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Exchange of information between fiscal authorities Effect on Russian businesses

Exchange of information between fiscal authorities Effect on Russian businesses. Liudmila Katulevskaya Partner, International Tax. 19 October 2011.

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Exchange of information between fiscal authorities Effect on Russian businesses

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  1. Exchange of information between fiscal authoritiesEffect on Russian businesses Liudmila Katulevskaya Partner, International Tax 19 October 2011

  2. German private banks and other financial services are said to be involved in an ongoing investigation into massive tax evasion by hundreds of wealthy Germans Feb 2008: “Germany's Sueddeutsche Zeitung reported on Thursday, Feb. 21, that a few private banks and other financial institutions in Germany helped to administer around 50 anonymous foundations for its rich clients in Liechtenstein…” Nearly 15,000 Americans admit offshore tax cheating WASHINGTON, Nov 2009: “Of the nearly 15,000 newly disclosed accounts, many involved bank accounts in Switzerland and Europe, but assets were hidden in more than 70 countries…” Offshore havens may have to take the welcome mat in if world leaders have their way NEW YORK, Apr 2009 (Fortune): “… tax havens are under the gun now because of the global economic downturn and multi-billion dollar financial scandals. … Swiss banking giant UBS admitted to helping customers evade taxes, paying the U.S. $780 million in fines and revealing hundreds of American clients…” Liechtenstein to Share Some Secrets of Its Bank Dec 4, 2008: “Liechtenstein, under increasing scrutiny for its role as a leading offshore tax haven, has promised to partly lift the veil of secrecy shrouding billions of dollars held there by wealthy American clients and corporations…” Germany, France Push Clampdown on Tax Evasion as Havens Topple June 2009 : “Germany and France warned offshore tax havens to follow through on their pledges to comply with international standards and announced a system for monitoring the transition toward greater transparency…”

  3. Setting the scene Major tax trends worldwide Development of anti-avoidance measures Exchange of Information Application of beneficial ownership concept Tightening of participation exemption requirements Joint tax audits Development of a tax culture that encourages honest taxpayers

  4. Exchange of InformationLegal basis Massive increase since 2008 No TIEAs in Russia Bilateral Treaties Multinational Treaties Tax Information Exchange Agreements EU Mutual Assistance Directive Foreign Account Tax Compliance Act Provisions for Exchange of Information

  5. Exchange of InformationRussia is not an exception • Protocols to double tax treaties are being signed • Switzerland (signed in September 2011) • Luxemburg (draft endorsed by Russia in August 2011) • Cyprus (signed in October 2010) • Czech Republic (ratified in April 2009) • Germany (ratified in December 2008) • Methods are in line with OECD standards • The interest towards information exchange significantly increased after the signing of the Protocol with Cyprus

  6. Exchange of InformationImportant features of OECD Model Convention standards • Taxes of every kind are covered • Exchange of information is not limited to information contained in the files of tax authorities • Administrative assistance is not restricted by the taxpayer’s residence or nationality

  7. Exchange of InformationAdministrative assistance is not restricted by taxpayer’s residence Country A Information Exchange Tax Work Country C (Company C) Country B (Person A) No Assets

  8. Exchange of InformationInstruments under EU Directive • Council Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation • Must be implemented from 1 January 2013 • Three ways of exchange of information: • Exchange of information on request • Spontaneous exchange of information • Automatic exchange of information

  9. Exchange of InformationProcedures under Double Tax Treaties • Exchange of information does not happen automatically • Only the competent authority of a requesting state may request information • The information may be requested only from the competent authority of the requested state • The information requested usually relates to an investigation of the taxpayer’s tax liability for the years in question • The requested state clarifies only the relevant facts • The requesting state cannot control the actions of the requested state

  10. Exchange of InformationEffect on Russian Businesses • Tax planning driven by business reasons • Increased compliance requirements for certain groups of taxpayers (e.g. financial institutions)

  11. Exchange of InformationEffect on Russian businesses – Affected structures Offshore Company Russian individual Interest Royalties Foreign HoldCo Foreign FinCo / IPCo No risks No functions No substance Interest Royalties Foreign HoldCo Foreign HoldCo Foreign HoldCo Foreign HoldCo RusCo RusCo

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