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BRIEFING
UK-Russia Cross-Border Estate Planning ON Thursday 10 April 2014, 12.00pm – 2.00pm AT 6 New Street Square, London, EC4A 3LX, United Kingdom HOSTED BY
UK-Russia Cross-Border Estate Planning – 10 April 2014 ________________________________________________________________________________
These Notes are intended to do no more than refresh the memories of those attending the conference of the salient points made. Whilst every care has been taken in preparing the Notes to ensure their accuracy, they cannot be exhaustive and are no substitute for detailed examination of the relevant statutes, cases and other materials when advising clients on particular matters. No responsibility can be accepted by the Society of Trust and Estate Practitioners or the speakers for any loss occasioned to any person acting or refraining from action in reliance on anything contained in these Notes. No part of the Notes may be reproduced in any form without the prior permission of the speakers.
© STEP Conferences 2014
UK-Russia Cross-Border Estate Planning – 10 April 2014 ______________________________________________________________________________
Notes for delegates claiming points under CPD/CPE schemes
Attendance at today’s conference will assist delegates in meeting their structured training commitments as follows:
Society of Trust and Estate Practitioners
The event qualifies for 1 hour towards meeting STEP members’ structured training commitment under the Society’s own Continuing Professional Development Scheme.
The Solicitors Regulation Authority (formerly the Law Society)
The event is accredited with 1 hour under the Solicitors Regulation Authority continuing professional development scheme. Please note, however, that to claim the hours, solicitors must sign the attendance register on the conference registration desk at the end of the conference (in order to confirm their attendance for the whole of the event under the Solicitor Regulation Authorities guidelines). Please quote your roll number, as well as your name and firm. The reference allocated by the Solicitors Regulation Authority to courses run by STEP, which must be quoted on your claim form, is AKZ/STCL.
Bar Standards Board
The event is accredited with 1 hour under the Bar Standards Board continuing professional development scheme. Please note, however, that to claim the hours, delegates must sign the attendance register on the conference registration desk at the end of the conference (in order to confirm their attendance for the whole of the event under the Bar Standards Board guidelines). Please quote your name and firm.
NB In all cases, points/credits are subject to the appropriate claim being made
UK-Russia Cross-Border Estate Planning – 10 April 2014 ______________________________________________________________________________
PROGRAMME
12.00pm Arrival, Registration and Sandwich Lunch
12.30pm Chairman’s Welcome Address Edward Reed, Partner-Private Client, Macfarlanes LLP
12.35pm UK-Russia Cross-Border Estate Planning Maxim Alekseyev, Co-founder, Senior Partner and Head of ALRUD Private Client and Tax practices, ALRUD
1.35pm Questions and Answers
1.50pm Chairman’s Closing Remarks Edward Reed, Partner-Private Client, Macfarlanes LLP
2.00pm Conference Close
UK-Russia Cross-Border Estate Planning – 10 April 2014 ______________________________________________________________________________
DELEGATE LIST
Simon Allister Vestra Wealth
Geraldine Appert Societe Generale Pribate Banking Hambros
Sophoklis Argyrou Argent Consulting
Oliver Auld Speechly Bircham LLP
Catharine Bell Lawrence Graham LLP
Patricia Boon Lawrence Graham LLP
Ian Bradshaw Goodman Derrick LLP
Michaela Britton Mishcon de Reya
Stephanie Brobbey Goodman Derrick LLP
Katharina Byrne Burges Salmon LLP
Susan Cambridge Charles Stanley & Co Ltd
Cynthia Cho Investec Wealth & Investment
Phil Collington Rawlinson & Hunter
Elio Conserva RCB BANK LTD
Bruce Currie Weighbridge Trust Limited
Ross Davidson PwC
Richard Dew 10 Old Square
Robert Drysdale Rooks Rider Solicitors
Lucy Eldridge Saffery Champness
Amanda Elwell Kerman & Co LLP
John Goodchild Pemberton Greenish LLP
Christine Green Veale Wasbrough Vizards LLP
David Griffiths AMS Corporate Services Limited
William Hancock Collyer Bristow LLP
Charles Hutton Speechly Bircham LLP
DELEGATE LIST CONTINUED
Andrew Jones Hugh James
Andrew Kidd Clintons
Graeme Kleiner Speechly Bircham LLP
Olga Kucherenko Deloitte
Irina Kuznetsova Taylor Wessing LLP
Paola Lombardi Trident Trust Group
Debbie Mahanta IOMA Group UK Ltd
Andrew McErlean Cartlidge Morland
Toon Meyer Lombard Intermediation Services S.A.
Dominic Mills Dominic Mills & Co
Neil Morton HSBC Private Bank (U.K.) Limited
Phillipa Orchard Trident Trust
Michael Parkinson Macfarlanes LLP
Fiona Poole Maurice Turnor Gardner LLP
Dominic Potier de la Morandiere Wedlake Bell LLP
Stuart Pryke Fiduciary Business Group
Andrzej Radomski Trident Trust
Grazyna Scotford Lynch Hall & Hornby
Tatiana Sidneva Mishcon de Reya
Nina Skorytchenko Vestra Wealth
Mark Summers Speechly Bircham AG
James Trafford Speechly Bircham LLP
Katya Vagner Edwin Coe LLP
Elena Vasilyeva Charles Russell LLP
Kristina Volodeva Deloitte
Olga Vysotskaya PwC
DELEGATE LIST CONTINUED
Hannah Wailoo Piper Smith Watton LLP
Ian Watson 3 Stone Buildings
Alex Way Maples and Calder
Michael Woodward Carter Lemon Camerons
STAFF LIST
Richard Clarke Society of Trust and Estate Practitioners (STEP)
Emma Yeats Society of Trust and Estate Practitioners (STEP)
UK-Russia Cross-Border Estate Planning – 10 April 2014 _____________________________________________________________________________
Edward Reed, Partner-Private Client, Macfarlanes LLP
Edward is a partner in private client. He advises on UK and international wills, trusts and personal tax planning. He is a trustee or protector of a number of private and charitable trusts, many of which are administered within our trust administration group. Having been educated both in the UK and in France, Edward has developed an affinity for civil law issues generally and acting for French-speaking and Swiss-based clients in particular.
In conjunction with overseas lawyers, he frequently advises on cross-border estate and succession planning issues and is involved in the establishment of trust structures in a number of jurisdictions. He has a particular interest in the drafting of trusts and some of their constitutional mechanisms and has advised institutional and corporate trustees on the drafting and implementation of their standard forms, focusing on such issues as settlor reserved powers, settlor-directed investment provisions, protector committees and their appointment mechanisms and the trigger events (e.g. incapacity) for the transmission of key trust powers. He advises trustees and settlors on fiduciary and tax issues arising out of the administration of existing structures. Much of his work is on vehicles which have little or no connection to the UK.
Edward writes frequently on tax and trust issues, has been quoted in the industry and national press and has lectured in the UK, Isle of Man and continental Europe at industry conferences. He is also involved in charity law and advice to clients on philanthropic issues more generally. He advises on UK immigration and nationality law and procedure for private and corporate clients. He has administrative oversight of the firm’s wholly-owned trust company, Embleton Trust Corporation Limited. Edward is a contributor to Tolley’s Administration of Trusts and the author of the England and Wales Chapter in The World Trust Survey (Gothard & Shah) published by Oxford University Press. He is also co-author of the “Trusts, Trustees and the UK Anti Financial Crime Regime”, chapter (C11) in Glasson, The International Trust (3rd Ed. 2011).
Edward is also the Chairman of the steering committee of the Cross-Border Estates Group of STEP, a member of the Capital Taxes Sub-Committee of the Law Society’s Tax Law Committee and a trustee of The Friends of the Institut Français.
UK-Russia Cross-Border Estate Planning – 10 April 2014 _____________________________________________________________________________
Maxim Alekseyev, Co-founder, Senior Partner and Head of ALRUD Private Client and Tax practices, ALRUD
Maxim Alekseyev is a co-founder and Senior Partner of ALRUD, Head of ALRUD Private Client and Tax practices. He is an expert in foreign economic and business activity, investments, corporate and commercial issues.
Maxim leads projects dealing both with Russian and foreign partners within the territory of Russia and abroad. In his private client practice, he has extensive experience in advising high wealth individuals on various types of issues to help them manage and secure their assets, business and family relations. He advises
clients on different aspects of estate planning and administration, personal wealth management, as well as family business governance, risk management in respect of assets protection. Maxim is also highly recognized in domestic and international taxation projects, including resolution of tax disputes. Maxim Alekseyev is a member of IBA, ABA, IPBA and STEP.
UK-Russia Cross-Border Estate Planning
and possible effect of Russian CFC rules
Maxim Alekseyev
April 10, 2014
Contents
1. Applicable law / competent jurisdiction for inheritance of movable property and immovable property
2. Inheritance by will and by operation of law (specifics and limitations, forced heirship rules)
3. Joint property of the spouses and impact of the nuptial agreement to the inheritance
4. Accepting by the heirs of the estate in Russia. Notary proceedings
5. Impact of the Russian legislation on transferring the Russian / non-Russian assets to the trust / foundation
6. Tax treatment of payments from trust/foundation/insurance policy
7. CFC rules in the pipeline
Applicable law / competent jurisdiction for inheritance of movable property and immovable property
PROPERTY APPLICABLE LAW
Movable property
Law of the country of the last permanent residence of a testator
Immovable property
Law of the country where such immovable property is located
Immovable property in Russia
The Russian law
5
Applicable law / competent jurisdiction for inheritance of movable property and immovable property
CASE STUDY
6
Applicable law in case of inheritance?
Tips: last place of residence location of immovable
property
?
? ?
Inheritance by will and by operation of law (specifics and limitations, forced heirship rules)
Estate includes all property directly owned by a testator at the moment of his death.
Deceased on one day do not inherit to each other
Inheritance by operation of law:
Condition: absence of will
Succession in compliance with priority ranking and per stripes
Successors of the same priority inherit in equal shares
Joint ownership of inherited property
Ways to avoid inheritance by operation of law– to issue a will or transfer the assets to the trust/fund
No inheritance tax in Russia, however remuneration paid to the heirs of authors of works of science, literature, art, etc. is subject to 13% tax
7
Inheritance by will and by operation of law (specifics and limitations, forced heirship rules)
8
Heirs Assets
NO WILL
Joint ownership
Inheritance by will (specifics and limitations, forced heirship rules)
Inheritance by will Certification by a notary public Any property to any persons Limitations
forced heirship rules rights of a surviving spouse to a share in joint property can’t provide binding instructions to heirs regarding
possession, use and management of the property after the death of a testator
can’t limit powers of heirs as owners of the inherited property after the death of a testator
can’t include provisions on conditional inheritance (upon achievement of certain age, gaining of education etc.)
9
Inheritance by will (specifics and limitations, forced heirship rules)
10
FORCED HEIRSHIP RULES Irrespective of the provisions of a will a testator’s
children under 18 disabled children disabled spouse disabled parents Disabled dependants (in certain cases) shall inherit non less than ½ of a share such person would be entitled to in case of inheritance by law (i.e. in the absence of a will).
FORCED HEIRS
Inheritance by will (specifics and limitations, forced heirship rules)
Sister Disabled
wife
Child 5 y.o.
Disabled father
Intent to sister (3/4 by will)
Intent to disabled wife (1/12)
Intent to child 5 y.o. (1/12)
Intent to disabled father (1/12)
11
Sister Disabled
wife
Child 5 y.o.
Disabled father
Sister (1/2)
Disabled wife (1/6)
Child 5 y.o. (1/6)
Disabled father (1/6)
Intent of a testator Forced heirship rules apply
SPOUSES PROPERTY REGIMES UNDER RUSSIAN LAW
Joint property comprises any property gained by the spouses during their marriage except for:
Property which belonged to each of the spouses before marriage and
Property received by one of the spouses as a gift, inheritance or in course of other gratuitous transactions
Intravital disposal of the joint property – only upon consent of the other spouse (including transfer into trust)
Joint property regime can be changed to separate property regime by entering into a nuptial agreement
12
Joint property of the spouses and impact of the nuptial agreement to the inheritance
INHERITANCE UNDER DIFFERENT PROPERTY REGIMES
13
Joint property of the spouses and impact of the nuptial agreement to the inheritance
Joint property Separate property
A surviving spouse is entitled to at least ½ of the joint property.
The remaining ½ shall be divided between the heirs under will or the heirs under law (including a surviving spouse).
Separate property of the diseased is NOT divided between spouses (i.e. the surviving spouse shall not be entitled to receive ½ of the separate property but still be entitled to his (her) share in the estate of the deceased (provided a will does not provide for otherwise).
Separate property
of the deceased
Property raised out ofmarriage
Separate property of thedeseased raised inmarriage (set forth by thenuptial agreement)
Marital share of a testator
Marital share of the other spouse
Estate
Property raised out ofmarriage
1/2 property raised inmarriage
1/2 property raised inmarriage
Inheritance
14
Inheritance by will and by operation of law (specifics and limitations, forced heirship rules)
Inheritance
Accepting by the heirs of the estate in Russia. Notary proceedings
Estate can be accepted within 6 months period from the death of the testator.
Two methods of accepting the inheritance:
by submitting an acceptance application to the notary;
by committing actions evidencing actual acceptance of the inheritance. But in any case receiving the inheritance certificate from the notary public is recommended
15
Problems of business inheritance
No definition of “Business” – assets are inherited separately Existence of heirs entitled to inheritance notwithstanding the
will content
Not all wishes of the testator may be included to the will 6 months period for obtaining an inheritance certificate :
Difficulties in realization of shareholder’s rights
Necessity to resolve issues related to safe and proper management of the assets
Limited powers of the executer of a will
Minor heirs cannot dispose of received estate unless under consent of guardianship and trusteeship authorities
Consent is feasible only if transactions and voting are in minor’s benefit
Difficulties in management in companies with minor shareholders
Way to solve – to transfer the assets to the trust / foundation prior to death
16
Impact of the Russian legislation on transferring the Russian / non-Russian assets to the trust / foundation
No concept of “Trust” or “Foundation” in Russia
Possibility for the Russian citizens and residents to transfer the assets to the foreign trusts and foundations, to be the settler, beneficiary, protector etc of such structures
As transfer of the assets to trust/foundation interrupts ownership, Russian inheritance law is not applied
Impossible to transfer Russian assets directly to the trust/foundation but only through a foreign company
Prohibition for parties with foreign element to own agricultural land in Russia
17
Impact of the Russian legislation on transferring the Russian / non-Russian assets to the trust / foundation
To be noted:
Consent of the other spouse to transfer such property to the structure us required (in case of absence of a nuptial agreement).
Including forced heirs to beneficiaries is recommended.
18
Tax treatment of payments from trust/ foundation/ insurance policy
No tax on transfer to trust/foundation
Capital/income received from trust/foundation is considered as general income (13%)
Proceeds shall be duly declared, some explanations to tax authorities may be required
Transfer from trust and foundation via individual = taxable event, as the individual has the right to dispose of income/capital
19
Tax treatment of payments from trust/ foundation/ insurance policy
Life insurances – more understandable legal concept than trusts, but no established approach to it as an asset protection instrument
If insured=beneficiary, then most likely tax calculated as (payout - insurance premium ) X 13% (for tax residents)
If not: payout taxable as general income at 13% (for tax
residents)
20
CFC rules in the pipeline. The Draft Law
Draft Law prepared by the Russian Ministry of Finance (the “Minfin”) on March 18th, 2014
Key changes
1. Concept of tax residence of companies
2. Taxation of Controlled Foreign Companies (the “CFC”)
21
CFC rules in the pipeline. Tax residence of companies
Currently
Tax residence just for natural persons
Foreign Companies are liable to pay profits tax in Russia in the following cases:
Perform activities via PE,
or
Gain income from Russian sources
Will be
Profits tax apply to worldwide profits of a foreign company
recognized as a Russian tax resident
22
CFC rules in the pipeline. Tax residence of companies
Foreign company – Russian tax resident in following cases:
A. Foreign company is recognized as Russian tax resident in accordance with Double Tax Treaty
B. At least one of the following conditions is fulfilled:
Meetings of the Board of Directors (or other governing body of the company) are held on the territory of the Russia;
Management of the company is usually performed from Russia;
Chief officers of the company carry out their activities in Russia;
Accounting of the company is conducted in Russia;
Archives of the company are stored in Russia.
C. A foreign company voluntarily recognizes itself as a Russian tax resident
23
CFC rules in the pipeline. New obligations of Russian tax residents
Notify Russian tax authorities about participation in foreign companies:
foreign companies being tax residents of the countries included into the «blacklist» drawn up by the Minfin or foreign companies which tax residence is not known
in case of at least 1% direct or indirect shareholding
foreign companies for which the tax resident is the “controlling person”
structures established without incorporation of a legal entity (including, but not limited to fond, partnership, association, or other form of collective investments)
whereby the taxpayer is: (а) the person having actual right for the income (profit) of the
structure in case of distribution, or (b) is controlling person over the structure
24
CFC rules in the pipeline. Controlling person
who independently or jointly with other persons exercises control over the company / Structure
is influence (or the possibility to influence) on decisions made by that company with regard to distribution of gained profit (incomes) after taxation :
direct or indirect participation in that company
participation in the agreement aimed at managing of the company
other specifics of relations between the person and company and (or) other persons
direct or indirect participation (individually or jointly with spouse and (or) infant children and other persons is more than 10%.)
25
CFC rules in the pipeline. Risks connected with information disclosure
Tax risks including:
Personal taxation
Traditional financing structures – thing capitalization
Transfer pricing – tax authorities have more possibilities
Anti-trust authority
Any other corporate questions?
Beneficial owner’s personal questions – existing assets data potential availability
Family relations planning (marriage contracts and so on)
26
CFC rules in the pipeline. New responsibilities of Russian residents
Pay taxes on non-distributed income of their foreign controlled companies (“CFC”)
CFC
Foreign company that is:
– non Russian tax resident; AND
– tax resident of a country included in the List; AND
– has controlling persons - Russian tax residents (companies or individuals); AND
– not listed on a stock exchange included into the list of stock exchanges which is issued by the Russian Central Bank together with Minfin
27
CFC rules in the pipeline. CFC
Risks: Increased taxation (13% or 20% instead of 9%)
Trusts – double taxation?
Retained earnings?
28
CFC income (chapter 25 of the Russian
Tax Code)
Dividends paid out of CFC income
Taxable profit of the CFC 13% - individuals 20% - companies
in proportion to share and ownership period
CFC rules in the pipeline. Possible application
29
Trust
BVI
Cyprus
Rus Co
Obligations of the beneficiary: - Notification of tax authorities - Calculation of taxable profit of all CFCs - Payment of taxes at the rate of 13% (9% for dividends)
BVI
Cyprus
Rus Co
CFC rules in the pipeline. Possible application
30
RusCo 1
BVI
Cyprus
RusCo 2
Obligations of the beneficiary: - Notification of tax authorities - Calculation of taxable profit of all CFCs - Payment of tax on non-distributed profit at the rate of 13%
Obligations of the RusCo 1: -Notification of tax authorities - Calculation of taxable profit of all CFCs - Payment of tax on non-distributed profit at the rate of 20%
CFC rules in the pipeline. Possible solutions
Change tax residency?
Move structures to white listed jurisdictions?
Lose control over structures (proper trust or foundation)?
31
Firm Profile
ALRUD was established in 1991 by Maxim Alekseyev and Vassily Rudomino
Today ALRUD holds a leading position among Russian firms that provide consulting services on law and taxation to foreign and Russian clients
Many of our projects have international element and we work in integrated teams with leading counsels in UK, Europe and US to provide the best expertise and contacts for each project
Twenty years of successful business are supported by our professional expertise and a solid team of more than 70 specialized experts as well as professional back office – our firm has a reputation for reliability and competence
ALRUD is independent of any and all financial and industrial groups of Russia, which gives it an important advantage
For many years ALRUD provides pro bono legal support to Russian cultural and educational institutions (“Nashe Nasledie” magazine, the Legal Information Centre of All-Russia State Library of Foreign Literature and others)
32
Our Services
ALRUD law firm offers a complete range of legal services providing consulting and other legal services in all fields of law. We provide complete solutions to complex matters, with detailed attention to all of many, and sometimes unforeseen, nuances and problems that can arise.
Each of our lawyers specializes in several fields of law, thus ensuring efficiency and high quality of the services we provide.
The firm’s specialists work in the following practice groups:
Private Clients
Foreign investments
Tax law
Competition/Antitrust
Mergers & Acquisitions
Corporate law/Joint Ventures
Banking and Finance
Capital Markets
Labour and Employment
Restructuring and Insolvency
Real Estate and Land law
Commercial law
Intellectual Property
Media, Brands and Technology
Data Protection
Aviation Law
Criminal law
Energy & Natural Resources
Dispute Resolution
33 Sources say: “We work with people that we think are the best in their field, and ALRUD is our go-to firm in Russia.” Chambers Europe, 2012
Our Credentials
Best National Law Firm of the Year in Russia by Chambers Europe Awards for Excellence 2013
Top Listed in Best Lawyers, 2013
Client Service Law Firm of the Year in Russia by Chambers Europe Awards for Excellence 2011
Best National Law Firm of the Year in Russia by Chambers Europe Awards for Excellence 2010
Leading firm for Competition/Antitrust, Corporate/M&A, Labour and Employment, Dispute Resolution, Real Estate, Banking and Finance, Restructuring and Insolvency and Tax by Chambers Europe, 2013
Leading domestic firm for Corporate/M&A, Restructuring and Insolvency by Chambers Global, 2013
Recommended for Banking and Finance, Corporate/M&A, Dispute Resolution, Labour and Employment, IP, Real Estate, Energy & Natural Resources, TMT and Tax by The Legal 500, 2013
Recommended for Banking, Capital Markets, Mergers and Acquisitions, Project Finance, Restructuring and Insolvency by IFLR 1000, 2013
Recommended for Corporate/M&A, Competition/Antitrust, Dispute Resolution, Labour and Employee benefits, Restructuring and Insolvency, Banking and Finance, and Tax by PLC Which Lawyer? 2012
For 6 consequent years ALRUD is named one of the top Russian law firms with Elite Competition Practice by Global Competition Review, 2008-2013
Recommended for Tax practice area by International Tax Review: World Tax, 2013
Leader in the amount of the transactions completed in 2008-2012 in the rating of legal advisers on M&A transactions by M&A Magazine 2009-2013
34
Thank you
35
***
All information was obtained from publicly available sources. The authors of this information letter assume no liability for the consequences of reliance upon, or decision-making based on such information. We recommend you to apply for legal advice to Senior Partner Maxim Alekseev in each particular case.
The STEP Cross-Border Estates Group (C-BEG) was founded in 2004 at the instigation of Richard Frimston of Russell-Cooke LLP. Its area of reference is the domain of estate planning and the administration of estates/successions across
national borders. It focuses on reconciling divergent inheritance rules between civil code jurisdictions, between a civil code approach and a common law approach and
between such systems and others such as Shari 'a.
This Special Interest Group has to date focused on providing seminars on both tax and 'civil' topics surrounding such conflicts of law issues, touching on marriage,
death, divorce and property law questions. C-BEG continues to follow the Brussels legislation process and the passage of the proposed Brussels III and Brussels IV
Regulations. Visit the Cross-Border Estates Special Interest Group web-pages: www.step.org/cross-border-estates www.step.org/SIGs Join the LinkedIn group: Cross Border Estates Planning Special Interest Group www.linkedin.com/groups/Cross-Border-Estates-Planning-Special-4039028 Become a Member: Membership of STEP’s Special Interest Groups is open to STEP members and non-members alike and there is currently no fee to join. If you wish to become a member of the Cross-Border Estates group and receive updates about their news, events and activities, please visit www.step.org/SIGs. Alternatively you can complete a joining form at today’s registration desk.
Cross-Border Estates Special Interest Group
Society of Trust and Estate Practitioners (STEP) Artillery House (South)
11-19 Artillery Row London, SW1P 1RT
United Kingdom
Tel: +44 (0)20 7340 0537 Fax: +44 (0)20 7340 0501
Email: [email protected]