians would vote for a Cyprus rescue that simultaneously rescued these launderers so the only way to make the bailout palatable to the German parliament was to tax the launderers, too, he says.

    Russians reacted angrily to the news of the levy on social media.

    "Russia agrees to help a troubled EU state, and the EU calls Russian investors money-launderers? This is totally unfair," Moscow-based blogger Igor Kim told the BBC News website.

    "Levying a 10% charge on investors is barbarian, interventionist and more Soviet than the Soviet Union!"

    In Berlin, German Finance Minister Wolfgang Schaeuble called the levy part of the "fair" distribution of the bailout's burden.

    "Profit expectations and risk have to coincide again, this gap [between the two] was one of the grave mistakes of the financial bailout [in 2008], and we have learned the lesson," he said.

    BBC News - Shock in Cyprus as savers face bailout levy

     
  13. Ray

    Ray The Chairman Defence Professionals Moderator

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    It is time that the world takes note of all the money laundering done.

    Obviously they are not for legitimate purposes!
     
  14. Yusuf

    Yusuf GUARDIAN Administrator

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    The Russian prez taking objection means he has a lot of his own money Parker in there!
     

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