Are you taking Russian tax risks? Time to test your Russia-related business. Check your tax risks factors and assess your risks

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1 Are you taking n tax risks? Time to test your -related business Check your tax risks factors and assess your risks

2 Why is it so important? n tax law is changing. So is the court practice. During times of budget deficits, international companies are the first to face the pressure. More attention is paid to the activities of foreign companies in and all kinds of income payments to non-residents. What do the tax authorities and the Ministry of Finance say? What do the n courts say? Recent trend - to be on the forefront of OECD initiatives and Base Erosion and Profit Shifting (BEPS) Actions: Several recent court cases with international banks were resolved in favor of the tax authorities: Challenge the economic justification of cross-border group transactions Assess whether transactions and/or structures give rise to unjustified tax benefit Claim international transactions transparency Challenge double tax treaty applicability based on the beneficial ownership concept Claim tax registration of non-residents in as n tax payers Apply a broader concept of n source income referring to business substance and detailed document support Request tax documents from foreign tax authorities regarding related transactions Participate in Multilateral Convention to implement tax treaty-related measures following the OECD BEPS project (Multilateral Instrument) Introduce Country-by-County Report (CbCR) in accordance with OECD requirements CREDIT EUROPE BANK Resolution of the Moscow Arbitration Court A40-442/ of What was it about? Switzerland Double Tax Treaty benefits on interest income paid to Swiss entity of Credit Europe Bank. Why was it argued? Absence of beneficial ownership on income due to the transit nature of the payments. What were the arguments? Swiss entity was not the beneficiary owner of interest income paid on fiduciary deposits due to its agency role in the arrangement. Why is it interesting? This was a precedent when n and Swiss tax authorities exchanged information about tax payers. INTESA BANK Resolution of the Moscow Arbitration Court A /2015 of What was it about? Withholding tax exemption (0%) on interest income paid to a Luxembourg tax resident company. Why was it argued? Absence of beneficial ownership on income due to the transit nature of the payments. What were the arguments? The Luxembourg company had insufficient substance, acted as a conduit entity and transferred relevant income to its shareholder in Italy. Why is it interesting? This was a precedent when the Court provided criteria for a conduit company and allowed the application of Italy double tax treaty.

3 TAX RISK FACTORS TAX RISK FACTORS TAX RISK FACTORS What can be done? Make sure your related business is on a safe side! We have picked three main areas of concern that are typical for multinationals operating in : Beneficial ownership and double tax treaty benefits Permanent establishment through employees presence Permanent establishment through a dependent agent Check whether you are facing risks in any of these areas by looking at our questions. Scenario 1: Beneficial ownership and double tax treaty relief Can your funds flow from be tax exempt? Check and assess tax risk factors Scenario 2: Permanent establishment through employees presence What are your employees doing while travelling to? Check and access tax risk factors Scenario 3: Permanent establishment through a dependent agent What do n intermediaries do on your behalf? Check and assess tax risk factors Treaty shopping Acting as a conduit Risk transmission Management/ Partial/transformed control over SPV income transfer Your company Your Your company Your No double tax treaty with Payment of income (dividends, interest, capital gains, other income) Your company/spv Tax treaty Business activity, deals execution Main terms negotiation, sale function Effective management Core activity fragmenting Regular visits, facing clients Permanent office or fixed asset Sign/ negotiate significant terms Create legal obligations Act beyond standard course of business Perform regular commissionaire activity Tax agent What if tax risk is crystalized? Double tax treaty relief denied in due to insufficient substance in tax treaty Tax to be claimed from Tax agent and further potentially reclaimed by Tax agent from the non-resident (15% - dividends, 20% - interest and other n source income), tax sanctions (fines and penalties) for late tax payment Challenge of tax treaty relief for previous periods What if tax risk is crystalized? Obligatory tax registration in and the practical challenges Obligatory accreditation with the Central Bank of (for financial organizations) Taxation of allocated income in : 20% of Profit Tax, 18% of VAT, other taxes (if applicable), tax sanctions (fines and penalties) for late tax payment Challenge of tax payments for previous periods

4 Examples of our projects International financial group Derivative trading with involvement of a salesperson based in. Permanent establishment risk assessment and recommendations regarding tax risks mitigation opportunities. International financial group Brokerage activity held through a local n broker. The broker does not have any brokerage clients other than affiliated foreign companies. Permanent establishment risk assessment and advice how to mitigate tax risks. International bank Global fly-in policy for foreign employees who are travelling to. Review, provision of comments and guidelines on permanent establishment risk mitigation, establishing the list of tax controls. Foreign subsidiary of one of the largest n financial groups An offshore company holds asset management business in through visits made by foreign employees and engaging a n legal entity. Tax recommendations how to manage permanent establishment risk. Foreign subsidiary of one of the largest n financial groups A foreign company owns a server in the territory of with connection to the trading platform of the Moscow Exchange. Tax investigation and advice on permanent establishment risk mitigation. Foreign investment fund An investment fund is a tax resident in a foreign while management functions are performed by n tax residents. Complex tax analysis of tax efficiency of the structure.

5 How can PwC help? Our services: Assessment of double tax treaty benefits availability and risks, review and analysis of the substance and operating presence of the foreign legal entity in the double tax treaty Review n withholding tax risks on transactions subject to tax but lacking tax withholding mechanism Assistance in obtaining tax refund from the n tax authorities on behalf of a foreign legal entity Permanent establishment risk assessment including analysis of remote booking models and tax risks related to fly-in employees of the foreign entity Preparation of n permanent establishment risk control guidelines and a list of tax control procedures Assistance to foreign legal entities with tax registration in of a permanent establishment, a non-taxable representative office or an account in a n bank Mitigation of the risk of unjustified tax benefits by preparing functional analysis and profit allocation methodology Our team Ekaterina Lazorina Partner Tax and Legal Services Tel. +7 (495) ekaterina.lazorina@ru.pwc.com Vladimir Burov Partner Tax and Legal Services Tel. +7 (495) vladimir.burov@ru.pwc.com Maria Stepanova Tax Director Financial Services Tel. +7 (495) maria.v.stepanova@ru.pwc.com Alla Talachyova Senior Tax Manager Financial Services Tel. +7 (495) alla.talachyova@ru.pwc.com 2016 PwC. All rights reserved.