EU vows to tax Russia’s immobilised assets for Ukraine reconstruction

“We’re currently working on a proposal to initially focus on the so-called windfall profits,” the European Commission president said at the end of a leaders’ summit in Brussels.

“In other words, we will present a proposal to find a way how to use the proceeds from those assets that are currently benefiting a limited number of financial institutions in the European Union,” she went on, without saying when the legal text will be released.

“These windfall profits are already quite substantial.” 

The assets have been frozen since February last year when Western allies introduced a raft of sanctions to cripple Russia’s ability to finance the war against Ukraine, most notably by blocking the Central Bank’s access to its foreign-exchange reserves.

These deposits are worth €211 billion across EU territory, with over €180 billion reportedly held by Euroclear, a Brussels-based financial services company.

Euroclear is entitled to manage the assets but cannot benefit from them. In the first nine months of this year, the Russian-sanctioned assets in the firm’s portfolio generated €3 billion in interest and caused €34 million in management costs.

As the proceeds keep growing due to higher interest rates, pressure is mounting on Brussels to take action and divert the money to pay for rebuilding Ukraine, an endeavour the World Bank estimates will require at least €411 billion.

“Politically we agreed that ultimately Russia must pay for the long-term reconstruction of Ukraine,” von der Leyen said.

The Commission’s proposal, she explained, will pool together the tax revenues obtained from the Russian assets and then channel them through the bloc’s common budget to Kyiv.

During Friday’s press conference, von der Leyen did not address the multiple concerns the unprecedented project has raised among legal scholars, financial experts and even the European Central Bank (ECB), who worry the initiative could damage the euro’s credibility as the world’s second reserve currency, raise borrowing costs for European companies, and damage trade relations around the world.

Unlike private property owned by oligarchs, such as mansions, yachts, and artworks, the assets of the Russian Central Bank are considered sovereign and therefore protected under international law from confiscation and expropriation.

If the sanctions are one day lifted, the West will have to hand them back to the Russian state.

While most EU countries are determined to use the assets one way or the other, the concerns raised by the ECB have weighed heavily on the closed-door debate, fuelling calls for extra caution and diligence.

“Russia is responsible for the massive damage caused by its war of aggression against Ukraine,” EU leaders said in their joint conclusions released after the summit.

“Decisive progress is needed, in coordination with partners, on how any extraordinary revenues held by private entities stemming directly from Russia’s immobilised assets could be directed to support Ukraine and its recovery and reconstruction, consistent with applicable contractual obligations, and in accordance with EU and international law.”

Mindful of the concerns, the Commission has promised to adopt a prudent approach and has delayed several times the presentation of the legislative proposal, which von der Leyen originally promised to unveil before the summer break. Reframing the idea as a windfall tax is seen as a less risky path forward, even if many doubts remain.

Von der Leyen underlined the need to coordinate the measure with the G7, which has set up a task force to examine possible ways to tap into the extraordinary revenues.

Also on Friday, von der Leyen announced the next round of sanctions against Russia, number 12 since February 2022, will seek to ban imports of Russian diamonds and crack down on circumvention. The penalties are still in the early stage of consultations.