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Foreign Firms in Russia Continue to Help Fund Putin’s War

new reportby the Kyiv School of Economics (KSE) and B4Ukraine has found that multinationals in Russia continued to pay taxes there in 2022, indirectly financing the Kremlin’s war

According to some estimates, sustaining its military efforts costs Russia at least $1 billion a day, a huge burden on Moscow’s finances, especially with lower oil and gas prices and sanctions on Russian energy hurting the Kremlin’s primary source of income.

According to the report, of 1,387 Western companies with Russian subsidiaries at the start of the full-scale invasion on February 24, 2022, only 241 (17%) have completely exited Russia. Those that have not yet left the Russian market generated $177.2 billion (€162 billion) in revenue in Russia last year, it said.

In February, the KSE published Unfinished Business, an analysis of company exits revealing that over half (56%) of the international companies active in Russia at the start of the war were still doing business there. 

“Almost nothing has changed even after another three months of violence and mounting evidence of war crimes committed by Russian troops; 56% of companies monitored by KSE are still committed to staying in Russia,” the report said.

Foreign firms make big bucks for Moscow

In 2022, global corporations — including those that have exited since the war — together paid $3.5 billion in profit tax on the profits their local Russian businesses generated.

“This is only the tip of the iceberg and likely a substantial underestimate of the total tax bill,” the report said, adding that international companies with local subsidiaries in Russia also pay a host of other taxes, including income tax on employees’ salaries, social insurance payments and value-added taxes (VAT).

Companies headquartered in G7 and EU countries were cumulatively the highest profit taxpayers in Russia in 2022, representing 16 of the top 20 country contributors.

US firms have collected the largest total revenues in Russia and are the biggest contributors to the Kremlin’s coffers through taxes on profits, paying $712 million in 2022, according to the report.

German firms come next. They paid $402 million in profit tax to Russia in 2022. 

Companies headquartered in current EU member states paid $594 million in profit tax, the report found.

German-Russian economic ties change ‘dramatically’

Michael Harms, managing director of the Eastern Committee of the German Economy, says it takes time for an exodus of this scale to fully reflect in data. “Many German companies have now left the Russian market or are in the process of withdrawing,” he said in a statement to DW.

“German-Russian economic relations have already changed dramatically. In 2022, German exports to Russia almost halved. Imports from Russia have fallen by 90% since the beginning of 2023. The fact that the exodus is not yet fully reflected in the statistics for 2022 is in the nature of things,” Harms said, adding that many companies are bound by contractual obligations and cannot leave the market overnight. 

“The Russian government has also set up significant hurdles to make it more difficult for foreign companies to withdraw,” Harms noted.

Tobacco majors are worst offenders

While brands such as McDonald’s and Starbucks have fully exited the country, many others haven’t.

Some of the worst offenders have been international tobacco companies, the KSE report showed. The Japanese-Swiss tobacco giant Japan Tobacco International generated $7.4 billion in revenue in Russia in 2022, $1.5 billion more than in 2021, the largest increase of any company. It paid $193 million in profit tax in 2022.

Phillip Morris, the seller of Marlboro cigarettes outside the US, generated revenues of $7.9 billion in 2022 and paid $206 million in profit tax. Philip Morris said in February it would rather keep its business in Russia than sell it for less than it thought it was worth.

The fast-moving consumer goods sector (FCMG) was next, raking in sales of $21 billion in Russia in 2022.

Danone, which clocked more than $3 billion in sales, is trying to find a Russian buyer for its local business but has not succeeded so far. Nestle has curtailed some of its activities and has stopped advertising there.

Companies have begun to adapt their language, citing “affordable, shelf-stable products” or “everyday food and hygiene products” in place of their previous “essentiality” reasoning, the report found.

US confectionary maker Mars was one of the top taxpayers in Russia in 2022, paying $99 million in profit tax. In January this year, Mars said it had scaled back some parts of its business in Russia.

Source : DW