For how long shell companies have left?
The Federal Tax Service undertakes serious measures against shell companies since 2016, striking them off the Unified State Register of Legal Entities. The number of active legal entities in Russia reduced by 11% for two years.
There was a record reduction in a number of companies established for illegal actions – tax evasion, money laundering, cashing-out and withdrawing the funds abroad. According to the Federal Tax Service (hereinafter “the FTS”), the number of shell companies reduced to 309,5 th, that is 7,3% of total number of companies on July 2018.
At the beginning of 2016, there were significantly such kind of companies: 35,5% or 1,6 mln; and in 2011 about 40% of companies in Russia could be classified as shell companies.
As of July 1, 2018 totally 4,2 mln legal entities were registered in the Unified State Register of Legal Entities (hereinafter “EGRUL”). In the year-earlier period this figure exceeded 4,5 mln.
Not the FTS alone detects attributes of shell companies. The Bank of Russia also plays an important role in struggle against shell companies. Since 2015, the regulator publishes guidance notes demonstrating main doubtful business transactions and signs requiring additional analyses (see Picture 1).
The majority of active Russian companies are located in Moscow – 885 th or 21% of total number of companies. 324 th and 222 th are accounted for Saint-Petersburg and Moscow region respectively. These subjects also leads by the number of dissolved companies: for the first half-year of 2018, 118 th companies were dissolved in Moscow, 33 th – in Saint-Petersburg, and 15 th – in Moscow region.
Newly established companies do not compensate the number of liquidated ones. For example, in Moscow the total number of business subjects decreased by 56 th for the first half-year of 2018 (see Table 1).
|№||Region||Legal entities, total for 01.07.2018||Share of total number of legal entities, %||Legal entities established for the first half-year of 2018||Legal entities dissolved for the first half-year of 2018||Difference between the number of established and dissolved legal entities|
|The Russian Federation||4 243 566||100||197 082||329 540||-132 458|
|1||Moscow||884 969||21||62 143||117 916||-55 773|
|2||Saint-Petersburg||324 202||8||19 053||33 479||-14 426|
|3||Moscow region||222 188||5||7 664||14 827||-7 163|
|4||Sverdlovsk region||145 226||3||4 967||8 989||-4 022|
|5||Krasnodar territory||135 736||3||5 553||9 563||-4 010|
|6||Novosibirsk region||117 931||3||5 516||6 654||-1 138|
|7||The Republic of Tatarstan||113 050||3||5 437||5 600||-163|
|8||Samara region||103 472||2||5 869||7 397||-1 528|
|9||Chelyabinsk region||93 484||2||2 843||5 024||-2 181|
|10||Nizhniy Novgorod region||89 433||2||3 658||6 305||-2 647|
Totally 330 th companies were liquidated for the first half-year of 2018. Compulsory winding-up by the registering authority was the reason of termination of 283 th or 86% of companies (see Picture 2).
Almost 45 th or 13% of legal entities were dissolved due to economic reasons, including: liquidation – 33 th, reorganization – 7 th, bankruptcy – about 5 th.
On the background of obvious success in struggle against shell companies, there are cases when nonconformity to strictly specified formal criteria led to problems for genuinely operating companies.
All addresses with over ten companies registered at were automatically included in the FTS list of suspects. However, the compilers of lists of mass registration addresses did not take into account a number of large buildings and business centers with premises rented by hundreds of companies. According to Globas on July 2018, there is a record on unreliability of legal address for 612 th companies or over 14% of total number of active legal entities.
The list of directors / shareholders of multiple entities includes famous business people and public persons at the top of well-known brands, such as: Leonid Fridlyand, co-owner of the jewelry boutiques chain "Mercury". Georgy Boos, the former governor of Kaliningrad region, was also unlucky - according to the FTS, he is a shareholder of multiple entities, including LLC Likhoslavl Lighting Equipment Plant. Moreover, executives, in the name of who regional representative offices and branches were opened, appeared to be in "risk zone".
The FTS will obviously need to strike a balance between the formal struggle with shell companies and the interests of an honest entrepreneur. Tightening formal criteria will not stop unreliable counterparties, as getting around the rules is the goal of their existence, and it becomes more difficult for conscientious enterprises to fulfill ever-increasing requirements.