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Russia and Ukraine: When Western Corporations Become Sources of War Funding

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Will the Russian authorities make international taxpayers whose capital is based in the country pay for the war that Moscow started?

The current tax on withdrawals of capital from foreign companies wishing to leave the country, which can reach 5%, could be increased by at least 10 points, or even more, in view of the growing needs of Russia’s war economy.

Since the beginning of the conflict in February 2022, Western companies have quickly been faced with a dilemma: remain in the country at risk of exposure to personnel, or Exiting the emerging Russian market with over 140 million consumers. For those who do not want to part with the Russian manna and who are oriented towards the final consumer who continues to buy despite the war on the borders, the situation can initially develop in a positive light. Hopes? Get strong exposure at the start to take advantage of a market free of competitors who would otherwise have packed their bags.

Bad bet for these actors. The Russian Federation is facing an adverse situation in its public finances : Moscow’s economic projection called for a month-long war effort that eventually lasted. And even if the situation in the hydrocarbon market remains correct, thanks to the reorientation towards China and India, this is not enough to meet the financial needs. In the field of operations, technically ineffective or outdated military equipment requires more spending to not see the Ukrainian counter-attack send forces from Moscow back to the pre-2014 borders.

The equation is delicate for the Russian government: Moscow does not want to rely solely on Beijing’s support to retain some diplomatic leeway, but most of the Russian companies affected by the sanctions can no longer contribute to the common pot. There is still financial money manna for global corporations. Russia’s state budget is still expected to run a deficit of 2% of GDP this year. If the volume of asset sales by foreign companies approaches the total of $15-20 billion as it happened in 2023, the country can expect to recover at least $2 billion. An unexpected blast of financial air on the backs of foreign companies to fully cover the unknown expenses because about a third of them are considered classified information by the Russian state.

Those economic actors who thought so Russia, despite the war, can guarantee business security fall from above. The tax blow comes to exonerate the companies that quickly left the region, dumping more of those who didn’t want to see what might be at stake for them. One of the main persistent stumbling blocks is Austrian bank Raiffeisen, which made more than half of its profits in Russia in 2022, and which now finds itself under fire from a US investigation and Russian financial pressure to consider costly arrangements. out of the rut. At best, but too late to escape the Kremlin’s desire for more financial space in the face of Xi Jinping. And a lesson for all companies that decide to stay: they will lose for two reasons, once because of the new Russian taxes, and once because of international sanctions.

The Russian government believes that the West, and the European Union in particular, uses “absurd” or “sterile and thoughtless” sanctions against economic interests located on its territory. However, for Western companies, at least from Moscow as from abroad, economic insecurity is now a threat.

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