1. * * berwin leighton paisner Efficient tax planning during restructuring of debt obligations Case-studies Tatiana Vasilieva Head of Tax Group 23 October 2009

2. * berwin leighton paisner gblplaw.com 2 Contents Case-studies: Financial obligation – debt of subsidiary company (RusCo) to the parent company (HoldCo) Debt of one company of the group to another company of the group that does not participate in the share capital of the debtor company. Assignment of rights Share transfer to repay the debt

3. * berwin leighton paisner gblplaw.com 3 Financial obligation – debt of subsidiary company (RusCo) to parent company (HoldCo) Transaction: debt forgiveness Target: reconstruct/restore the balance/proportion of net assets and Charter Capital Tax implications: debt forgiveness causes extraordinary income at the RusCo level, which is subject to 20% profit tax. However, the participatory interest of HoldCo in RusCo is more than 50%, so transfer of property without a consideration is exempt from profit tax at the RusCo level. Conclusion: principal debt forgiveness does not have negative tax implications. Similar conclusions are drawn in the letters of the Ministry of Finance. However, according to the Ministry of Finance, interest that is not charged is included in the extraordinary income of RusCo (Letter of Ministry of Finance dated 27 March 2009 ) Also, this interest rate/per cent cannot be deducted as costs (Letter of the Ministry of Finance dated 31 December 2008 No. 03-03-06/1/728) HoldCo 100% RusCo $ % Common models: - Debt forgiveness - Contribution to company assets (or to share capital with share premium) in the form of monetary injections used to repay the debt - HoldCo issues the obligation to contribute to RusCo’s assets with subsequent offset of this obligation against the loan obligations.

4. * berwin leighton paisner gblplaw.com 4 Debt to a company of the group that does not participate in the share capital of the debtor company loans HoldCo Cyprus Interest income is taxed at 20% but, according to the Cyprus- Russia double tax treaty, interest is not subject to tax Controlled debt rules. – Debt to the “sister” company. Debt waiver by the Financial company Cyprus RusCo gives rise to taxable extraordinary income in RusCo. Obligations are structured in such a way that HoldCo Cyprus, owning 100% of RusCo shares, is RusCo’s creditor. RusCo Financial company Cyprus Банк Banks loans Seychelles SPV

5. * berwin leighton paisner gblplaw.com 5 Assignment Debtor Debt Assignor Assignee Assignment of goods delivery 1) Has the assignee the right to deduct losses? 2) Is the fee for assignment income for the assignee and is it subject to deduction of the paid advance. 3) Is assignment disposal of goods? (for VAT purposes). Tax liability regulations – Articles 155 and 279 of RF Tax Code. Advance is paid but goods are not delivered Goods Fee for assignment

6. * berwin leighton paisner gblplaw.com 6 Share transfer to repay the debt RusCo-1 RusCo-2 Existing debt Subsidiary company shares Integrating Russian insurance assets within one holding and sale of 30% of the shares to the bank is planned. The corporation transfers a block of shares in one company of the group to the Administration (authority) of the region. The transferred block of shares compensates for the corporation’s debt to the regional budget. The group of companies agrees to transfer about 74% of the shares in one of the companies of the group to 2 banks to pay the debt.

7. * berwin leighton paisner gblplaw.com 7 Contact us If you would like further information about Goltsblat BLP, its services and experience, please contact us at: Capital City Complex Moscow City Business Centre 8, Presnenskaya Nab., Bldg.1 Moscow, 123100, Russia Telephone: +7 495 287 44 44 Fax: +7 495 287 44 45 Email: tatiana.vasilieva@gblplaw.com