Article

Tax Evasion, Parex Style


Date:
09. December, 2008


According to Nothing Personal (Nekā Personīga), a TV3 show, Valerijs Kargins and Viktors Krasovickis, the ex-masters of recently nationalized Parex bank, each had a loan of 28 million LVL from Parex bank, which they then deposited in their own bank at an annual interest rate of 36%. This is a rather novel way to pay yourself a salary.

Why did they do this? There are two likely reasons. First, I wonder whether smaller shareholders knew. The second, and more interesting, explanation is plain tax avoidance. In contrast to salaries, or even dividends, interest income is tax free in this fine country. Of course, an important question is whether Mr. Kargins and Mr. Krasovickis were involved in tax avoidance or tax evasion. I am not a legal person but I know that in many countries tax evasion is considered to be a criminal offense.

Now, I am not surprised that the rich are also trying hard not to pay their taxes. Nobody likes paying taxes. But what does surprise me is that Mr. Kargin and Mr. Krasovickis could do it in a way that was so …SIMPLE. Seriously, I am disappointed. I expected the world to be a lot more sophisticated than this. I thought avoiding taxes was not easy. I thought that in order to outwit the tax authorities one had to be real smart, employ mind-boggling schemes involving off-shore companies, complex financial transactions and what not!

Well, this all raises a number of interesting questions. First, didn’t Financial and Capital Markets Commission (FKTK) know? If they did know but did nothing about it, doesn’t it make them complicit in tax avoidance/evasion (whatever it is)? If they didn’t know about this, what DO they know about the banks they’re supposed to supervise??! Frankly speaking, I don’t know which of the above versions is scarier, especially given today’s economic situation. Second, what about the State Revenue Service (VID)? Is it a big secret that Mr. Kargins and Mr. Krasovickis are owners of a large bank and, therefore, earn substantial amount of money, which, well, in principle, should be subject to tax? If these gentlemen could avoid paying their taxes in such a simple way, what does it tell about the tax authorities? Finally, this story only came to surface because Parex ended up nationalized. Nationalization happened quite some time ago but, if my memory serves me right, no public official rushed to tell us about these miraculous deposits. On the contrary, it appears to have been leaked by an anonymous source. It all makes me wonder about how many other bankers are doing something like this? Moreover, how many of their friends, and the friends of their friends, etc. evade taxes like this?

In Latvian here

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