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Tax crackdown in Russia boosts grain traders' profits

* Russia is one of the world's top grain exporters

* Government clamps down on tax avoidance in agriculture

* Pre-tax margins rise to $5-6 after tax changes, from negative

MOSCOW/HAMBURG, Feb 19 (Reuters) - A Russian crackdown on tax avoidance in the agriculture sector has been a boon for its grain traders, allowing them to buy directly from farmers and cut out a complex web of middlemen.

Traders include big international commodities houses and some traders said profit margins on Russian grain had turned positive since the crackdown last year and now compared favorably with much of the business conducted in the European Union.

"After the tax crackdown the Russian domestic market finally found itself working in a fair business environment, where entrepreneurial talent is now the driver of success rather than the 'creative ability' of some people to invent grey schemes in pursuit of building their competitive edge," a trader said.

"Working on the Russian domestic market has become easier than before," he added.

Many Russian grain exporters signed an informal and voluntary agreement last May promising from the 2017/18 marketing year that began last July to avoid working with firms suspected of failing to pay taxes - part of a broader clamp down by Moscow on tax avoidance in the agriculture sector.

Russia's top 20 exporters of grain - responsible for 70 percent of the country's grain and oilseeds exports - have restructured their business in line with the tax service's request.

The tax avoiding scheme involved buying and selling grain via a chain of transactions in which the value-added tax liability was left with a small trading company which then ceases to exist.

Russia is one of the world's top grain exporters and the government was estimated to be losing 65 billion roubles ($1.1 billion) a year in unpaid taxes on grain deals at a time when it was seeking to tackle a budget deficit.

The change meant Russia prevented the loss of 27.2 billion roubles ($471 million) from budget revenues in the second half of 2017, Varvara Burlevich, a senior Russian Tax Service official, told a grain conference in Moscow earlier this month.

Under the tax avoidance scheme, supply chains were long and involved many small firms. Farmers also benefited as some of the profits from the schemes moved upstream and so they were not willing to work with grain exporters directly.

"The grey schemes had the competitive advantage," another trader said.

Firms suspected of involvement in the tax wheeze were squeezed out of the supply chain after the crackdown and lost their business as most traders now buy directly from farmers.

Pre-tax margins have risen to about $5-6 per tonne, while net margins climbed to $2-3 per tonne due to the initiative, several traders said. They were negative before the crackdown due to Russia's large crop, one of the traders said.

A German trader said pre-tax margins of $1 to $2 a tonne were normal on export business from Germany and other western European countries. ($1 = 56.4060 roubles) (Reporting by Polina Devitt in Moscow and Michael Hogan in Hamburg; Editing by Susan Fenton)