RF Supreme Court Praesidium Overview: foreign investor protection disputes

25.07.2017

Legal Update No. 605

Goltsblat BLP advises that, on 12 July 2017, an Overview of how courts resolve disputes involving protection of foreign investors was approved by the RF Supreme Court Praesidium (RF SC Praesidium) and has been published.

Among other things, the Overview presents the RF SC Praesidium’s stand on several issues deriving from tax disputes involving foreign investors.

In our opinion, the following are the most significant points:

  • Legislative amendments (including regional ones) regulating tax benefits granted to foreign investors or their Russian subsidiaries may not apply retrospectively if they have a detrimental effect on the foreign investor’s position.  

The Praesidium emphasised that, if a foreign investor was granted a regional tax benefit on project launch subject to certain conditions, it could not be deprived of this benefit by any amendments to these conditions during the term of the benefit.

In our view, if this RF SC Praesidium position trickles down to the lower courts, it might bolster legal guarantees for foreign investors counting on tax benefit stability, doing much to protect them against federal and particularly regional legislators passing arbitrary decisions and authorities changing the Rules of the Game once investments have been made.

  • A foreign shareholder that invests in the capital of a Russian company the sum (or its non-monetary equivalent) required by a double tax treaty retains the right to the treaty’s reduced dividend tax rate in each of the following cases:

- the shareholder’s participation in the Russian payer of the dividends terminates after dividends are declared but before they are paid out;

-before dividends are declared, the shareholder merges into another foreign company;

- the contribution to a subsidiary’s capital required for a reduced tax rate is made to its property rather than its authorised capital.

These positions, based on a number of previous commercial court decisions, are to add clarity to several current issues relating to taxation of dividends at source.

The Overview also sets down several positions consistently used in practice (that abuse of double tax treaties is inadmissible, tax at source is to be paid when liabilities to a foreign creditor are redeemed other than in monetary form, etc.). In our assessment, approval of these positions at RF SC Praesidium level does not change how relevant practice is developing.

Unfortunately, many matters of dispute have been left out of the Overview. Since investor tax benefits trigger quite widespread, complex and ambiguously regulated disputes, we recommend making sure that any tax benefits you use comply fully with the tax legislation. If there is any doubt, we also suggest thinking about and taking steps to reduce the associated risks well in advance.

The Goltsblat BLP tax specialists will be pleased to assist in identifying, assessing and mitigating your business’s tax risks and in providing the most effective legal support during tax audits and disputes.

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