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Published byAudra Atkins Modified over 7 years ago
MOSCOW ST. PETERSBURG YEKATERINBURG VIENNA Russian holding structures and M&A deals structured abroad: EVALUATION OF LEGAL AND CORPORATE RISKS
1.Tax planning ? 2. Tax avoidance ? 3.Tax optimization ? Tax planning Russian legislative Foreign legislative Mechanisms General questions
Russian M&A M&A main issues SPA SPV and structure SPV and structure SHA Governing Law Governing Law Jurisdiction Taxation Two Main regularly used Legal Recommendations: 1.Using NON - RUSSIAN structure for the deal; 2.Using NON – RUSSIAN governing law.
Russian holding Holding structure main issues Holding structure main issues SPA SPV and structure SPV and structure SHA Governing Law Governing Law Jurisdiction Taxation Two Main regularly used Legal Recommendations: 1.Choose between RUSSIAN and NON - RUSSIAN “mother company” for the structure with the Russian assets; 2.Using DOUBLE TREATY taxation agreements preferences.
Advantages of using foreign structures in M&A and holding structurising. o Flexible corporate law; o Additional level of the legal defense (foreign court institutes); o Tax preferences for (depends on the jurisdiction): -- dividend payments; -- M&A deals; -- operational activity; -- internal holding transactions. o Confidentiality of an ownership; o Investment opportunities. Advantages
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 Legal doubts
1.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; 2.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: o Usage of “scheme” or “creation of tax avoidance scheme” definitions; o Extrajudicial reassessment (diverse) of the transactions; o Unlawful expansion of “legal entities interrelationship” understanding; o Exploitation of spot inspections results (in most cases negative) for overall evaluation of entire activities of legal entity subject to inspection; o Engagement as so called “written evidence” in court proceedings of natural persons (including the legal entity’s employees) interviewing and questioning results obtained during tax inspections held by tax and law-enforcement authorities officers; o 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; 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.
Risk avoidance Methods for minimizing the risks with the Investigated M&A deals structured abroad Methods for minimizing the risks with the Investigated M&A deals structured abroad Non demonstration any profit from the transaction in Russia if it was structured abroad Antimonopoly issues (even for not direct control) Antimonopoly issues (even for not direct control) Explanation of the economic sense of the deal Doing M&A in Russia Explanation of the economic sense of every legal entity included in the M&A model
Russian Federation Yekaterinburg 620075, Business Center “Antey ”, Krasnoaremyskaya str. 10, 16th floor, Office 1608 tel/fax: +7(343) 379 57 57 Austria Vienna Gonzagagasse, 4, 1010, tel./fax: +43 1 533 0 533 Russian Federation Moscow 113035, Business Center “Riverside Towers ”, Kosmodamianskaya nab. 52, bld. 3, 9th floor tel/fax: +7 (495) 644 00 41 Russian Federation St. Petersburg 199178, Business Center “Senator ” 18th Line V.O., Lit. A, 31, Office 430A tel/fax: +7 (812) 332 7632 www.incoralliance.com
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