The irony is that the Russian money in Cyprus is mostly there because they had already seen first hand what happens when the banks shut their doors and the ATMs stop working. They thought their money was safer in Cyprus.
Ah here, it’s mostly there to evade tax. A secondary consideration is the stability of the country/currency.
Personally, I have no problem with officials hoovering money out of tax-dodgers bank accounts. Many of these wealthy depositors are probably beneficiaries of the bondholder bailouts and are no doubt directly responsible for shoving up the price of property in places like London by buying up everything to hide their money, to the point where ordinary working people can’t afford to buy or even rent in the south-east of England any more. Clean 'em out, I say!
Seems like the best solution would be to restrict the tax entirely to amounts over €100,000. Even if it has to go to 20%+, it’s better than breaking deposit guarantees.
That, i.e. the hoovering, might be all well and good in a utopian society where government was not corrupt and where government didn’t pay it self almost 30% more than the general populace, and where government and the banks weren’t one of the same type of rent seeking breed and userers, and where they did what they were voted into do (not one red cent, etc.) and where money from government went to useful infractructural, healt maintenance and healt protection and educational services efficiently in an clear and plain open market system.
Governments are the top group of peoples who abuse power, right up there with the oligarchs.
No, it’s not. At a personal level Income tax in Russia is 13% flat. If you register yourself as the equivalent of a sole trader you can pay tax at 6% of revenue. If, for example, you are a landlord who owns assets outright so you have low input expenses then you can bring your effective income tax rate down close to 6%. There is little if anything to be gained by running income through a Cyprus shelf company where you’re going to be hit by 10% profit tax.
The corporate tax rate in Russia is 20% so there is certainly an element of arbitrage at that level in terms of recognising profits from international trade in Cyprus rather than in Russia but that is no different from what goes on in our IFSC. And even what is driven by tax is arguably much more about legal minimisation rather than evasion. It is the norm for international contracts between Russian companies and international companies to be concluded between Cypriot intermediaries rather than directly. It is also common for purely Russian business partnerships to be structured through Cyprus because of the more developed legal environment there.
The bottom line is that Russians view of banks and government is dominated by the recent partial or total confiscations of their savings that they have experienced, the most recent of which was only 15 years ago. Anyone smart enough to be able to earn a decent crust is also smart enough not to trust those currently in power. Even those with relatively modest nest eggs will do everything they can to keep it out of a domestic bank.
You’ve got the motivations backwards. Stability (having your money where the Russian state or powerful connected interests can’t grab it) is definitely the primary driving force. Tax efficiencies, where they exist, are just an added bonus.
it seems the Cypriots want to hold on to their status as a Offshore Tax Centre (Haven); and have decided that going lightly on the Russians will help. Of course the grannies are paying
Surely Cyprus is so small that it can snuggle up to its Russian sugar daddy and tell the EU/IMF to go fuck themselves?
well the EU/IMF are contributing 10bn. They need this.
and, the moral is that ordinary folk never see it coming, but more sophisticated investors do (hence the lack of bonds on the bank books).
they don’t have bonds mainly because they don’t need them due to being awash with cash deposits of often questionable origin.
Good post, interesting.
Yeah, fair enough. Tax rates are a lot lower than when I last looked which is neither today nor yesterday.
@references to German elections and all that aside … maybe it’s a more viable use Cyprus as a hard experiment within the Eurogroup of EU Finance sinisters? Since Ireland was the first guinea pig much has been learned in the interim with large and more dangerous guinea pigs.
See my point is what differnce is a Faceless oligarchs deposits to a faceless unsecured bondholders… or are they one in the same and it’s time to get even?
It’s the Russian warships on their way that is the curve ball for me…
Quintessential WTF reporting from the Oirish Times. Russian warships on the way, arse ripped out of confidence (what’s left) in the banks and that’s what they come up with. Even the horrible “Irish” Independent did better: independent.ie/world-news/st … 37446.html
Cypriot central bank now says banks to be closed until Thursday
15.26% worst case rumour for big depositors things getting out of hand
The English frog is bubbling away nicely while the Cypriot frog just got squashed:
A commentator on FTAV has noted that the QE mechanism in the UK has done the same thing to to UK deposits the tune of 14%.
It looks like another Bear Sterns, March 2008 event. And like BS in 2008 the end results are inevitable. In 2008 it was the 3Q crash with none of the investment banks surviving, in this case a disorderly end to the current euro configuration. Unlike 2008 the timing in this crisis will not be cast iron because this is a purely political driven crisis rather than a financial one. So the final end will be triggered by an essentially random event which will cascaded into a big blow up in a very short amount of time. But these high stakes political crisis can go one for a very long time no matter how much collateral damage they may do during the pain-avoidance phase.
Thats the real parallel with Credit Anstalt. The crash in 1931 was the last act in a crisis that had been going on in Austria since the mid 20’s. And it was mostly driven by domestic politics. And like 1931 the international financial system is still only one fiasco away from full 1932 capitulation. The financial system is still completely broken. Just like it was in the 1920’s. And is still only kept above water by massive Central Bank liquidity. Just like in the 1920s.
As the euro crisis now revolves completely around German domestic politics expect even more bone headed short term’ist disasters between now and the Autumn elections. Merkel proved last year when she went along with the doubling of the ECB’s balance sheet that she was willing to agree to anything if it held out any hope of her holding on to her job after the Federal elections. Not looking too good for her at the moment. A Grand Coalition wont even save her by this stage. But a very serious summer financial crisis might… Never underestimate that woman when it comes to her political survival.
I reckon its going to be a very interesting Sept / Oct this year. A final crash is not quite as dead cert as the 2008 Oct crash was after March 2008. But better than 50/50 by this stage. I hope everyone still has their lifebelts and lifeboats all shipshape. Just in case.