Revised DTA between Russian Federation, Switzerland and Cyprus: Russian Tax Authorities approach to information exchang

1. Revised DTA between Russian Federation, Switzerland and Cyprus:Russian Tax Authorities approachto information exchange Moscow

2. Speaker Introduction • Sergei V. Alimirzoev, a founding partner of Alimirzoev & Trofimov, Moscow • specializes in Russian and US tax law and focusing his practice on international tax planning for private and corporate clients and cross-border transactions •  Prior to forming Alimirzoev & Trofimov, Sergei Alimirzoev worked as an attorney for Steptoe & Johnson Co., Washington, D.C. and for Allen & Overy, Moscow, as well as a tax consultant with Ernst & Young in Moscow and as General Counsel for a major Russian Investment Bank "ATON" •  Sergei Alimirzoev is a graduate of Moscow State University Law Department and also holds an LL.M from Capital University Law School in Columbus, Ohio ALIMIRZOEV&TROFIMOV

3. Topic Overview • Offshore jurisdictions are widely used in corporate structuring for • Confidentiality • Assets protection • Tax planning (although less aggressive in recent years) • Transparency as global trend: OECD and US being main drivers, less and less countries are not compliant • Clients’ concern in cross-border investigations and international information exchange between state authorities • New challenges for lawyers and professional service providers: • Preventing disclosure of sensitive information , and • Staying compliant ALIMIRZOEV&TROFIMOV

4. Typical business structure Participant 1 Participant 2 Participant 3 Nominee Shareholder Nominee Shareholder Nominee Shareholder BVI Holding Company Nominee Shareholder Nominee Shareholder Nominee Shareholder Cyprus Company 1 Cyprus Company 2 Cyprus Company 3 RF Company 1 RF Company 2 RF Company 3 RF Company 4 RF Company 5 RF Company 6 Real estate Land plots Operational activities Equipment, personnel Other assets Securities

5. Revised Russian-Swiss DTA • Administrative assistance procedure – extending options for information exchange • Request criteria: • Good faith • No fishing • Justification • Proceeding for review and approval of request by Swiss authorities • Appeal procedure ALIMIRZOEV&TROFIMOV

6. Cyprus Experience: Regulation Framework • Protocol to Russia - Cyprus DTA: initialized in April 2009, signed in October 2010, fully ratified in February 2012 • Information exchange proceedings in Protocol to Russia-Cyprus DTA are basically same as in new Swiss DTA: • Requirements for request justification; • Ban on fishing • Review and approval procedure by Cyprus authorities for request to take effect • Protocol to Russia - Cyprus DTA came into force on April 2, 2012 under the Letter issued by FNS dated 15.05.2012 N ED-4-3/7893@, but shall be applied in relation to tax periods starting on January 1, 2013 • No domestic legislation or regulations adopted to implement the Protocol in Russia yet ALIMIRZOEV&TROFIMOV

7. Russian Authorities Approach: Legislation • Though Protocol to Cyprus DTA is in force, the information exchange procedure set therein currently may not be implemented • Statutory framework – only basic provisions of RF Tax Code on information exchange: • s. 86 (2) – information from banks on accounts held in taxpayer’s name and moneys thereon, • only relates to corporate (or individual entrepreneur) taxpayers • only applies in case of outstanding tax arrear • not clear whether applies to foreign banks • No regulations enacted to formalize procedure for making requests (most routine governmental activities are formalized by so called administrative proceeding regulations, and there is none on this issue yet) • Unofficial information on unpublished “internal regulations” (not binding on 3rd parties, internal guidelines only) ALIMIRZOEV&TROFIMOV

8. Russian Procedure for Domestic Tax Requests • As there is still no procedure for international information requests, it may be paralleled to information requests from domestic banks • Statutory framework: RF Tax Code s. 86, Federal Tax Service Regulations as of 05.12.2006  #САЭ-3-06/829@ • Requires ongoing tax audit or tax claim for outstanding tax arrears • Need to be justified • May only be filed in respect to certain particular taxpayer (no fishing) • Russian Courts have developed consistent case law denying tax authorities’ claims to bank when the above criteria are not met (Supreme Arbitrazh Court Rulings as of 27.11.2008 N 13480/08, as of от 23.06.2009 N 1681/09, as of 18.03.2011 N ВАС-10407/10 etc) • Due to lack of domestic rules to implement Swiss DTA, one may parallel existing procedure for domestic requests – similar statutory rules may lead to similar approach from tax authorities ALIMIRZOEV&TROFIMOV

9. Russian Authorities Approach: Procedure Federal Tax Body (RF) ForeignTax Body International request Internal request Head of Local Tax Body Foreign Country Procedure for Request Review Internal request Local Tax Inspector Tax audit Taxpayer Russia Foreign Country ALIMIRZOEV&TROFIMOV

10. Cyprus Experience: Interim Results • Initial reaction from Clients was quite negative: • concern on information disclosure to domestic tax authorities • search for alternative jurisdictions • Response from legal and service providers community: • informing, educating and raising awareness • Monitoring RF government activity (literally none so far) • Reinforcing new and existing corporate structures • Result: no visible deviation in Cyprus market share in offshore jurisdictions on Russian market, even after ratification of Protocol by Russian Parliament in February 2012 ALIMIRZOEV&TROFIMOV

11. Questions? Sergei V. Alimirzoev Alimirzoev & Trofimov Law Firm M. Kharitonievsky per. 9/13, bld. 4, 3rd floor, office 23 Moscow RF 107078. www.atlawyers.com Tel.: +7 (495) 956 1551 Fax: +7 (495) 956 4114 Email: sa@atlawyers.com ALIMIRZOEV&TROFIMOV