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deoffshorisation

“Deoffshorisation” Tax free repatriation of assets under liquidation of foreign entities

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“Deoffshorisation”

Tax free repatriation of assets under liquidation of foreign entities

Importance of initiating liquidation proceedings prior to 1 January 2017

 

FOREWORD 

Under the Russian Tax Code (the “Code”) Russian companies and Russian controlling persons can receive assets under liquidation proceeds from foreign entities tax free and also create a tax basis for future sale of these assets, provided certain provisions are met.

In addition to the above a foreign company which undergoes liquidation will not be considered as a tax resident of the Russian Federation, even if it meets certain criteria which under the Code it would have been considered as a tax resident of the Russian Federation.

Below we provide an analysis of the restructuring opportunities under these provisions of the Code. We also analyse the importance of initiating the liquidation proceedings prior to 1 January 2017.

LSTS members are licensed liquidators under the Cyprus Insolvency Practitioners Law, 64(I) of 2015 and can be appointed as liquidators both in relation to Cyprus company liquidations but also on tax haven company (i.e. BVI) liquidations.

 

LIQUIDATION OF FOREIGN ENTITIES AND TAX FREE REPATRIATION OF ASSETS 

Under the Code, property received by a Russian tax resident company or Russian tax resident individual which arose as proceeds from the liquidation of a foreign company i.) will not be subject to tax in Russia and ii.) the tax base of the asset received will be considered to be the value of the asset at the time of distribution of the liquidation proceeds.

Conditions set for tax free liquidation:

  1. Such property must not include cash
  2. The liquidation must be completed before 1 January 2018
  3. The liquidation is completed after 1 January 2018 but this was due to certain restrictions in the personal law of the foreign country but the decision for the liquidation was taken prior to 1 January 2017 and the liquidation was completed at the end of such restrictions.

The analysis of the provisions of the Code is set in Annex 1 hereto.

 

RESTRUCTURING EXAMPLES

  1. Elimination of tax haven companies (B.V.I./ Belize/ Panama/ Marshal Islands):
    1
  2. Elimination of all foreign holding companies:
    2
  3. Introduction of a Russian Holding company for tax planning:
    3
  4. Elimination of tax haven trading companies:
    4

 

TAX FREE REPATRIATION OF CASH FROM FOREIGN ENTITIES

Under the Code, assets which are transferred to the Russian tax resident individual or Russian company are not subject to any tax in Russia provided that these assets are not cash.

In order to overcome this issue the cash must be converted into non-cash assets prior to the transfer.

Possible steps to achieve the above:

  1. The foreign company opens a brokerage account in a large US broker
  2. The Russian individual also opens a brokerage account in the same US broker
  3. Cash is used to buy highly liquid stock (i.e. google, apple, facebook)
  4. The stock is transferred to the brokerage account of the Russian individual as part of the liquidation proceedings.
  5. Russian individual sells the stock and receives cash

 

FOREIGN ORGANISATION REGOGNISED AS TAX RESIDENT OF THE RUSSIAN FEDERATION 

Under the Code a foreign company is considered as a Russian tax resident company if its effective management is in the Russian Federation.

Such criteria, analysed in detail in Annex 1, relate to whether the management decisions and management meetings take place in the Russian Federation.

The foreign entity will not however be recognized as a Russian tax resident even in the case it had its effective management, as this is defined under the Code, in the Russian Federation provided that the liquidation of the foreign company has been completed prior to 1 January 2018.

 

ANNEX 1 – RUSSIAN TAX CODE PROVISIONS 

  1. Article 217 Clause 60 – Income from liquidation exempt from personal taxation

    Income (excluding cash) received by an individual in the form of property or property rights as a result of the liquidation of a foreign organization is exempt from personal taxation provided that:

    1. The taxpayer has submitted to the tax authorities a statement in his tax declaration indicating that such proceeds have been received as part of the liquidation of a foreign entity.
    2. The procedure of the liquidation of the foreign entity has been completed before 1 January 2018
    3. The liquidation is completed after 1 January 2018 but this was due to certain restrictions in the personal law of the foreign country but the decision for the liquidation was taken prior to 1 January 2017 and the liquidation was completed at the end of such restrictions.
  2. Article 220 Clause 2 – Tax base of assets transferred to the Russian tax resident individual under liquidation of a foreign entity

    The Russian individual tax resident should deduct from the sale proceeds of a property or property rights sold the amount of the property or property rights which was received by the foreign entity as a result of the liquidation of such entity under which the income was exempt under the Article 217 Clause 60.

    The amount to be deducted shall be the value of the property or property rights shown in the books of the liquidated organization but not exceeding the market value of such property.

  3. Article 246.2 Clauses 1 and 2 – Foreign companies with effective management in the Russian Federation.

    Foreign companies for which their effective management is in the Russian Federation are considered to be Russian tax residents.

    Regardless of the conditions set in the section below a foreign organization will not be recognized as a tax resident of the Russian Federation provided that a decision has been taken by the shareholders to liquidate the foreign organization and the liquidation procedure has been completed prior to 1 January 2018.

    Conditions setting a foreign company as having the effective management in the Russian Federation:

    The effective management is considered to be exercised in the Russian Federation if the criteria below are met:

    1. Meetings of the board of directors are predominantly (over 50% of meetings in a year) are held in Russia
    2. High-level executive management is predominantly performed in Russia or the executive officers operate predominantly in Russia with respect to the given foreign organization

    If the criteria are met in relation to a number of countries then additional criteria are set in concluding whether the effective management is in the Russian

    Additional criteria for determining the place of effective management of a foreign company are as follows:

    • The accounting or management records are maintained in Russia
    • The company’s records are managed in Russia
    • The place from which operating and administrative procedures (HR management) relating to the company’s operations (as opposed to any group operations) are issued in Russia
  4. Article 277 Clause 2 – Tax base of assets transferred as part of liquidation proceeds of a foreign entity

    In case of liquidation of an organization and distribution of the assets of the liquidated company the gain to the recipient of such property is calculated as the market price of the property received less any amount actually paid to acquire such property.

    If however the liquidation proceeds arise from the liquidation of a foreign organization then the above profit will be disregarded in the tax base of the property received. The tax base of the property received will be set as the lower of the cost of the property shown in the books of the liquidated organization and the market value of such property.

    The above exemption will apply provided that:

    1. The procedure of the liquidation of the foreign entity has been completed before 1 January 2018
    2. The liquidation is completed after 1 January 2018 but this was due to certain restrictions in the personal law of the foreign country but the decision for the liquidation was taken prior to 1 January 2017 and the liquidation was completed no longer than 365 consecutive calendar days after the end of such restrictions.
  5. Article 309.1 Clause 10 – Tax on gains of Controlled Foreign Companies (“CFC”s)

    Gains derived by the CFCs from the sale of securities or property rights in favor of the controlling person of the CFC as well as the costs incurred on the purchase of these securities or property rights are excluded from the profit and loss of the CFC. The cost is determined based on the cost as set in the books of the CFC however it cannot be higher than the market value at the date of the transfer.

    The above exemption will apply provided that:

    1. The procedure of the liquidation of the foreign entity has been completed before 1 January 2018
    2. The liquidation is completed after 1 January 2018 but this was due to certain restrictions in the personal law of the foreign country but the decision for the liquidation was taken prior to 1 January 2017 and the liquidation was completed no longer than 365 consecutive calendar days after the end of such restrictions.

    The cost basis of the securities and property acquired by the CFC will be accounted for as the cost shown in the books of the CFC but not higher than the market value of these securities at the date of transfer.

 

HOW CAN LSTS ASSIST YOU

LSTS may assist in:

  1. Being appointed and act as the liquidator in the members voluntary liquidation of Cyprus and tax haven companies (i.e. BVI)
  2. Providing you with guidance on the provisions of the Code for the liquidation of the company.

 


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Russia Deoffshorisation [Update]

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RUSSIA DEOFFSHORISATION

31 March 2015 Update 

Notification requirements for foreign structures – New date 15 June 2015

A bill has been submitted to the Upper House of the Russian Parliament, moving the deadline for submitting notifications on participation in foreign companies from 1 April to 15 June 2015.

Our expectations are that this bill will be approved.

As per the bill submitted, the notification of participation in foreign companies as of 14 June 2015 (previously 1 January 2015) shall be submitted on 15 June 2015. In case the foreign structure is liquidated before 15 June 2015, the Russian tax resident will not need to submit the notification.

It should be noted that the form of the notification is still under discussion.

Forward

On 25 November 2014, a law providing amendments to the Tax Code of the Russian Federation, introducing the concept of tax residency for legal entities and controlled foreign companies (“CFC”) (the “Law”), was signed by president Vladimir Putin. The Law came into effect 1 January 2015. (Russian Deoffshorisation)

The law is set to establish rules relating to CFC, the tax residency of organisations and the taxation of profit from the “indirect” sale of immovable property and is a central instrument for the implementation of the Russian Government’s policy of deoffshorisation of the Russian economy which will have a great impact to the majority of the companies and businessmen with assets or operations outside the Russian Federation.

CONTROLLED FOREIGN COMPANIES

Definition of CFC

In accordance to Article 25 of the Law, a CFC is foreign company meeting all the conditions below:

1.) The company is not considered as a tax resident of the Russian Federation;

2.) Controlling persons of the company are the companies and/or individuals recognised as tax residents of the Russian Federation.

A Russian resident is to be recognised as a controlling person of a CFC if his participation interest is at least:

  • 25% (including spouse, minor children and other interdependent persons)
  • 10% if his participation interest together with those of other Russian residents is at least 50%

2015 is set to be a transitional period and the minimum required participation is 50%.

A Russian tax resident will be deemed as the controlling person of a foreign company even if the above thresholds are not met provided that the Russian tax resident can exercise influence on the decisions made by such foreign company in terms of the distribution of profits by virtue of direct or indirect participation to such company, an agreement with the management of the foreign company or any other relationship with such company.

A Russian tax resident’s control over a structure without a legal personality, such as a trust or a foundation, is assessed by reference to the ability of the Russian tax resident to exercise influence on the person that manages the assets and specifically in relation to the distribution of profits, either by virtue of the legislation of the country governing such structure or the foundation documents. The Law does not relate the control of the Russian tax resident to the latter’s level of participation interest and as such sets no specific percentage. The lack of clear definition of the above concept leaves room for differences in interpretation to arise. We believe that the Law will be amended in the future to provide a more clear definition and interpretation to address the above issue.

The Law allows a Russian tax resident to set himself as the controlling person of the structure without a legal personality even if the above provisions are not met.

Exemptions

The below foreign companies are exempt from being considered as CFCs:

1.) Companies with permanent location in a treaty country (except for those countries that do not exchange information with the Russian tax authorities) and with an effective tax rate of at least 75% of the average weighted rate (rules for calculating the average weighted rate are outlined below).

2.) Companies with permanent location in a treaty country (except for those countries that do not exchange information with the Russian tax authorities) and the company’s share of income from passive activities is not more than 20%.

Income from passive activities is defined in Article 309.1 of the Law as:

  • Dividends
  • Distributions of profit or property, including distributions in liquidation
  • Interest income from any kind of debt liabilities
  • Income from the use of the rights to the objects of intellectual activity
  • Income from the sale of shares or assignment of rights in the foreign entity that is not a legal entity under the foreign law
  • Income from the sale of immovable property
  • Income from the lease of sublease of immovable property
  • Income from the sales (including redemption) of investment units in mutual funds
  • Income from the provision of consulting, legal, accounting, auditing, engineering, advertising, marketing services, services for information processing as well as conducting research and development activities
  • Income from services for the provision of personnel
  • Other comparable income to the above categories

3.) Non-for profit companies that do not distribute income

4.) Companies formed in a country of the Eurasian Economic Union

5.) Foreign structures without the formation of a legal entity such as trusts or foundations, provided however that in accordance to the private law or foundation documents of the structure all of the below are met:

i.) the founder is not entitled to receive any assets from the structure after its formation

ii.) the rights of the founder given under the structure such as any right to dispose property, indicate the beneficiaries or any other right cannot be transferred to any other person except in inheritance or succession

iii.) the founder cannot receive any profit from the structure upon the distribution of such profit to all of its members and beneficiaries and

iv.) the foreign structure has no possibility of distributing profit among its members or beneficiaries

6.) Banks or insurance companies having a license or authorised to engage in these activities which operate in a territory that exchanges information with the Russian Federation.

7.) Issuers of certain types of Eurobonds, if the interest income on such bonds is at least 90% of the issuer’s income

8.) Companies participating in certain foreign industrial projects primarily oil and gas (at least 90% of income).

Formulas for effective tax rates and average weighted tax rates

As mentioned above, companies having a foreign effective tax rate of at least 75% of the average weighted rate in Russia are exempt from being considered CFCs.

The foreign effective tax rate is defined by the Law as:

FETax: TAX/INCOME

where:

TAX = Tax amount calculated by the foreign company and its subdivisions (including the amounts of withholding taxes charged on CFC income)

INCOME =

Profits calculated in accordance to Article 309 of the Law (see below)

Profits of CFCs registered in jurisdictions that have a tax treaty with Russia are to be calculated based on the Company’s financial statements prepared in accordance to the laws of that country provided that such financial statements are subject to a statutory audit.

In all other cases the profits are to be calculated in accordance to Chapter 25 of the Russian Tax Code.

The average weighted tax rate is defined by the Law as:

AWTax: (RR1*I1+RR2*I2)/(I1+I2)

where:

RR1= Russian profit tax rate. This is currently 20%

I1= The total profits of the foreign company excluding dividends received. Zero if the result is negative.

RR2 = Russian dividend tax rate. This is currently 9% however this will increase to 13%

I2 = Dividends received by the foreign company

Calculation of CFC Profits

Share of profits:

The profit share of the CFC will be included in the tax base of the Russian tax resident to an extent corresponding to the size of the Russian tax resident’s direct or indirect participating interest in the CFC accounting also the length of time that the Russian resident held that interest.

Period of profits:

The period into which the CFC profits are included in the Russian resident tax computation is i.) for individuals: the end of the tax period following the tax period which in accordance to the CFC’s local legislation the financial statements are prepared and ii.) for entities: 31 December of the calendar year following the year in which the financial statements are prepared in accordance to the CFC’s local legislation.

Definition of CFC profits:

The profits of the CFC are defined as:

Companies preparing audited FS

For CFCs located in a jurisdiction with which Russia has a double tax treaty and such CFCs are required to prepare audited financial statements then the profits of the CFCs are defined as the pre-tax profits (losses) as found in their financial statements.

As evidence of the CFC profits, the Russian resident must provide to the Russian tax authorities the CFCs financial statements along with the tax returns
submitted as evidence.

Companies not preparing audited FS

For CFCs which are either located in a jurisdiction not having a tax treaty with Russia or which are not required to prepare audited financial statements, then the profits/(losses) of these companies are determined in accordance to the Russian Tax Code.

These entities must submit documentation to the Russian tax authorities as evidence of the amount of profits/losses. Such documentation can be statements of bank accounts and source documents of transactions.

If the results of the CFCs are not presented in Russian Rubles then the amounts should be translated into Russian Rubles using the average rates as set by the Central Bank of Russia for the period of the financial results.

In determining the profits of a CFC, the income/expenses of the CFC should exclude any amounts derived from the revaluation of securities, financial derivatives marked to market and also any provision for expenses as well as the reversal of such provisions.

The CFC’s profit is reduced by the amount of dividends paid out of that profit, including both the interim dividends paid within the year but also the final dividends paid after the end of the year. If the CFC does not distribute profits due to an increase in the charter capital such profits shall not be taxed in Russia.

The tax on the CFC’s profit is further reduced by the amount of tax paid on such profit under the laws of the foreign country and/or Russian law as well as by the amount of corporate income tax paid by any permanent establishment of the CFC in Russia.

The threshold for including a CFC’s profit in the Russian tax resident’s tax base will be RUB50mln for 2015, RUB30mln for 2016 which is set to be the transitional period. From 1 January 2017 the threshold will be RUB10mln.

Treatment of losses from a CFC

The Law permits a CFC’s losses to be carried forward indefinitely, provided however that the Russian taxpayer informs the authorities of the existence of the CFC for the period it obtained the loss.

Losses incurred by a CFC during the three financial years prior to 1 January 2015 can also be carried forward.

Notification requirements for CFC

The Russian tax resident has the obligation to notify the tax authorities of participation in:

  • CFCs
  • foreign organisations of more than 10 percent
  • foreign structures not involving the formation of a legal entity such as foundations or trusts (including cases where the taxpayer is the founder of such a structure, or the beneficial owner having the right to the income (profit) of such a structure in the event of distribution)
  • Russian organisations (with the exception of business partnerships and limited liability companies) in which they have an interest of over 10 percent.

The deadline for notifying the tax authorities of participation in a foreign company is one month after the grounds of such notification arise. The notice of participation in foreign companies for which the grounds for submission arose prior to 1 January 2015 shall apply from 1 April 2015.

The deadline for notification of a CFC is 20 March of the year following the tax period in which a share profit of a CFC is required to be taken into account for a controlling person and as such the deadline for notification of a CFC is 20 March 2016.

Penalties

Failure of the Russian tax resident to include in its tax declaration the information required in relation to the CFC, such information being the financial statements and other documents required by the Russian Tax Code as well as the auditors’ report (provided that the CFC is subject to a mandatory audit), or the submitting of inaccurate information on the CFC will result in a penalty of RUB100,000.

Failure of the controlling person to submit to the Russian tax authorities the notice of the participation on the CFCs for the relevant calendar year or the submission of false information will result in a penalty of RUB100,000 for each CFC for which information was not submitted or falsely submitted.

Failure of the controlling person to submit to the Russian tax authorities the notice of participation on the foreign organisations or the submission of false information will result in a penalty of RUB50,000 for each foreign organisation for which information was not submitted or falsely submitted.

The penalty for non-payment or underpayment of tax as a result of non-inclusion in the tax base of a share in the profit of a CFC is 20% of the amount of the unpaid tax with the minimum amount being RUB100,000.

Reporting in relation to foreign companies and foreign structures which own property in Russia

Foreign companies and foreign structures without the formation of a legal entity having property taxable in Russia shall, in addition to the notification requirements for CFC as illustrated above, report to the local Russian tax office, having the authority at the location of the property, information of the participants in the foreign company or foreign structure without the formation of a legal entity information about the participants, including disclosing the indirect participating interest of any individual or public company whose direct interest exceeds 5%.

Wrongful or late submission of the above information will result in a penalty of an amount equal to 100% of the tax calculated on the company’s property. Such penalty will be calculated in proportion to the interest held by the Russian tax resident in the company or, in case it is not possible to define the % held by a person in the foreign company or foreign structure without legal entity, the proportion to the number of participants.

Liquidation

A foreign entity shall not be recognised as a Russian resident if a resolution of the shareholders/founders for the liquidation of the foreign entity was effected in previous or current tax periods and the liquidation procedure was completed before 1 January 2017.

DETERMINATION OF THE TAX RESIDENCY STATUS OF FOREIGN LEGAL ENTITIES

Tax residents in Russia

Russian tax residents are defined as:

  • Russian organisations
  • foreign companies which are deemed to be tax residents in Russia under an international tax agreement
  • foreign companies for which the effective management is in Russia

A foreign entity which is domiciled in a foreign jurisdiction having an effective tax treaty with Russia and operating in Russia through a standalone division[1], has the right to recognise itself as a Russian Resident and be treated the same as Russian companies. Such company will not be recognised as a CFC.

Effective Management Definition

The effective management is in Russia if:

  • the location of the majority of the meetings of the board of directors or equivalent management body is in Russia as opposed to any other country or
  • the foreign entity’s senior management primarily perform their executive management duties in Russia or
  • decision making and actions relating to the current activities of the company which fall within the competence of the executive management are regularly conducted from Russia.

The executive management of a foreign entity will be considered to be exercised outside Russia if it carries out business using its own qualified personnel and assets in a country in which it is resident and which has a tax treaty with Russia. The foreign entity may be asked to submit supporting documentation evidencing the above.

The Law provides secondary criteria that are to be taken into account if necessary (after considering the first 2 points expressed above) in determining the effective management:

  • the location of the maintenance of the accounting and other financial records (other than consolidation),
  • the location of other management records, and
  • the location of the operation management of the foreign entity’s personnel.

Special Grounds on Which Effective Management is Not Considered to be in Russia

The Law provides rules that normal shareholder activities will not result in a foreign subsidiary being deemed to be tax resident. In particular the carrying out of the following activities in Russia will not in itself be considered as signifying that effective management of a foreign company is exercised in Russia:

  • the preparation and adoption of decisions on matters falling within the authority of the general meeting of shareholders (participants) of the foreign company;
  • preparation for the holding of a meeting of the board of directors of the foreign company;
  • the performance in Russia of particular functions pertaining to planning and control of the activities of the foreign company, including: strategic planning, budgeting, the preparation and drawing-up of consolidated financial statements, internal auditing and internal control and the adoption

(approval) of standards, methodologies and policies which apply to all or a substantial proportion of subsidiary organizations of the organization in
question.

Exclusion of foreign Entities from Russian Residency having their Effective Management in Russia

The Law provides particular exclusions of foreign entities that even thought they meet the Effective Management definition, yet they are not considered to be Russian residents.

These exclusions are:

  • the foreign company has permanent residence in a treaty jurisdiction and is deemed to be tax resident there in accordance with the tax treaty between Russia and that jurisdiction (i.e. tax residents in the jurisdiction of incorporation);
  • foreign companies whose core activity involves participation in production sharing agreements, concession agreements, licence agreements or service agreements on a risk basis or other similar agreements with the government of the corresponding state (territory) or with institutions (State authorities, State companies) authorised by that government;
  • foreign holding companies subject to several conditions being met;
  • foreign companies that are operators of new offshore hydrocarbon deposits (shelf projects) or direct shareholders (participants) in the operators of such deposits.

GAINS ON DISPOSAL OF SHARES IN PROPERTY RICH COMPANIES AND TRANSFER OF ASSETS WITHIN THE GROUP

Tax in relation to indirect sales of property rich companies

Under the Law, proceeds from sales of shares and participating interests in foreign companies, over 50% of whose directly or indirectly owned assets are real estate in Russia, as well as financial instruments derived from such shares (participating interests), will be taxable in Russia, unless the securities concerned are traded on a recognised stock exchange.

Taxation of transfers of assets free-of-charge from shareholders

Transfers of assets to a Russian company from a majority shareholder or transfers of assets to a subsidiary in which the recipient is the majority shareholder are exempt from tax. The Law restricts the exemption if the parent company or subsidiary, the assets from which are received, is resident in a jurisdiction on the Ministry of Finance’s blacklist.

For the exception of profits to apply the assets must not subsequently (within 1 year) be transferred to a third party unless such assets consist of cash.

ACTUAL RIGHT TO RECEIVE INCOME

Under the Law the application of benefits under international tax treaties, such as exemption from tax and reduced withholding tax rates, are restricted to the “actual recipient (beneficial owner) of income”.

Person who has an actual right to income

A person who has an actual right to income will be a person who, by virtue of direct or indirect participation in an organisation or control over an organisation, or by virtue of other circumstances, has the right independently to use or dispose of that income, or a person in whose interests another person has the authority to dispose of the income in question.

The functions performed and the risks assumed by persons will be considered in deciding to which person, if any, treaty benefits apply in relation to Russian-source income.

A foreign person will not be deemed to have an actual right to income if that person possesses limited powers in
relation to the disposal of the income and carries out intermediary functions in relation to it in the interests of another person without performing any other functions and without assuming any risks, directly or indirectly paying the income in question (in whole or in part) to that other person who, were that income to be received directly from sources in the Russian Federation, would not have the right to the application of the provisions of a tax treaty under which a reduced tax rate or exemption from Russian tax would apply.

Applying the provisions of the international treaty by the person/entity having the actual right to receive income

For the purposes of the double tax treaty, besides the tax residency confirmation, a tax agent is entitled to request confirmation that the recipient of income has the actual right to receive such income.

If the foreign entity recognises that it has no actual right to receive such income then the provisions of the international treaties with Russia can be applied to another person participating directly/indirectly in the Russian organisation that paid the income in the form of dividends. The right to apply the provisions of the international tax treaties of Russia shall be applicable to the next person/ entity that participates directly in the entity that recognised it had no actual right of the income in the form of dividends. If that entity also recognises that it has no actual right to income then the right to apply the provisions of the international treaties of Russia shall apply to the next person in the corresponding order of participation.

If the person having actual right to receive the income in the form of dividends is a Russian tax resident and participates indirectly in the Russian organisation that paid such income then such person can apply the provisions of Article 284 clause 3 sub-clause 1 of the Russian Tax Code whereby no tax is levied on the Russian organisation receiving the dividends provided that:

i.) that on the date of the decision to pay dividends to the organisation receiving the dividend the latter owned continuously the right of at least 50 percent of the shares for at least 365 calendar days giving the right to receive dividends in an amount equal to not less than 50 percent of the total amount of dividends paid by the organisation.

ii.) the foreign entity through which it participates in the Russian organisation is no less than 50 percent in the period from the payment date of the dividends until the end of the tax period in which the dividend payment is performed.

HOW WE CAN ASSIST YOU

LSTS can provide guidance and assistance on the following:

1.) Review the group structure and identify companies that may become CFCs, assess the impact and formulate a strategy;

2.) Consider the economic efficiency of the existing structure and review potential restructuring opportunities;

3.) Review the current financial structure and develop options for converting from a “back-to-back” structure into single-level structures;

4.) Develop alternative structures and options for organising contractual structures in connection with a higher risk profile;


[1] Article 11 of the Russian Tax Code defines the separate division being a separate unit of the organization which is equipped with stationary jobs. The jobs are considered stationary if they are created for a period exceeding one month; Further guidance has been provided RF Ministry of April 29, 2004 under letter N 09-3-02 / 1912.


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