Right after the midterm election, US President Donald Trump swiftly reshuffled his administration’s personnel, firing Attorney General Jeff Sessions. Experts believe that by making this move, Trump sought to put an end to the probe into the so-called “Russian meddling” allegations, which he has branded as “a witch hunt,” Nezavisimaya Gazeta writes.
Director of the Franklin Roosevelt US Policy Studies Center at Moscow State University Yuri Rogulev said that Trump’s decision to sack Sessions after the midterm elections was pragmatic and well thought-out. Trump must have listened to what his advisers said, who had insisted he refrain from such a move before the midterms since it could have significantly affected the Republican Party’s results. “Trump has actually launched his next presidential election campaign so he is determined to put an end to the so-called Russian meddling narrative in the 2016 election. Now that the Republicans have secured a majority in the Senate, he is free to appoint top officials and it will be easier for him to get the Senate’s approval,” Rogulev told the paper.
From the standpoint of US legislation, Trump’s decision to name Sessions’ Chief of Staff Matthew Whitaker as acting attorney general instead of Deputy Attorney General Rod Rosenstein is questionable. A thing to note is that in May 2017, after FBI Director James Comey had been fired, Rosenstein appointed former FBI chief Robert Mueller as special counsel to investigate the “Russian meddling” allegations. Bearing in mind Rosenstein’s dangerous statements, Trump could not let him take Sessions’ place, Rogulev noted.
“Rosenstein spoke about the need to install a recording device in Trump’s office so that he could be caught red-handed while making some ‘improper’ deals. Trump is furious that he still holds his post. However, Rosenstein will no longer have the cart blanche he used to have under Sessions,” the expert pointed out.
On Thursday, the US Department of the Treasury, as expected, announced an extension of its sanctions against Russia. The KrymTETS company operating electric power generation facilities, a number of resorts and the Yuzhny Proyekt (or the Southern Project) company, the owner of the Novy Svet (or New World) sparkling wine producer, were included into the Specially Designated Nationals (SDN) List. However, experts say that since Crimea has been under sanctions for quite a while, things will not change much for these entities, though it is now almost impossible to attract Western investment into these projects, Kommersant notes.
The issues with the construction of a large thermal power facility in Crimea – a project being implemented by Rostec’s Tekhnopromexport company – illustrate the situation. Restrictions on investments into the peninsula’s energy industry already blocked the supplies of western-made energy equipment (Siemens gas turbines were crucial and Rostec’s companies had to employ a reselling scheme to eventually deliver them to Crimea). It delayed the implementation of the Balaklava and Tavria thermal power plant projects, the two power facilities are expected to be put into operation only at the end of 2018.
And now, the KrymTETS company, which plays an important role in supplying energy to Crimea, has also been blacklisted, while it had plans to pour a huge investment into new power facilities.
A source in the Energy Ministry told Kommersant, “these sanctions will not influence energy supplies to customers on the Crimean Peninsula and the KrymTETS company’s operations in Russia.” “The upgrade of one of KrymTETS’ facilities – the Saki thermal power plant – involves Russian equipment,” the source added.
All the newly blacklisted hotels and resorts are located in Crimea. The largest of them, the Mriya Resort & SPA center, belongs to Sberbank and is considered to be one of the region’s most luxurious resorts.
As for the Yuzhny Proyekt company, it is a subsidiary of the Russia bank. The financial instituion and its major shareholder Yuri Kovalchuk were sanctioned back in 2014, so the widened sanctions may be viewed as a technical move.
BGP Litigation associate Denis Durashkin believes that the latest expansion of the US blacklist will not significantly affect Russia’s economy. “However, the companies included in these lists will definitely find themselves in trouble. They may face many obstacles when going for loans and making deals on matters involving the use of software,” the expert noted.
For the first time, the Taliban (outlawed in Russia) will send its delegation to Moscow to take part in a peace conference on Afghanistan. The event is scheduled for November 9. Members of the Afghan High Peace Council – which means, the country’s delegation – as well as representatives of Afghanistan’s neighboring states, are also expected to participate in the conference. The US Embassy in Moscow will also be represented. According to experts, the conference will restore Russia’s role in resolving the Afghan crisis, Nezavisimaya Gazeta wrote.
Moscow sought to arrange this kind of meeting in September but the Afghan government raised objections, making Russia delay the conference. However, now it seems that Russia’s diplomatic effort has produced some results.
Apart from Afghanistan, the list of countries invited to the meeting includes China, India, Iran, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan, Uzbekistan and the United States. Washington – the most influential player on the Afghan field – did not reject the invitation to participate. That being said, the Taliban will send a five-member delegation.
The Afghan government, in turn, also agreed to take part in the Moscow talks, though with some reservations, as it had said many times that it would hold talks with the Taliban only in case they were initiated by Afghanistan itself. The stance could have made the participation of an official Afghan delegation impossible but on Wednesday, the country’s main negotiating body – the High Peace Council – announced plans to send a delegation to Moscow.
Omar Nessar, a researcher with the Institute of Oriental Studies at the Russian Academy of Science, told Nezavisimaya Gazeta that Moscow had to employ diplomatic finesse to meet the parties’ nearly irreconcilable demands.
“A delegation of Afghanistan’s High Peace Council will take part in the conference. At first, the country’s Foreign Ministry said that the delegation did not represent Kabul, but on November 8, a ministry spokesman said that the delegation did represent the interests of the government and people of Afghanistan… The Peace Council is a state body holding talks within the peace process,” the expert said, adding, “the meeting is arranged so that all parties are on an equal footing.”
Clearly, the Afghan issue cannot be resolved through a single round of talks. However, the Taliban’s participation is very important. On the one hand, the summit offers an opportunity to talk to them and on the other, conditions may be created to build direct dialogue between Kabul and the Taliban. Perhaps, the conference will encourage the Taliban to join Afghanistan’s legal political system and abandon violence as a tool in the struggle for power, the expert concluded.
Using national currencies in trade with China will not significantly influence the ruble’s exchange rate, Economic Development Minister Maksim Oreshkin said in an interview with Izvestia following a meeting between the Russian and Chinese prime ministers.
“The ruble is a largely stable currency. Our country’s macroeconomic policy concerning inflation-targeting and budget regulations affects the ruble exchange rate more,” he said.
Nevertheless, the lack of an appropriate payment system prevents Russia and China from using national currencies in trade, Oreshkin noted. According to him, there is a need to ease regulations to create such a system. “The lack of liquidity and effective payment mechanisms prevents us from using the ruble and the yuan,” the minister said.
When asked about how US sanctions influenced Russian-Chinese cooperation, Oreshkin admitted that some issues “do… exist” in that regard, while Moscow and Beijing continue to discuss them. “Reducing the role of other countries in trade and economic relations between Russia and China is our ultimate response to all that,” he added.
Meanwhile, Russian-Chinese trade is expected to grow to about $110 bln in 2018, the minister stressed. He went on to say that the two countries needed to boost cooperation in a number of key areas to reach the trade target of $200 bln. In particular, he emphasized the need to establish a common online trade space, which is important for the two countries’ small and medium-sized businesses.
“The total cost of Chinese goods coming to Russia through online trading platforms has exceeded $3 bln. On the whole, we need to create a common online trade space so that Chinese manufacturers have access to the Russian market, and the Russian ones may access the Chinese market,” Oreshkin said.
Besides, in his view, Moscow and Beijing also need to boost trade in services. In this regard, he pointed to the significant potential for cooperation in the tourism industry.
Next year, the rules for paying the so-called “Google tax” – the value-added tax foreign companies pay to sell games, music and books online – are going to be changed. Starting from 2019, foreign companies will have to register with the Federal Tax Service (FTS) and pay VAT for services they provide to Russian businesses, customers have been doing this so far, Vedomosti notes.
The new law will create significant inconveniences that may hinder business activities in Russia, Association of European Businesses Director General Frank Schauff said in a letter to Finance Minister Anton Siluanov and Federal Tax Service Head Mikhail Mishustin, calling for preserving the current rules.
All Russian subsidiaries of international companies and every second large Russian company use digital services provided from abroad, Head of Tax Practice in Eversheds Sutherland Russia Andrey Grachev noted.
However, if a foreign company fails to register, it will have to pay a fine of ten percent of its revenues. Companies may register with the Federal Tax Service on its website, using a special form, a FTS spokesman said.
In 2017, foreign companies’ VAT payments reached 9.4 bln rubles ($140.6 mln), while 7.9 bln rubles ($118.2 mln) were paid in the first nine months of 2018. According to the FTS, as of October 1, 162 companies have paid the “Google tax.” Foreign companies are worried because there is no such practice in other countries and they cannot understand why they should register and how to do that, Grachev noted, adding that Russian companies were also concerned, expecting issues with VAT deduction.
It is Russian companies that will face major risks, Taxadvisor Executive Partner Dmitry Kostalgin said. “Tax deduction is only possible if the seller specifies VAT but it is hard to imagine that big foreign companies will change their accounting systems for that, while smaller ones will just prefer not to work with Russians,” he noted. “The new rules may force Russian companies to create foreign subsidiaries to purchase such services,” Kostalgin noted.
The VAT payment mechanism will remain the same so there is no risk of double taxation, General Manager eBay Russia and Emerging Europe Ilya Kretov pointed out. Meanwhile, Facebook and Google did not respond to Vedomosti’s requests.
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