It will be Vladimir Putin’s Russia itself that will pay for the weapons that Europe will send to Volodymyr Zelensky’s Ukraine, to help it respond to the invasion. After months of difficult negotiations, the governments of the 27 member states of the Union have finally found an agreement on the provision that will allow the use of extra profits from Russian assets frozen in Europe to pay for Kiev’s defense costs but also for the reconstruction of the country. .
The “in principle” agreement, which will now have to be formally adopted, was reached by the Committee of permanent representatives at the EU, Coreper, the assembly that brings together the ambassadors of the member countries who act on behalf of the governments. In all it will involve 210 billion euros of frozen Russian assets, which should generate up to 3 billion a year to be ‘passed on’ to Ukraine. The first tranche of money, according to Brussels forecasts, could be released as early as July. “There could be no stronger symbol and no better use for that money than to make Ukraine and all of Europe a safer place to live,” claimed the President of the European Commission, Ursula von der Leyen, on X.
How the mechanism works
The Commission proposed a confiscation of the extra net profits generated by the freezing specifically of the assets of the Russian Central Bank, assets frozen in response to the invasion of Ukraine. In fact, a frozen asset is not confiscated, it is immobilized due to sanctions, but continues to belong to its legitimate owner, in this case the Bank of Moscow. The assets on which the provision will act are those located in the ‘central depositories’ (the institutions that hold government bonds and shares in the name and on behalf of banks) in EU territory, and are mostly held at Euroclear, in Belgium and Clearstream, Luxembourg.
These assets would normally have to be moved between one institution and another (with the banks constantly selling and buying shares), but having been blocked they remained stationary for months, and in this way they generated “extra profits”, profits that if had the assets not been frozen they would not exist. For this reason Brussels claims to be able to dispose of it as it wants. 90% of the money raised will be allocated to the European Peace Fund and will be used to purchase weapons for Ukraine. The remaining 10% will instead be transferred to the Financial Assistance Facility just established for Kiev (with a current allocation of 50 billion), an instrument that will be used for the reconstruction of the nation. The mechanism also provides that 0.3% of the profits remain with Euroclear and Clearstream to cover the costs of managing the instrument.
The Belgian tax
Belgium was already using these assets to finance Ukraine. There is a corporate tax in the country, which is equal to 25% of profits. The tax is “universal” and applies to each individual company, therefore also to Russian assets frozen at Euroclear. This is why Belgium has decided, in 2022, to allocate all corporate tax proceeds to support Ukraine and its citizens, and then to create, in 2023, a specific National Fund for Ukraine.
Concretely, for the fiscal year 2024, an amount of 1.7 billion euros in national corporate taxes from fixed Russian assets is expected, of which approximately 1 billion euros has already been allocated to military assistance to Ukraine. The new legislation will then apply to the remaining extra profits after this mandatory taxation. All the money will go to Ukraine anyway.
