Communique on the 20th Session of the Foreign Investment Advisory Council

(Moscow, October 16, 2006)

The 20th Jubilee Session of the Foreign Investment Advisory Council was held in Moscow on October 16, 2006.

At the session, the Chairman of the Russian Government, M.E. Fradkov, congratulated the members of the Advisory Council, the heads of ministries and departments, the Russian government staff and the Bank of Russia, i.e. participants in the Council’s work, on the jubilee and noted the important role played by the Council in helping to form a favorable investment climate in Russia. Since the Advisory Council was established in 1994, its recommendations, proposals and surveys have been used to prepare draft laws and related legislation which directly affect the legislation environment with the aim of establishing civilized market relations in Russia.

The long-term efficient cooperation between the Government of the Russian Federation and major foreign investors within the framework of the Advisory Council springs from the fact that the Council’s members, having mastered the ideas tested by time and underpinned by experience gained by generations throughout the world in organizing state management under market conditions, are participating in the implementation of these ideas by means of an open and direct dialogue and, together with the Government voluntarily bear liability for the outcome of this cooperation.

In his speech, the Chairman of the Russian Government gave a general assessment of the economy and its main development trends. The Russian economy has shown strong and steady growth in recent years. In 2006, gross domestic product is expected to increase by about 7%, fixed capital investments, by 11%, and industrial production, by roughly 5%.

The rate of growth in real income of the population remains high, and by the end of 2006 it is expected to increase by 12%. Capital investments have increased by 1.5 times in the last four years. Volume of foreign investments has been actively growing.

Russia has paid off its foreign debts to the London Club and the Paris Club. The state debt has been halved in the last four years and the gold and foreign-currency reserves are increasing. As of 1 October 2006, the stabilization fund amounted to 1,894 billion rubles, or more than USD 70 billion.

Steady economic growth and consistent steps taken by the Russian Federation Government in implementing the economic reform strategy have created the tangible preconditions to introduce the innovation component into economic diversification. Creation of the investment fund, concession mechanisms, special economic zones, Russian venture company and implementation of public private partnership mechanisms in strategic programs are all intended to promote steady growth and make fuller use of Russia’s economic potential.

The current stage of Russia’s economic development calls for much greater improvements in the organization and management of state regulations, as well as the legislation guaranteeing security of property rights and in formation of the market infrastructure. As part of its effort to resolve these important issues, the Russian Government works consistently to eliminate the barriers facing investors in their operations.

The Foreign Investment Advisory Council is taking an active part in improving the regulatory and legal base governing entrepreneurial activity in Russia and in creating conditions for practical application of already adopted laws in line with requirements of the Russian investment community.

Between October 2005 and the present time FIAC members participated in preparation of amendments to the Russian Federation Tax code giving taxpayers increased rights in relation to desk audits. As of January 2006, the VAT deduction procedure has considerably changed, the list of reasons for suspending operations involving taxpayers’ accounts has been substantially reduced, and differentiated taxes related to the extraction of hydrocarbons have been introduced.

Amendments to the laws “Concerning the Securities Market”, “Concerning Currency Regulation and Currency Control”, “Concerning Foreign Investments in the Russian Federation” and “Concerning Subsurface Resources” have been adopted.

Decisions aimed at development of the derivatives market, including judicial protection of transactions involving derivatives are being prepared.

Joint work has being continuously carried out with the aim to improve the investment climate in the Russian Federation.

FIAC members favorably assessed the Russian Government’s consistent efforts to improve market relations in the economic and financial spheres and to create conditions for promoting innovatory and investment processes.

The FIAC participants propose that joint efforts should be concentrated on addressing the following important issues of improving the norm-related legal basis for entrepreneurial activity.

State Regulation:

  • Prepare draft Federal law On the Legal Status of Foreign Citizens in the Russian Federation (with respect to the regulation of the employment of foreign workers in the Russian Federation) to exclude accredited employees of foreign representative offices, within the total number of such employees agreed upon during their accreditation, from the list of persons who need to obtain work permits.
  • Prepare draft Federal law On Electronic Signature and amendments to the Tax Code and Federal law On operations of archives concerning the electronic exchange, storage of source tax documents and granting of legal status to electronic archives;
  • Draft revised proposals on improvement of the state secrets legislation applied to the oil and gas sector and discuss them within the FIAC framework with the interested federal executive bodies of the Russian Federation in order to eliminate excessive restrictions and to improve investment climate in the mineral resources sector;
  • Set up an expert group to include representatives of the Federal Antimonopoly Service, the Ministry of Economic Development and Trade, the FIAC and public associations which should prepare recommendations on the expedience of amendment of the Law on advertising and establishment of a transparent pricing system at the market of TV advertising;
  • Prepare for adoption draft Federal law On Amendment of Federal Law On State Regulation of Production and Turnover of Ethyl Alcohol, Alcohol products and Products with Alcohol Content with a view to abolish the provisions of the said law pertaining to perfumes, cosmetics and Household chemical goods.
  • Prepare proposals to streamline the procedures for preparing the official opinion of the Government of the Russian Federation with respect to the technical bylaws developed at the initiative of business entities and to adjust the scope of the concerned federal executive agencies and the Ministry of Industry and Energy of the Russian Federation.

Customs Procedures

  • Prepare amendments to the Customs Code to further improve the procedures for provision of preliminary information and introduction of the institute of the authorized consignee;

Tax and Accounting

  • Review of amendments to the Tax Code of the Russian Federation pertaining to changes in tax administration and levying the VAT which became effective as January 1, 2006, as well the amendments which will become effective as of January 1, 2007;
  • Review of the practice related to the tax deduction of expenses on the employment of highly skilled foreign and Russian experts in accordance with services contracts;
  • Prepare proposals for the final settlement of tax arrears on taxpayers’ nominal accounts related to the sums which were not transferred to the budget of the Russian Federation by problem banks in 1998-1999 due to the bankruptcy of such banks.

Financial Institutions and Capital Markets

  • Draft proposals to introduce amendments into the Russian Federation Tax code and the Federal Law, On Accounting, regarding taxation and accounting of transactions with derivatives;
  • Speed up the work on the draft Federal Law to ensure legislative basis for consolidated banking supervision, and draft laws aimed at improving efficiency of the pledge mechanism;
  • Expedite preparatory work to adopt the Federal Law on securitization of assets and the Federal Law on subordinated debt mechanisms;
  • Study the issue of the organizational and legal form of non-state pension funds and of improvement of the legislation on investment of the labor pension accumulative component and taxation of the voluntary pension insurance.

Industry, Construction and High Tech

  • Speed up the adoption of the Federal Law, On the Procedures to Make Foreign Investments into Commercial Organizations of Strategic Importance to the Russian Federation National Security;
  • Prepare, on the basis of foreign experience, proposals to improve the innovation legislation of the Russian Federation in the part related to protection of intellectual property rights;
  • Monitor and review the practical application of legislative acts aimed at simplifying the procedure and processes of obtaining supporting documents to implement industrial investment projects on the basis of the “one window” principle after the said acts come into force.

Food and Agriculture

  • Speed up the work on optimization of import duties on raw materials and semi-finished products for the food industry which are not grown or produced in sufficient amounts in Russia.
  • Consider the exemption from the import customs duties on certain types of machinery and equipment for the food industry, which are not produced in Russia and, in future, consider foreign investors’ proposals concerning the cancellation of import customs duties on the foregoing equipment

Natural Resources

  • Prepare and review proposals for amendments into the appropriate legislation to ensure transparency of tenders for the right to use subsoil mineral resources on the open competition basis;
  • Prepare proposals for providing definitions of the terms of “federal significance areas” and “geological data” and precisely define conditions for limiting foreign participation in the development of such deposits and access to geological data;
  • Review the conditions for developing new deposits in remote and hard-to-reach areas and prepare proposals for possible differentiation of the mineral extraction tax on the basis of the commercial viability of projects;
  • Draft proposal based on experience of international sea shelf development projects to improve economic efficiency of development of Russian sea shelf deposits.

Customs Procedures

Public-Private Partnership in Transportation

  • Draft proposals concerning the mechanisms to implement public – private partnership projects in the transport industry, including their financing models;

Investment Image

  • Prepare an integrated program and a detailed plan of actions to improve the image of Russia and review the proposals to establish an agency to attract foreign investments;
  • Draft proposals for organizing the FIAC members’ participation in the Russian Government’s undertakings at home and abroad to promote in foreign mass media positive deliverables of economic reforms, economic policy and foreign economic policy of the Russian Federation;
  • Prepare proposals for improving the “Russia’s Investment Possibilities” website with the FIAC members’ participation;
  • Continue preparatory activities to conduct the third annual survey of investors’ attitudes towards Russia’s investment climate with addition of a new section on “Investment Appeal of the Russian Regions”.

Results of the long-standing joint work of FIAC with the Russian Government in implementing major investment projects, promoting entrepreneurial activity, and developing and carrying out economic reforms have clearly showed the usefulness and high effectiveness of such form of public-private international cooperation.

The Russian Government highly values the active participation of CEOs and experts of the FIAC member-companies as well as of heads and specialists of federal executive power bodies of the Russian Federation in the Advisory Council’s work and expresses its certainty in subsequent fruitful cooperation.