Identifier
Created
Classification
Origin
08MOSCOW3179
2008-10-29 14:14:00
CONFIDENTIAL
Embassy Moscow
Cable title:  

GOR STILL FEELING ITS WAY ON TAXING FOREIGN GRANTS

Tags:  PREL EAID KDEM PHUM PINR USAID RS 
pdf how-to read a cable
VZCZCXYZ0004
PP RUEHWEB

DE RUEHMO #3179/01 3031414
ZNY CCCCC ZZH
P 291414Z OCT 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0551
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
C O N F I D E N T I A L MOSCOW 003179 

SIPDIS

E.O. 12958: DECL: 10/29/2018
TAGS: PREL EAID KDEM PHUM PINR USAID RS
SUBJECT: GOR STILL FEELING ITS WAY ON TAXING FOREIGN GRANTS

REF: MOSCOW 1909

Classified By: Acting Political Minister Counselor David Kostelancik; r
eason 1.4 (b) and (d)

C O N F I D E N T I A L MOSCOW 003179

SIPDIS

E.O. 12958: DECL: 10/29/2018
TAGS: PREL EAID KDEM PHUM PINR USAID RS
SUBJECT: GOR STILL FEELING ITS WAY ON TAXING FOREIGN GRANTS

REF: MOSCOW 1909

Classified By: Acting Political Minister Counselor David Kostelancik; r
eason 1.4 (b) and (d)


1. (SBU) Summary: The Ministry of Finance has sent a letter
to Premier Vladimir Putin identifying the criteria and
procedures for including foreign non-commercial organizations
on a list of grantors whose grants are exempt from income
taxation for Russian recipients. The proposal was hardly a
consensus document and contains many provisions such as only
a one-year validity for government decrees approving an
organization's inclusion on the list and a key role for the
current inter-ministerial Commission on International
Humanitarian and Technical Assistance (CIHTA). We have
addressed the MFA about the possibility of USAID's inclusion
on the list and will continue to follow up with the ministry
on the feasibility of USAID submitting an application. End
Summary.


2. (SBU) On October 6, Minister of Finance Aleksey Kudrin
sent a letter to Russian Premier Vladimir Putin containing
the criteria and procedures for including foreign
non-commercial organizations on a list of grantors whose
grants are exempt from income taxation for their Russian
recipients. Putin had called for the Ministry of Finance to
develop these criteria and procedures, in cooperation with
other ministries, pursuant to his decree number 485 dated
June 28, 2008 (reftel). According to the letter, such
foreign grant making organizations must be "non-commercial"
entities and the grants should be provided for implementing
specific projects in the fields of science, education, arts,
culture, public health care, environmental protection, the
provision of social services to low income and vulnerable
population groups and for carrying out specific scientific
research. (Note: Ideally this list of areas should track a
similar list codified in Article 251 of the tax code.
Whether by design or poor drafting, the list in Kudrin's
letter notably leaves out any reference human rights, an area
specifically included in the tax code provisions, as one of
the acceptable areas for grants. End Note). The letter went

on to add that such projects should correspond to the
national interests of the Russian Federation in the fields of
education, arts, culture, science and health care, and must
comply with the international covenants and legislation of
the Russian Federation.


3. (SBU) According to the October 6 Ministry of Finance
proposal, the foreign organization must apply to be included
on the list of grantors whose grants are tax-exempt to their
Russian recipients. The grantor's application must contain
the following information:

-- full official name of the organization;

-- type of organization (according to its basic, founding
documents);

-- identities of the founders of the organization, the date
it was founded, and the goals and purposes it pursues;

-- purpose of the grants;

-- information regarding the amount of the grant;

-- lists of grantees over the last three years (in those
cases in which there are many recipients, the general number
of grants can be provided); and

-- a program of philanthropic activities and other materials
confirming the intention of the grantor to support science,
education, culture, arts and health care in the Russian
Federation.


4. (SBU) The letter proposed a Byzantine process for
approval of applications for inclusion on the list of
tax-exempt grantors. GOR ministries dealing with science and
technological development, education, culture, arts and
health care must first review every application . If it
decides in favor of the application, it will prepare a draft
government resolution that must then be confirmed by an
interagency group consisting of the Ministry of Finance,
Ministry of Justice, the Federal Security Service (FSB),the
Foreign Intelligence Service (SVR),and the Ministry of
Internal Affairs (MVD). After the draft resolution is
confirmed by this interagency group, it is forwarded to the
existing inter-ministerial Commission on International
Humanitarian and Technical Assistance (CIHTA) for a final
review. The decision to include an organization on the list
of tax-exempt donors is only valid for one year.


5. (SBU) The consultations leading up to the criteria and
procedure set out in the Kudrin letter were not without
controversy. In a letter to the Ministry of Finance, the
Ministry of Education had proposed extending the term of the
government's resolutions approving an organization's
inclusion on the list to two years (vice the current proposal
of only one year). In addition, the Ministry of Economic
Development had argued that government's decision approving
an application should not have to undergo a final review by
the CIHTA. CIHTA was created to vet technical assistance
development projects implemented in Russia to determine if
they merited tax-exempt status, a process quite distinct from
the grant list mechanism. CIHTA has come under criticism for
having become too bureaucratic and ill-equipped to handle the
technical assistance task. The Ministry of Economic
Development protest mentioned in the Kudrin letter against
tasking CIHTA with this new responsibility for vetting
candidates for the grant list likely stemmed from a fear that
this will confuse CIHTA's mandate and lead to further delays
on both the grant list and technical assistance vetting
processes.


6. (SBU) If past practice is a guide, an organization
applying for inclusion on the donor list first submits an
application to the ministry responsible for the
organization's area of activity. The procedure set out in
Kudrin's letter provides that if an application is denied,
the federal agency that submitted it to the GOR shall notify
the organization of the decision. The Ministry of Education
and the Ministry of Health have assured one of USAID's
implementing partners that they will be accepting
applications from foreign non-commercial organizations and
submitting them to the GOR for approval once they receive the
final version of the criteria and procedures.

USAID Considering Inclusion on the List
--------------


7. (C) Poloff and USAID's legal advisor met October 24 with
Vyacheslav Moshkalo, Senior Counselor for Economic Affairs at
the MFA's North America Department to discuss USAID
programming in Russia and the possibility of USAID becoming
registered as a tax-exempt foreign donor. Moshkalo was
generally receptive at the start of the meeting, saying that
with its excellent history of performance here in Russia,
USAID should not have any problem in getting registered.
When the discussion turned to the mechanics of registration
and our suggestion that the MFA might act as the "sponsoring"
ministry for a USAID application to be included on the donor
list, Moshkalo became less sanguine. Moshkalo promised to
discuss this issue with his superiors and with
representatives of the MFA's Department for Economic
Cooperation which he said had primary responsibility for
monitoring assistance programs on behalf of the MFA. We also
suggested he speak with representatives of the International
Organization Department, with whom USAID already has a
relationship and one of whose division chiefs, Victor
Zagrekov, is the point person on the CIHTA working group --
the official MFA designee to CIHTA is Deputy Foreign Minister
Aleksandr Yakovenko. (Septel to report Ambassador's October
28 meeting with Yakovenko).

Comment
--------------


8. (C) USAID is not the only USG grantor that could be
affected if Putin's decree leads to taxing foreign grants to
Russian entities. We have learned that the Ministry of
Finance ruled in mid-October that the USG-supported
International Science and Technology Center (ISTC) is subject
to Decree 485 and that in January 2009, the grants it
receives from foreign sources will be taxed unless the
foreign organization is on the list of tax-exempt grantors.
Questions remain about the purpose of Putin's June 28 decree.
The absence of any language about grants supporting human
rights and democratization and his visceral reference, first
at the "For Putin" rally in November 2007 and again in his
last press conference as Russia's president in February 2008,
about non-governmental organizations that "sniff like jackals
outside of foreign embassies seeking money," may yet be
another attempt to tighten the screws on this aspect of civil
society.
BEYRLE