CONSTRUCTION IN TURKMENISTAN: FOR MAJOR COMPANIES,

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000530

SENSITIVE
SIPDIS

E.O. 12958: DECL: 04/24/2019
TAGS: PGOV PHUM PREL TX
SUBJECT: CONSTRUCTION IN TURKMENISTAN: FOR MAJOR COMPANIES,
DEATH MAY BE CERTAIN, BUT TAXES ... NOT SO MUCH

Classified By: Charge Richard Miles for reasons 1.4 (b) and (d).


1. (C) SUMMARY: According to the local representative from
Deloitte in Turkmenistan, Turkmen-owned construction
companies register offshore in order to move money overseas
and take part in the part of the lucrative construction
industry reserved for foreign companies. Foreign companies
that are registered in noted tax havens, such as the British
Virgin Islands, have found this to be a method of avoiding
taxes in their home countries. Construction appears to be a
money-making enterprise to the various ministries. According
to our contact, the two largest foreign construction firms
operating in Turkmenistan - Turkish company Polimeks and
French company Bouygues - do not pay taxes to Turkmenistan,
but rather "work something out" with Turkmen officials. It
is clear that the construction industry offers a broad base
for financial foul play. END SUMMARY.


2. (C) Embassy Officer met with a local representative from
Deloitte in Turkmenistan, Ovez Agayev, on April 21. Deloitte
is not yet registered in Turkmenistan and cannot officially
transact business here and said the registration process
should be completed in a few months. He said the company
currently uses their parent office in Almaty as the signatory
for any local contract. A company is not required to
register if work performed does not exceed 45 days. Some
companies have treaties with the local government that allow
operations for up to twelve months without registration.

OFFSHORE AND THE LANDLOCKED COUNTRY


3. (C) There are many firms involved in construction in
Turkmenistan, the majority of which are Turkish, with some
Russian, as well as European and Asian based companies.
According to our contact, there are Turkmen construction
companies, although until recently, construction contracts
were not awarded to these companies, citing lack of
experience. Turkmen businessmen get around this obstacle by
registering off shore in someplace like the British Virgin
Islands and finding a foreign owner to act as the "puppet"
principal of an organization with the Turkmen operating
officially as the "Deputy." In reality, the local Turkmen
deputy runs the show. The fact that the business is "foreign
owned" also allows money to be sent outside the country, an
added benefit to the Turkmen insider as he would not
otherwise have the means to export funds. In spite of the
largest construction contracts going primarily to two main
foreign companies, the French Bouygues and the Turkish
Polimeks, the Turkmen Government recently began to award
smaller construction projects to local Turkmen owned
companies.


4. (C) Agayev said that some foreign or "foreign" companies
(with Turkmen insiders) register offshore in Cyprus or the
British Virgin Islands. This allows real foreign companies
to avoid taxes in their home country. The Turkmen Government
has no tax treaties with tax haven countries.

ONLY LITTLE PEOPLE PAY TAXES


5. (C) The largest construction projects are awarded
primarily to two foreign firms - the French Bouygues and
Turkish Polimeks - absent any formal competition or tender.
The government orders profit generating ministries such as
the Ministry of Oil and Gas, Energy, Railway and Construction
to spend profits on building construction. Those Ministries
are then responsible for the building, and if it is an
apartment building, the Ministry provide apartments at half
price to their loyal workers. Essentially, the workers are
given the apartments for free, and then given a loan for 50
percent of the actual value and expected to pay the state
bank back at an interest rate of 1 percent over 30 years.
If all of the apartments are not used for their employees,
the Ministry can return them to the Mayor's office for sale
to the general public. At that point, there is a
determination from the government whether or not the Ministry
or the Central Government retains the profits from the sale
of the apartment.


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6. (C) According to Agayev, Bouygues and Polimeks deal
directly with the Turkmen Government on "tax issues." In
short, he claimed that Polimeks and Bouygues do not pay
taxes, but rather simply "figure something out" with the
government.


7. (C) Agayev said the current tax code was adopted in 2004
and there have been a number of amendments, which make it
much more understandable than before. Tax rates are as
follows: for a company registered legally in Turkmenistan, 8
percent of profit is taxed. Additionally, if funds are
repatriated to the host country, an additional 15 percent on
those funds are collected. Tax treaties can reduce the
amount of tax obligations. A company branch or a subsidiary,
without the parent company in Turkmenistan, pays a flat 20
percent of profits in taxes. If the company is not
registered, or somehow exempt, the contractor (payor)
withholds 15 percent from their payment for the company's
services.


8. (C) COMMENT: It is clear that the construction industry
offers a broad base for financial foul play. Between the
enormous amounts of white marble that are mandated to cover
the outside of every building and just the sheer size of some
of the building projects (the largest mosque, the second
tallest flagpole, the most expansive entertainment complex,
etc.),one has to wonder why so much money is spent on
construction, especially since many buildings remain largely
unoccupied. There must be large amounts of money falling
through the open scaffolding of construction projects around
the city. END COMMENT
MILES