Due diligence and in-depth risk analysis were highlighted as essential factors for Channel Islands companies doing business in Russia at a recent seminar hosted by Collas Crill.
Group Partner Nicholas Davies, who leads the firm's Russia practice, discussed the potential challenges and opportunities for Channel Islands-based organisations doing business with Russian clients, largely driven by recent changes to Russia's tax code.
Prior to joining Collas Crill, Nick spent over eight years advising on international finance and commercial transactions in Moscow, giving him a wealth of first-hand experience of the challenges and opportunities of doing business 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 Nick.
Nick was joined by Grant Thornton Director Alan Roberts and Senior Manager Neil Hoolahan who provided further analysis of the new tax rules and restructuring and shared their experiences of dealing with Russian clients.
The Russian tax law changes explained: Q&A with Nicholas Davies
What are the changes?
The significant changes to Russia's tax code and introduction of CFC rules came into effect as of 1 January 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 15 June 2015 – and provide a framework under which a non-Russian company might itself become tax resident in Russia.
How will this affect offshore structures?
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.
Despite being dubbed the 'deoffshorisation' 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 rationalisation and restructuring of many existing structures, and that there is no 'one-size-fits-all' solution.
What does this mean for Channel Island businesses?
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.