Companies registered in offshore tax havens account for over half of foreign direct investment in Russia, the highest proportion of all major economies, the International Monetary Fund (IMF) said in a report, according to The Moscow Times.
The paper, exploring investment trends in the world’s top 20 economies, estimates around 60% of all FDI into Russia is made by empty brass plate holding companies.
“These shells, also called special purpose entities (SPEs), have no real business activities. Rather, they carry out holding activities, conduct intra-firm financing, or manage intangible assets — often to minimize multinationals’ global tax bills,” the IMF said.
The organization added: “Such financial and tax engineering blurs traditional FDI statistics and makes it difficult to understand genuine economic integration.”
“Phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40% of global FDI,” the report found.
Of the world’s largest 20 economies, Russia was one of only three where phantom FDI rates exceeded that global average. Accounting for almost 60% of all overseas investment into the country, Russia’s share of phantom FDI was twice as high as that recorded in the United States, South Korea, Mexico, Turkey and a number of other countries — both rich and developing.
The IMF also found that around one-quarter of FDI into Russia was “ultimately owned by domestic investors” — a practice known as “round-tripping” where domestic investors channel funds through a foreign organization or investment vehicle which then invests back into the investor’s home country.