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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 Mechanisms
General questions
Russian M&A
M&A main issuesM&A main issues
SPASPA SPV and structureSPV and structureSHASHA Governing
Law Governing
LawJurisdictionJurisdiction TaxationTaxation
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
SPASPA SPV and structureSPV and structureSHASHA Governing
Law Governing
LawJurisdictionJurisdiction TaxationTaxation
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
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
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
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
Explanation of the economic sense of every legal entity included in the M&A model
Russian FederationYekaterinburg620075, Business Center “Antey ”,Krasnoaremyskaya str. 10, 16th floor, Office 1608 tel/fax: +7(343) 379 57 57
AustriaViennaGonzagagasse, 4, 1010,
tel./fax: +43 1 533 0 533
Russian FederationMoscow113035, Business Center “Riverside Towers ”,Kosmodamianskaya nab. 52, bld. 3, 9th floor
tel/fax: +7 (495) 644 00 41 Russian Federation
St. Petersburg199178, Business Center“Senator” 18th Line V.O., Lit. A, 31, Office 430A
tel/fax: +7 (812) 332 7632
www.incoralliance.com