A tariff must be imposed on companies that continue to operate in Russia

A tax must be imposed on companies that continue to operate in Russia.

 
Why?

Western companies paid €20 billion in taxes to the Kremlin in just the first year of Russia’s full-scale invasion of Ukraine. Out of all foreign businesses, American, German, and Swiss companies are the largest donors to Russia’s federal budget. 

These companies' desire to continue reaping windfall profits not only funds the Russian war effort but also hinders Ukrainian funding by blocking the use of frozen Russian state assets, amounting to approximately €300 billion. The threat of retaliation from Russia, such as the expropriation and nationalization of foreign companies, is one of the primary reasons for foreign businesses to pressure their respective governments against the confiscation of Russian sovereign assets.
Thus, foreign firms that stay in Russia are collaborators with Russia, and effectively hold both Ukrainian and G7 governments hostage as a result of that decision. This situation places the major financial burden of supporting Ukraine’s defense efforts on these governments, while the companies themselves continue to benefit from and contribute to the war. 

The burden of financing the military assistance and reconstruction of Ukraine must be placed on the aggressor state and the companies that fund the aggression, not Western taxpayers.

Importance for Germany

Germany provides the second-most support to Ukraine, estimated at €21.22 billion (both bilaterally and through the EU). 

At the same time, German companies rank second in terms of tax contributions to Russia's budget. 268 German companies continue operating in Russia, resisting demands to exit from the aggressor’s  market. In 2022, these companies paid approximately $2 billion in taxes to Russia—funding Russia’s war machine and undermining the contributions of German taxpayers to support Ukraine.

Proposed Action

For every €1 in corporate taxes paid to Russia’s budget, €2 should be allocated to Ukraine’s defense and reconstruction. 

Step 1. Require all publicly listed companies to disclose their exposure to Russia, including:

    • The amount of taxes paid to the Russian government over the last three years, with an annual breakdown.
    • Detailed information on federal taxes such as profit taxes, license fees, tariffs, VAT, rent for natural resource usage, and more.
    • Employment-related taxes, including an approximation of the taxes paid by the company's employees to the Russian state.

Step 2. Under its national laws, the German government imposes a tax on its multinational businesses that continue to operate in Russia. Alternatively, a tax may be established on the EU level.  

Ukraine's 2024 budget allocates nearly €37 billion — roughly half of its total expenses — to defense. This is three times less than the Russian defense budget, but ironically roughly equal to the amount that Western companies have paid to the Russian one. 
Imposing these measures could not only equalize the spending power of the parties,  but also reduce Russia's resources for continuing the war in the long-term, while increasing Ukraine's resources for effective defense.

Expected Effects 

1. Shift the Burden: These measures will transfer the burden of supporting Ukraine's defense from Western taxpayers to companies profiting from the Russian market and financing Russian aggression.

2. Strengthen Negotiation: Increased taxes will encourage more companies to responsibly exit the Russian market, thereby strengthening the West's negotiating position and preventing these companies from being used as bargaining chips.

3. Ensure Stable Funding: Encouraging businesses to leave Russia  will help ensure long-term, stable funding for Ukraine's defense efforts and reconstruction by utilizing frozen Russian assets without fear of economic retaliation against the West.

Frequently Asked Questions

How will this be instituted?

There are several policy options to consider:

• EU-Level Regulations: Establish uniform tax regulations across the European Union.

• National Tax Regulations: Implement tax regulations at the national level before adopting EU-wide measures.

• Voluntary Deductions: Encourage companies to make voluntary deductions before implementing either national or EU-level regulations.
 

Note: This is considered a less desirable scenario in light of the concerns raised in question 3.

Many companies are stuck in Russia and can’t get out – isn’t it unfair to penalize them for a situation that is outside of their control?

The companies that continue to operate in Russia make the business decision to do so at their own risk. Many Western businesses have already successfully left, or are in the process of leaving Russia: as of May 2024, 2,130 companies are in different stages of withdrawing from the Russian market, including 390 that have exited completely. As these companies show, it is possible to leave the Russian market. Further, the Russian government has already consistently confiscated Western companies’ assets since the early days of the full-scale invasion and there is every indication that it will continue doing so. Many companies have already written off their Russian investments. 

If companies pay into a Ukraine fund, won’t the Russian government just expropriate them and still benefit anyway?

This is why it is crucial to manage the process at the government level through the imposition of taxes. The responsibility for allocating the funds is taken out of the hands of individual companies. Instead, the government collects these taxes and ensures they are directed appropriately.