The UK's tax authority, HM Revenue and Customs, has announced its plans to revoke the Moscow Stock Exchange’s (MOEX) status as a recognised stock exchange. The tax body said that the move is being implemented in parallel to UK's sanctions against Russia over the special military operation in Ukraine.
"As we continue to isolate Russia […], revoking Moscow Stock Exchange’s recognised status sends a clear message – there is no case for new investments in Russia", Financial Secretary to the Treasury, Lucy Frazer, said.
The HMRC said that it has proposed to strip MOEX of its status in response to the restrictive measures the Bank of Russia has placed on foreign investors. As of 28 February they were banned from selling the securities they owned due to a potential panic on the market that could have been triggered by the Western sanctions against Russia. According to the UK's tax authority, MOEX thus no longer met the "normal commercial standards expected of a recognised exchange".
The decision on stripping MOEX of its status has not been made yet and the draft proposal will be presented for all the interested parties to study in two weeks. Once the consultations are over and in case the foreign investors' access to their assets is not restored by that time, HMRC will proceed to strip the exchange of its status.
What Does It Mean for Russia and the UK's Investors?
The recognised exchange status is given by the HMRC solely for taxation purposes – UK residents trading on such exchanges enjoy certain tax treatments and reliefs, such as exemption from a withholding tax on interest on some Eurobonds. According to the British tax authority, the proposed revocation of the status of MOEX won't affect those who invested in this exchange prior to the move – their tax treatments and reliefs remain in place.
However, not all future investments carried out by the Brits on MOEX will enjoy such benefits. In normal circumstances such a measure would result in at least a portion of the investors from the country withdrawing their funds from the Russian exchange.
At the same time, London also slapped a ban on all new outward investment into Russia on 6 April, making the HMRC's proposed move rudimentary in essence. But even should London lift the ban, the impact of the HMRC's measure will be limited since there is a second stock exchange in Russia - the Saint Petersburg Stock Exchange.