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Alexandrov • Vasilieva and Associates


Permanent establishment
               in Russia:
          legal opinions




   ...
Basics
 
When are foreign entities subject to Russian profit tax (20%)?
    • When the foreign entity carries out its activ...
Our PE experience
We have provided legal advice and have given our recommendations and
solutions, which were successfully ...
with respect to a joint MBA Program. Some of the lectures and seminars are given
jointly in third countries. We have advis...
investor leased the factory building to its Russian subsidiary. The investor was
advised not only with respect to PE issue...
6. Marketing and other activities of the branch
We advised a Japanese producer of computer technologies
A Japanese corpora...
operated through the branch. A restructuring of the business activities of the
Russian investor was implemented, which res...
If you have PE questions please contact Tatiana Vasilieva, partner, attorney-at-law:
Email:            vasilieva@avlegal.e...
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Permanent establishment in Russia: experience

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Transcript of "Permanent establishment in Russia: experience"

  1. 1. Alexandrov • Vasilieva and Associates Permanent establishment in Russia: legal opinions 2010
  2. 2. Basics   When are foreign entities subject to Russian profit tax (20%)? • When the foreign entity carries out its activity on the territory of the Russian Federation through its permanent establishments or, • When the foreign entity derives incomes from sources within the Russian Federation. Permanent establishment Whether or not a permanent establishment exists should be determined on the basis of the provisions of the Tax Code of the Russian Federation. If the foreign entity is the resident of a state with which the Russian Federation has entered into a DTT, the question as to whether a permanent establishment exists or not should be resolved on the basis of the provisions of the relevant DTT. According to most Russia DTTs the activities of a foreign company create a PE in Russia if the following conditions are met: • A foreign company has a constant place of business in the Russian Federation; • A foreign company carries out commercial activities through the above constant place of business; • The commercial activities of a foreign company are of a permanent (regular) nature; • The activities carried out are not auxiliary or preparatory in nature. “Dependent agent” A foreign entity is to be considered as having a permanent establishment on the territory of the Russian Federation if the said entity carries out activities that bear features of a permanent establishment through an entity that, on the basis of the contractual relations with this foreign entity, represents its interests on the territory of the Russian Federation, acts thereon in the interests of the above foreign entity, has the authority to conclude agreements or negotiate material provisions of contracts in the name of the foreign entity and uses such authority to create legal consequences for the foreign entity (“dependent agent”). Ask us more about PE. We have experience in dealing with PE issues. 2 Permanent establishment in Russia: legal opinions 2010
  3. 3. Our PE experience We have provided legal advice and have given our recommendations and solutions, which were successfully implemented in practice, on numerous interesting cases, in particular as follows: 1. Construction sites We have advised major foreign industrial design, engineering and supervisory companies We have analysed many cases in which a foreign company has participated in construction on the territory of the Russian Federation. We have applied US- Russian, UK-Russian, Slovak-Russian, Russian-Austrian, Russian-German DTTs in respect to engineering, design and development works, construction-and- assembling operations and supervisory works. Among many others, we have provided advocacy on the following legal matters: • Whether the period established by the respective DTT on the prevention of double taxation and tax avoidance on income, within which the existence of the construction site does not create a PE, may be applied for property tax purposes; • Whether engineering, design and development works or supervisory works are covered by a special clause and a respective safe period for construction sites in particular DTTs? If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A contract with a Russian client, • A description of the work to be carried out including information about how the activities will be fulfilled (when subcontractors will be involved, how long the employees of the particular foreign entity will stay in Russia, etc.). 2. Simple partnership agreement between foreign and Russian universities We advised a famous French university A foreign University (in this case a French University) concluded simple partnership agreement (prostoje tovarishestvo) with one of the Russian Universities Alexandrov • Vasilieva and Associates 3
  4. 4. with respect to a joint MBA Program. Some of the lectures and seminars are given jointly in third countries. We have advised on different PE and commercial issues. If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A simple partnership agreement or a draft of its basic conditions, • A description of how the education process will be organised (where and which lectures will be given, how the agreements with participants of the program will be concluded, etc). 3. Importation of goods through the Russian branch We advised a US producer of goods for daily needs Through its branch in Russia, a US Corporation imported goods produced by the US Corporation itself on the territory of the Russian Federation. These goods were stored in a warehouse leased by the US Corporation. The warehouse was operated by a legal entity – a logistics operator for whom such activities were common practice. There was an agreement between the logistic operator and US Corporation in which the logistic operator managed the accounting of goods, their acceptance from the branch and dispatch to the agents of the US Corporation. The goods in question were sold by agents of the US Corporation (either legal entities or individuals registered as entrepreneurs), for whom the sale of goods was a primary activity. The branch never participated in warehouse or sales activities or the subsequent repair or maintenance of goods. With respect to this case the business restructuring of the Russian activity was implemented not only due to PE issues but also due to VAT issues. If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A description of your business structure and of the functions of each entity/ branch/individual (including agents and subcontractors) involved in any commercial activity with ties to Russia. 4. Lease of a factory building constructed on Russian territory to a Russian subsidiary We advised a French producer of raw food materials An EU investor (a French company in this case) constructed a factory building. The construction was carried out by Russian subcontractors. Subsequently, the EU 4 Permanent establishment in Russia: legal opinions 2010
  5. 5. investor leased the factory building to its Russian subsidiary. The investor was advised not only with respect to PE issues but also on the reimbursement of VAT paid to the subcontractors during the period of the factory construction. If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A leasing agreement with subsidiary or its draft, • An ownership certificate of the building, • A notification on tax registration of a foreign company at the building site, • A table illustrating VAT payments to be reimbursed to subcontractors. 5. Holding shares in Russian entities through an EU holding company when the senior representatives based in Russia represent the interests of the EU holding company during shareholder meetings held in Russia We advised a famous oil & gas engineering company An EU holding company (from the Netherlands in this case) held shares in different Russian entities. In the event of a shareholder meeting, the EU holding company granted POA to senior representatives who might be employees of the 100% Russian subsidiary of the EU holding company. We resolved the following issues: Whether the activity of the senior representative is that of a PE, through which the EU holding company derives dividend income from acquired Russian companies; and whether the dividends received from the companies in question are related to the respective PE (if any). If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A sample POA, • A description of the corporate structure of a group, • A description of relations existing between the particular senior representatives and the foreign company, particularly the 100% Russian subsidiary and the company whose shares were acquired, • Description of the procedure of share acquisition (whether the particular senior representative/ existing subsidiary/ offshore branch participates in such an acquisition). Alexandrov • Vasilieva and Associates 5
  6. 6. 6. Marketing and other activities of the branch We advised a Japanese producer of computer technologies A Japanese corporation established a Dutch company, which had a Russian branch and a Russian subsidiary. The branch did marketing research, participated in exhibitions and organised customer conferences. Without having any subsequent contact with customers the branch simply transferred customer claims and requests to the responsible managers of the Dutch holding company. The subsidiary sold goods produced by a Japanese corporation. We have advised on PE issues and the calculation of profits. If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A description of the business structure and functions of each entity/ branch/ involved in any commercial activity with ties to Russia. 7. Activity of Russian attorneys hired by a foreign association We advised a famous US association A foreign association with headquarters in the USA and offices in the EU hired Russian attorneys and entrusted them to represent the interests of association members in disputes with Russian enterprises or individuals who had infringed the rights of association members. Attorneys were entitled to claim damage reimbursement, to store monetary funds in a special account and to organise the periodical transfer of stored funds and accrued interest to the association in question. We provided advocacy on PE and withholding tax issues.  If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A description of the business structure and functions of each entity/branch/ individual involved in any commercial activity with ties to Russia. 8. Construction of a hotel complex by a Russian investor in Kazakhstan and its subsequent operation Prestigious Russian construction and investment company Through its branch in Kazakhstan, a Russian investor has built a hotel complex in a special economic zone in Kazakhstan. Subsequently the hotel was planned to be 6 Permanent establishment in Russia: legal opinions 2010
  7. 7. operated through the branch. A restructuring of the business activities of the Russian investor was implemented, which resulted in the issuing of dividends and provided the investor with tax incentives. If this (or something similar) is your case and it requires analyses we may ask you to send us related documents, e.g.: • A description of the business structure and functions of each entity/ branch I nay way involved in activities connected to the location of the hotel complex. Our services for foreign investors in applying DTTs • PE issues • Withholding taxes (WHT) on royalties, interest, dividends and other incomes from sources in Russia • Structuring of entry to Russian market (branch vs. subsidiary) • Structuring of business activities: sale, consultancy, construction, production, etc. • Advice on application of anti-avoidance rules • Advice on proof of residence • Advice on the practical application of methods of avoidance of double taxation • Other DTT services Industries: • Leasing of aircraft and air carriages • Sport and entertainment • Engineering and construction • Foreign HR agencies • Production and sales Abbreviations PE Permanent establishment DTT Double tax treaty VAT Value added tax POA Power of attorney Alexandrov • Vasilieva and Associates 7
  8. 8. If you have PE questions please contact Tatiana Vasilieva, partner, attorney-at-law: Email: vasilieva@avlegal.eu Phone: (+420) 776 751 538 Alexandrov • Vasilieva and Associates Address: Husova 240/5 110 00 Praha 1 Czech Republic Phone: (+420) 224 401 218 (+420) 722 222 248 Web: http://www.avlegal.eu The content of this brochure is of general informative nature and may not be considered as legal advice. Each practical situation requires respective analyses. We do not take responsibility for decisions made on the bases of the content of this brochure. The drawing on the cover page: “Steel human being” from the series of drawings “Graphical Constructions” A. E. Hals, 2007 © 2010

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