MOSCOW

1
MOSCOW ST. PETERSBURG YEKATERINBURG
VIENNA
Russian holding structures and MA deals
structured abroad EVALUATION OF LEGAL AND
CORPORATE RISKS
2
General questions

• Tax planning ?
• Tax avoidance ?
• Tax optimization ?
• Tax planning
• Russian legislative Foreign
  legislative
• Mechanisms Mechanisms

3
Russian MA
MA main issues
SPA
SPV and structure
SHA
Governing Law
Jurisdiction
Taxation

• Two Main regularly used Legal Recommendations
• Using NON - RUSSIAN structure for the deal
• Using NON RUSSIAN governing law.

4
Russian holding
Holding structure main issues
SPA
SPV and structure
SHA
Governing Law
Jurisdiction
Taxation

• Two Main regularly used Legal Recommendations
• Choose between RUSSIAN and NON - RUSSIAN mother
  company for the structure with the Russian
  assets
• Using DOUBLE TREATY taxation agreements
  preferences.

5
Advantages

• Advantages of using foreign structures in MA and
  holding structurising.
• Flexible corporate law
• Additional level of the legal defense (foreign
  court institutes)
• Tax preferences for (depends on the
  jurisdiction)
• -- dividend payments
• -- MA deals
• -- operational activity
• -- internal holding transactions.
• Confidentiality of an ownership
• Investment opportunities.

6
Legal doubts
RUSSIAN STATE AUTHORITIES LEGALLY DOUBT
HOLDING STRUCTURES USING FOREIGN COMPANIES
TAX AVOIDANCE AND TAX OPTIMIZATION
GOING OFFSHORE
LACK OF THE ECONOMIC SENCE OF THE TRANSACTION
INTERNAL TRANSACTIONS FOR NON MARKET PRICE
7
Legal Risks

• Bad image. Negative (usually not publicly
  demonstrated) attitude of state supervising
  authorities as well as of many private
  organisations (registrars, banks, depositaries)
  towards foreign holding structures based on
  Russian assets
• Illegal framework. Usage by Russian tax
  authorities and state arbitral courts of legal
  methods and definitions, methods of judicial
  proceedings not stipulated by Russian law
• Usage of scheme or creation of tax avoidance
  scheme definitions
• Extrajudicial reassessment (diverse) of the
  transactions
• Unlawful expansion of legal entities
  interrelationship understanding
• Exploitation of spot inspections results (in most
  cases negative) for overall evaluation of entire
  activities of legal entity subject to inspection
• Engagement as so called written evidence in
  court proceedings of natural persons (including
  the legal entitys employees) interviewing and
  questioning results obtained during tax
  inspections held by tax and law-enforcement
  authorities officers
• The growing trend in courts and law-enforcement
  authorities manipulating with such definitions as
  business goal and preferential tax terms
  which are out of Russian legislation framework

8
Legal Risks

• Non-coordination. Lack of coordination between
  federal, regional, and municipal legislation
• Sanctions. Applying the sanctions under the tax
  law to the transactions between the legal
  entities within one holding (owned by one
  beneficiary)
• Fake Legal Entity. Exploitation by the tax
  authorities and the Russian courts of fake legal
  entity definition (which is stand alone
  definition apart from the flight-by-night
  company, and the major difference between these
  two definitions is in object of evaluation of
  activities for example, when the fake legal
  entity is mentioned, its activities and
  economical impact can be considered as activities
  of any legal entity of the holding with
  respective tax and other consequences being
  applied to the entire holding)
• Penalties. Officially supported by legislators
  and commonly used by courts practice of applying
  of Russian Civil Code clause 169 mismatch of
  tax claims amount and the amount of sums charged
  for the public revenue.

9
Risk avoidance
Methods for minimizing the risks with the
Investigated MA deals structured abroad
Non demonstration any profit from the transaction
in Russia if it was structured abroad
Explanation of the economic sense of the deal
Explanation of the economic sense of every legal
entity included in the MA model
Antimonopoly issues (even for not direct control)
Doing MA in Russia
10
Russian FederationYekaterinburg620075, Business
Center Antey ,Krasnoaremyskaya str. 10, 16th
floor, Office 1608 tel/fax [phone]
AustriaViennaGonzagagasse, 4, 1010, tel./fax
43 1 533 0 533
Russian FederationMoscow113035, Business Center
Riverside Towers ,Kosmodamianskaya nab. 52,
bld. 3, 9th floortel/fax [phone]
Russian FederationSt. Petersburg199178,
Business Center Senator 18th Line V.O., Lit.
A, 31, Office 430A tel/fax [phone]
www.incoralliance.com