How to preserve the confidentiality of the beneficiary after the introduction of the CIC rules

How to act to beneficiaries who decided to open up Indirect CIC ownership will not save from notifications Care must be taken to create a CIC presence abroad.

When possessing a CIC through trust and offshore notice, you still need to submit

In practice, there is a misconception that if you transform the structure of business by making the ownership of a holding company controlled indirectly (through offshore and trust – see the scheme), the Russian owner of foreign companies will be able to maintain confidentiality. And do not declare the presence of a controlled company.

The ownership structure of a controlled company through trust and offshore organization. However, using this example, we see that, although offshore owns only 25 percent of the holding company’s shares, the Russian beneficiary acts like the 100 percent owner of the shares of the offshore organization. Therefore, it does not matter if the owner owns the holding company directly or through a nominal shareholder. After all, over the offshore organization, he has complete control. This means that the Russian beneficiary must submit a notice of participation in the holding company.

If the beneficiary does not do this, the tax authorities, in any case, will have a reasonable question as to who controls these structures. If these are foreign directors, then it is desirable that they are real “non-mass” persons capable of effectively performing their duties. And their salary, qualifications and business experience corresponded to the size of the company’s assets, which are under their management. If it turns out that these people are face values, then the controllers can declare that the Russian beneficiary controls the holding company. So, this structure has a Russian residency. Consequently, a holding company must be registered with the Russian tax authorities, file reports and pay taxes in Russia. Therefore, there is no sense in its use.

Trusts and family funds will not save from revealing the identity of the beneficiary

In practice, there is an opinion: if you “pack” foreign assets into a trust, the identity of the beneficiary will not be revealed. However, it is not. For example, information about the beneficiaries knows the bank, which opened accounts of the trust, as well as companies whose shares are included in the trust. In addition, any trustee who manages a trust’s resources has a regulator who can receive any information about the trust from him. Regulators are state bodies or professional associations of specialists (for example, lawyers) that are set up to cooperate with colleagues from tax authorities and prosecution authorities in other countries. Thus, professional practice shows that confidentiality and anonymity with respect to trusts is a delusion.

Certainly, many owners will try to make a nominee (friend, relative) a nominee beneficiary. However, such actions pose many dangers. As it is technically difficult to manage a company with a nominal beneficiary due to the need to obtain signatures on documents, as well as its presence at meetings. In addition, the fictitious owner will bust very quickly both bankers and specialists of the provider of fiduciary services. 

And neither the first nor the second will indulge in a similar order, because they risk their license, and therefore the business. In addition, if something happens to the fake owner, the real beneficiary will not be able to claim foreign assets as an heir.

Note also that a certain degree of confidentiality is present in the case of the use of foreign family funds. But they are also ineffective in professional tax investigations. 

It is noteworthy that when appointing beneficiaries in foundations or trusts, you can specify not the name and surname of a specific person, but a category of persons. For example, “my grandchildren who will be born after 2017 in legal marriages”. This is an interesting scenario, but it has a narrow use and is difficult to apply when doing business actively. Moreover, it will not save from disclosing information about the founder of a foundation or trust, protector or any other person who has an influence on trust.

Often Russian beneficiaries create funds and companies in the Cayman Islands. Thus, they are trying to get away from the charges of managing a personal foreign company. At the same time, each client has a small proportion of shares in a closed fund in the Caymans, for example, only 1 percent. Indeed, such a size of a share will not lead to the obligation of the beneficiary client to declare their participation in a foreign company. Further, the fund becomes the sole shareholder of a non-resident company controlled by the beneficiary.

At first consideration, the decision with the fund seems flawless. But he also has his pitfalls. For example, imagine a situation in which one of the Russian clients is arrested the property located in Russia. This property is owned by a foreign company whose shares are owned by the fund. However, these assets are not enough to cover liabilities to third parties. Then the Russian government bodies are tempted to meet these obligations at the expense of other assets of the fund, registered in the Cayman Islands. After all, the fund has shares of other companies operating under the control of other clients, and in these companies there is property. In this situation, it is impossible to assert with complete confidence that the Russian authorities will not arrest this property just because

It makes sense to take care of the presence of a company abroad.

Every year, Russian lawmakers set all new rules that force foreign companies to disclose the identity of the beneficiary. For example, when opening accounts in foreign and Russian banks. If this is not done, the bank has the right to refuse to open an account or to service an existing one. In addition, from January 1, 2015, the Russian government agencies are required to obtain information about the beneficiary who owns real estate in Russia, regardless of how ownership is structured. These rules also apply to the participation of beneficiaries in tenders and their receipt of credit.

For these reasons, as well as in connection with the introduction of the procedure for taxing KIC profits, part of the Russian beneficiaries will most likely decide to legalize their foreign companies. Some of them simply liquidate controlled companies *, and re-issue assets on their balance sheets to themselves or their Russian enterprises. 

Unconditional offshore amnesty (bill number 642129-6) would add to their determination in such a scenario. Other beneficiaries will try to save foreign companies.

“Reference to understand the liquidation of companies in different jurisdictions.”

However, there is a danger that these foreign organizations may be recognized as tax residents of the Russian Federation. In this case, they will be obliged to pay taxes according to the Russian rules. However, for this, inspectors must prove the emergence on the territory of the Russian Federation of a permanent establishment of a foreign company. Only then all income received through it by a non-resident company will be subject to income tax at a rate of 20 percent.

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