The volume of frozen Russian assets that Europe will be able to transfer to Ukraine has been announced

The EU has developed a mechanism for partial withdrawal of Moscow’s blocked money

The West is developing a fiscal instrument in relation to Russia’s blocked foreign assets. Having failed to reach an agreement on the confiscation of these funds and on the use of the proceeds received from them, the EU decided to establish a new tax applicable exclusively to restricted capital. The European Union is going to transfer the seized money to Ukraine. However, Kyiv has almost nothing to rejoice at: out of the 200 billion euros stored in our sanctioned accounts in the Old World, Nezalezhnaya will receive no more than 2 billion a year.

The option of using the proceeds from Russian assets frozen abroad was agreed upon by the permanent representatives of the European Union. The mechanism being developed by Western countries provides for the introduction of an additional tax on income from sanctioned funds stored in special accounts. The Europeans want to use the received amount for possible financing of Ukraine.

Since the start of the special military operation, “unfriendly” countries have frozen almost $300 billion of Russian assets. The lion’s share of these funds, more than 200 billion euros, is concentrated in the Belgian depository Euroclear, a local financial company specializing in the storage and servicing of investments. Another approximately $100 billion is in America.

Back in December 2022, the US Senate passed a law on the confiscation and transfer of Russian assets to Nezalezhnaya. British parliamentarians demand the same. Meanwhile, Europe has not decided to take such drastic measures, which the Russian authorities directly call robbery. Germany, France and Belgium opposed the withdrawal. The authorities of these states considered that EU laws do not allow this to be done with foreign funds, and if they leave the legal field, then partners from other continents may stop trusting the leadership of the European Union.

Another idea for using frozen funds was to invest savings in various market instruments. The profits made during exchange operations were supposed to be given back to Kyiv. The trial balloon has already been launched. For 9 months of 2023, Euroclear earned 3 billion euros from the reinvestment of blocked Russian assets. According to the plan of the European Commission, the money should have been transferred to special accounts, but since the depository stores not only state, but also private savings of Russians, the initiative was not put into effect. In October 2023, Belgium announced that it would create a €1.7 billion fund for Ukraine by taxing income from Russian blocked assets.

In general, so far everything is happening according to the saying “the mountain gave birth to a mouse”: they threatened to transfer 200 Russian billions to Kyiv, but so far they have come up with a mechanism for only 2 billion euros.

According to Artem Tuzov, director of the corporate finance department at IVA Partners, Euroclear already paid taxes on income from sanctioned Russian funds last year: 625 million euros were sent to the Belgian treasury. Similar fiscal levies could be made in 2024. “Since the tax is local, it is incorrect to say that it will be transferred directly to Ukraine. Belgium will only be able to send voluntary assistance to Kyiv,” the expert notes. Considering that, according to some sources, one day of continued confrontation with Russia costs Nezalezhnaya $100 million, then such “help” will be enough, at best, for a week.

“The decision to assign an income tax is the softest option for resolving the issue of blocked assets compared to complete confiscation, but such actions will still be a challenge for our country. Most likely, Russia will react to such a decision,” says political scientist and expert on socio-economic development Oleg Maltsev. As Deputy Foreign Minister of the Russian Federation Sergei Ryabkov recently stated, our country does not exclude mirror retaliatory measures in the event of confiscation of its foreign assets.

There has never been a precedent in history when fiscal seizures occurred from the frozen assets of one country and were automatically sent to another state, and by the decision of a third party whose task is only to store money. “What kind of income tax will be imposed on blocked Russian assets will become clear only after the final decision of the EC is made,” the expert believes. “In Europe now there is a progressive tax scale, based on which the rate can reach 50-60%.”

However, even in the European Union itself they admit that the final mechanism for transferring funds to Square has not been developed. “Neither the EU nor Kyiv will receive significant fees from the new tax, comparable to the total amount of Russian assets blocked abroad. Judging by Euroclear’s earnings last year, withdrawals will not exceed $1.5-2 billion, says BitRiver Communications Director and economist Andrei Loboda. “The European mountain not only gave birth to a mouse, but cracked and crumbled into small pieces.”