NEWS

Protocol to Russia-Cyprus Double Tax Treaty signed

In April 2009, the Republic of Cyprus and the Russian Federation signed a Protocol to the existing Double Tax Treaty between the two countries. As a result Russia has stricken off Cyprus from its "black list" (at the same time during the G20 meeting in London, Cyprus alongside with Russia was put into a "white list" as a country cooperating with OECD). Russia has insisted on several mostly minor amendments to articles 6,11,13,26 and 29. The above Protocol was signed in Nicosia by the Cyprus Finance Minister Mr Charilaos Stavrakis and by the Director of the Department of Taxes and Customs Tariffs Policy of the Russian Ministry of Finance Mr Ilya Trunin.

In the last few years, Russia has been insisting on the revision of some articles in the existing Double Tax Treaty, during elaborate consultations and negotiations held both in Nicosia and Moscow. According to the Cyprus Finance Minister the negotiations are finalized to the mutual satisfaction of both parties.

Despite certain hysterical comments in Russian mass media, Cyprus financiers are happy with the results of the meetings and they are eager to continue their efforts for foreign investments attraction to Russian Federation.

The Republic of Cyprus is the largest investor to Russian economy. Cyprus's stable financial system helps Russia to attract investments to various sectors of its economy.

CONFERENCE: SOURCE OF USEFUL INFORMATION

In early April MIDLAND CONSULT organized in Daev Plaza Business Center, Moscow a conference for Russia and CIS countries business circles. Participants from Cyprus and Panama also took part in the event «International Business Solutions — 2009». Extraordinary and Plenipotentiary Ambassador of the Republic of Cyprus in Moscow Mr Petros Kestoras addressed this conference with a substantial and instructive report prepared for this event by the Cyprus Finance Minister Charilaos Stavrakis. He extensively covered the issue of further financial cooperation development between Cyprus and ex-USSR countries and touched upon political issues of international economic relations. The presentation of Midland Consult expert from Panama Mr Oscar Sedenio Villareala, who specializes on registration and management of Panama shipping and ship-owing companies has provoked a major interest among the audience. He spoke about assets protection by means of Panama Private Funds. Midland Consult conference held in Moscow on 3 April was the first like event where London G20 summit results were analyzed and forecasts on for economies of region were made. Mr Maxim Stepanov, Head of Midland Consult Group, believes that such kind of conferences and seminars help to explain interested parties the finest details of financial and business activities.

CYPRUS: NEED FOR ADJUSTMENT OF FINANCIAL POLICY

In mid April 2009 Mr Vassos Marathevtis, Chief Auditor of MIDLAND CONSULT, participated in a conference organized by leading Cyprus law and auditors firms. More than 200 participants attended the event. Conference was addressed by Cyprus Finance Minister Mr Charilaos Stavrakis. Two previous Finance Ministers also attended the conference and assisted in developing recommendations for Cyprus financial and economic policy adjustment.

During the conference speakers mentioned that in comparison with last year number of newly incorporated Cyprus companies dropped by 52,4%. Suggestions were made to use Internet to accelerate registration process and issue of certificates.

Speakers also suggested revising immigration policy to promote long-term residence permits issue to businessmen who want to invest in Cyprus. Great emphasis was given to the fact that Cyprus as a modern international financial center should timely react on new international practices by providing, speedy resolution of legal issues, perform companies liquidation procedure expeditiously and resolve tax problems promptly and efficiently. Cyprus economists and financiers believe that the country has to proceed with expansion of double tax treaties network with other counties. At the moment Cyprus has 44 tax conventions and 39 treaties are under negotiation.

NEW BRANCH OF MIDLAND CONSULT

In April 2009, Midland Consult opened its new branch in St Petersburg. The new office is situated next to the city historical center, near Petropavlovskaya fortress and Aurora cruiser. The new branch alongside with consulting services will actively participate in search for new financial and tax incentives and will organize conferences and seminars for businessmen involved in foreign trade. In September 2007 Midland Consult opened its new branch in Cyprus (Nicosia).

OECD : four countries in "black list" of offshore jurisdictions

Within the framework of London G20 Summit resolutions implementations OECD put Costa-Rica, Uruguay, Malaysia and Philippines into a «black list» of offshore jurisdictions that deny disclosure of financial information.

"Grey list" was made for offshore jurisdictions that agree to enhance transparency of financial operations but have not yet made any commitments towards international community. Among them Luxemburg, Switzerland, Austria, Belgium, Chili, Monaco, Cayman Islands, Singapore and Lichtenstein.

Among countries that unconditionally accepted international taxation practices (white list) are the following countries:

• Argentina
• Australia
• Barbados
• Canada
• China2
• Cyprus
• Czech Republic
• Denmark
• Finland
• France
• Germany
• Greece
• Guernsey
• Hungary
• Iceland
• Ireland
• Isle of Man
• Italy
• Japan
• Jersey
• Korea
• Malta
• Mauritius
• Mexico
• Netherlands
• New Zealand Norway
• Poland
• Portugal
• Russian Federation
• Seychelles
• Slovak Republic
• South Africa
• Spain
• Sweden
• Turkey
• United Arab Emirates
• United Kingdom
• United States
• US Virgin Islands

Malaysia and other countries do not agree with "black" and "grey" lists

Malaysia Finance Minister Mr Razak emphasized that his country always respected OECD resolutions and always followed international norms and standards of taxation. Moreover, Malaysia was positively evaluated by IMF and FATF. In this respect Malaysia hopes that by next G20 Finance Ministers meeting in Scotland to be held in November 2009 or even earlier , Malaysia will be moved from the "black list" to the second group of countries that «accept international taxation standards". Both Luxemburg and Switzerland disagree with their "grey list" placement since they always support all OECD resolutions.

Effective G20 meeting in London

G20 meeting in London is considered not just successful but extremely successful. «Very important» (Manuel Barroso). «Historical» (Barack Obama). «Nearly historical" (Angela Merkel). «We managed to reach an agreement, and quite quickly» (Dmitry Medvedev). Recipe for success intuitively found by planet leaders is extremely simple and consists of three parts:

• First of all, all issues that caused major disagreements by any party were cut off
• Second, everything made by big players was silently admitted irrespective of the general logic
• Third - all accepted principles were dissolved by general phrases and presented as historical (actually, nearly historical) compromise. Continental Europe does not approve volume of cash inflow used by Americans and British to combat crisis. At the same time G20 communiqué contains a general phrase on balanced monetary policy, so consciousness of all participants is clear. However on a global scale participants managed to reach a compromise on this issue. International financial organizations are given a considerable amount. Anglo-Saxon countries recommended to issue a bigger cheque, other countries wanted to give less money. At the end all agreed on one trillion dollars. Half of G20 countries that really needs this money would be happy with this trillion for the nearest future, and voices of these countries joined a common consensus.

"Black" and "grey" lists of offshore zones were published. It is not clear how they will be penalized, but by now Hong Kong and Macao (in order not to hurt China's interest) have been taken out of these lists alongside with few tax heaven islands that belong to UK.

Hedge funds and rating agencies have to follow control procedures yet to be invented in future. International Monetary Fund awaits for reforms, but reforms are still subject to forthcoming disputes. The most grandeur phrase of London Summit that easy to pronounce but difficult to put into practice was «Era of banking secrecy is over». This London verdict intel alia is the most large-scaled international economical decision from the 1970th, and probably from the 1940th . However the most mighty London guests left with carte-blanche to keep doing what they have been doing before. Main result of London summit: within the next one and a half year the G20 will allocate 5 trillion dollars for economic problems solutions. One fifth of this money will go directly to IMF.

Overcoming serious differences summit members have reached consensus on fundamental reforms of global financial system by identifying six major fields of action:

Increase of IMF resources and allocation of funds for countries that suffered most from economical crisis; fight with "tax heavens"; regulation of bonus payments for banks and financial companies management; national packages of market measures; control toughening over financial markets; safeguard of sustainability of national economies. Australia, Argentina, Brazil, UK, Germany, India, Indonesia, Italy, Canada, China, Korea, Mexico, Russia, Saudi Arabia, USA, Turkey, France, South Africa, Japan and EC represented by a Chair participate in G20.

OUTCOME OF G20 SUMMIT. End to tax heavens and banking secrecy

G20 leaders have agreed to undertake measures towards countries with so-called "tax heaven" regimes. Many countries are concerned by tax evasion practices through offshore banks and demand disclosure of banking information on suspicious transactions. «We are ready to undertake measures to protect finances and financial systems. Era of banking secrecy is over", — says British Prime Minister Gordon Brown.

After two days of meetings G20 leaders adopted a final communiqué. "We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems ", - says the document. In order to strengthen financial system and prevent new crisis summit participants fixed 5 principles: Enhancing Sound Regulation, Strengthening Transparency and Accountability, Promoting Integrity in Financial Markets, Reinforcing International Cooperation between countries and financial institutions. "We must make all efforts to ensure that a global crisis, such as this one, does not happen again. Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets are essential for economic growth", - says declaration.

Among measures to overcome the effects of the crisis were mentioned as the following: to provide liquidity to markets, to stimulate economies, to unfreeze credit markets and further to reduce central bank rates. Besides the countries decided to relieve tax burden within their countries to stimulate domestic demand. G20 promised to reject protectionism and during one year not to introduce trading barriers, investments or export limitations. Leaders of 22 countries with 80 % of global GDP participated in this summit as well as heads of 8 major international financial and economic organizations.

ROSBUSINESSCONSULTING: CYPRUS ASSETS ARRESTED

A creditor of RBC - Bank of Moscow, managed to arrest Cyprus assets of the media holding. Midland Consult was informed by a bank manager - another RBC creditor - that Nicosia District Court has satisfied the request of Bank of Moscow for the arrest of RBC assets situated in the Republic. It was a protective custody on Bank of Moscow claim towards the media holding submitted in March to London International Court of Arbitrage.

As at 1 January 2009 RBC had several Cyprus subsidiaries including EDI S Press. Cyprus group of companies registered in Limassol controls a number of companies that publish and circulate in Russia and Ukraine magazines on interior design. Two other subsidiaries of RBC are RBC Investments (Cyprus) Ltd. and Ad Net Ltd registered in Nicosia. The first one in June 2006 borrowed from Dresdner Bank $100 mln — and this loan was used as security for CLN issued a month earlier. In 2008 RBC repaid in advance the major part of its loan for the amount of $56 mln, another amount is due and payable in June 2009.

Using similar scheme RBC Investments in December 2007 borrowed from Barclays Capital Bank $45 mln by issue of CLN as security of this loan (Ad Net acted as one of Guarantors). CLN were redeemable in November 2008, but RBC managed to reach agreement with Barclays on «temporary extension of repayment period». New redemption date was not disclosed to public. Bank of Moscow is a major holder of this issue of CLN and Bank's claims are related to redemption of CLNs, - allege managers of two main RBC creditors.

Russia takes the third place after Iraq and Somalia for number of refugees

Russia takes the third place worldwide for number of asylum seekers applications made by Russian citizens abroad. These figures are published in relevant UNHCR report claims Russian magazine "Kommersant". Majority of Russian citizens applying for political asylum are Chechens and Ingush, but other ethnic groups are represented as well. Growth in the number of applications can be caused by Poland's intention to enter Schengen zone. Many people are afraid that it would be difficult to get in to Poland then. Another reason is aggravation of situation in Ingushetia. UNHCR states that 20 477 Russian citizens - 9% more than last year - applied for political asylum in European countries and America. Russia yields only to Iraq (more than 40 thousand applications) and Somalia (22 thousand applications). The forth and the fifth places are taken by Afghanistan and China. Azerbaijan, Armenia and Georgia are other CIS countries in this list. Russian citizens ask for political asylum mostly in Poland (6647 people), France (3579), Austria (3436), Belgium (1615), Norway (1078) and Switzerland (933).

In 2008 in Russia itself 3970 foreigners asked for political asylum. In total last year 383 thousands applications for political asylum were registered in 51 countries of the world.

UKRAINE: PEOPLE WILL KEEP SAVINGS IN A SHOE BOX

"Global financial crisis has stricken simple people in Ukraine", - says newspaper "Der Standart". People suffer from inflation, their savings are frozen. There is no trust towards banking system. The newspaper gives examples from every day life of Ukrainians demonstrating that they had to deprive themselves from lots ot things. People have to cut off trips to Russia to visit their relatives, cars bought through bank loans in foreign currencies - Ukrainian Hryvna devaluation does not allow Ukrainians lead normal life. Rating agencies believe that bad debts share among all consumers' loans will grow up to 20 or even up to 60 %. Situation is aggravated by banks' introduction of strict rules for cash withdrawal. In ATM people can take up to euro 50,00 only. This situation causes to people even more stress. As per experts' estimations, Ukrainian banks customers have already withdrawn one third of their deposits. The newspaper comes to conclusion by quoting a Ukrainian woman: "One thing is clear: after crisis nobody will take their money to banks. People would prefer keeping their savings in a shoe box".

At the same time foreign experts recommend to Ukrainian Central Bank to accelerate training of temporary administrators. International Monetary Fund and USA Treasury Department forecast that temporary administration would be introduced for about 50 Ukrainian banks, - says one of external administrators during a closed conference. At the moment temporary administration has been introduced for 11 banks.

World Bank: forecast for Ukraine

World Bank economist in Ukraine Ms Ruslan Piontkovsky stated on a press-conference that World bank has reduced its Ukrainian GDP forecast from -4% to -9% in 2009. According to this statement GDP growth in the year 2010 is expected to be 1% and in 2011 - 3,5%. According to World Bank report nominal GDP of Ukraine in the year 2009 is expected to be UAH 990,6 billion , in 2010 - UAH 1 103,5 billion, in 2011 - UAH 1 252,9 billion.

Soros: Ukraine at the edge of default

Ukrainian economy is at the edge of default. This statement was made by famous billionaire George Soros. At the same time he believes that IMF financial aid can support Eastern European economies.

Soros also states that Baltic states will continue suffering severe market disruptions.

LATVIA: FLATS' PRICES ARE FALLING, COUNTRY SHORT OF INVESTMENTS

In April, prices for flats in Latvia again dropped down to a record breaking level: In Riga standard flats prices dropped by 21,4% per month and now they are in the area of slightly more than euro 600 per square meter.

The most expensive flats are sold traditionally in Teyka - euro 767 per square meter, in Agenskalnes - euro 706 square meter. The cheapest flats are in Bolderaye - euro 491 per square meter and in Vetsilgravis - euro 599 per square meter. Smaller area flats are sold at higher prices - studios and 1bedroom flats cost in average euro 635 € per square meter, and 2 bedroom and larger flats are cheaper - euro 595 per square meter.

More over, Latvia is threatened by additional shock. Major foreign investors may leave the country. Foreign investments outflow, can be triggered by thefact that pension funds do not want anymore to buy Baltic states government bonds after the recent reduction of their credit rating by Fitch Ratings.

Earlier, pension funds of Sweden and Norway allocated their funds in Latvian timber industry and agricultural sector. Timber industry products were the third largest export item in Latvia. If pension funds withdraw their funds from this sector of the Latvian economy, it will cause "additional serious shock" according to Latvian analysts. Pension funds investments were giving an "additional buffer" to industrial enterprises in their struggle with the economic crisis.

Midland Consult, 29.04.09