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

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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.)

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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)

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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

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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

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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.

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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”)

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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

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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

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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)

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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: SIGs@step.org