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Collas Crill Discusses Russian Deoffshorization Law

by Jason Gorringe, Lowtax.net, London
22 April, 2015

Due diligence and in-depth risk analysis were highlighted as essential for Channel Island companies doing business in Russia, after recent changes to the Russian tax code, at a recent seminar hosted by offshore law firm Collas Crill.

Group Partner Nicholas Davies, who leads the firm's Russia practice, discussed the potential challenges and opportunities for Channel Islands-based organizations doing business with Russian clients, largely due to recent changes to Russia's tax code.

These changes, including the introduction of CFC rules, came into effect as of January 1, 2015, and are intended to tax the profits made by controlled foreign companies and other non-Russian structures in a similar manner to that seen in many countries around the world.

The rules require the disclosure of beneficial ownership interests in non-Russian structures – with the first date for such disclosure currently set at June 15, 2015 - and provide a framework under which a non-Russian company might itself become tax resident in Russia.

"The situation in Russia is challenging but there are significant potential opportunities, not least as a result of these tax changes, for Channel Islands businesses. There is 'good business' to be had in Russia, but care must always be taken to ensure an appropriate level of risk analysis and due diligence (including taking advice in relation to sanctions compliance) is undertaken," said Davies.

According to Collas Crill, the changes have led to Russian tax residents and their advisers looking at a variety of structuring options, with the range of products, flexibility, and substance of corporate services on offer in jurisdictions such as Guernsey and Jersey, as well as the Cayman Islands, increasingly of interest.

Collas Crill said: "Despite being dubbed the 'deoffshorization' of the Russian economy, the tax changes are unlikely in practice to significantly impact the use of offshore structures by Russian tax resident individuals and corporates; the key driver behind the use of such structures for many remaining asset or investor security. It is clear, however, that the new rules are resulting in rationalization and restructuring of many existing structures, and that there is no 'one-size-fits-all' solution."

"Jersey and Guernsey are arguably some of the best positioned jurisdictions to provide the sophistication of product and substance that many Russian tax residents will require and, as a consequence, increasingly find themselves on the radar of Russian tax residents and their advisers in considering their structuring options."

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