Precedent with Russian offshore in the Netherlands: disclosure of information on beneficial owners

The Federal Tax Service of the Russian Federation can obtain operational information about the owner of an offshore company by sending a request to the relevant state representative office. The main owner of the Russian company registered in the Netherlands was determined, despite the use of a nominee service. Such actions were taken by the Federal Tax Service to levy income tax from the company. According to lawyers, this case is a precedent.

History of litigation

The company mentioned above (let's call it company "A") made an attempt to appeal against the decision of the Federal Tax Service to charge the income tax in the period of one fiscal year (2010-2011). This amount was more than 596 million rubles including fine and late payment fee. The complaint of the company was essentially rejected by the Arbitration Court of St. Petersburg. In this case, the work of the Federal Tax Service with offshore companies was reflected.

On-site audit of the inspection showed the following facts, evidencing evasion from payment of taxes:

- company "A" leased the property of a certain LLC at a cost that was 20% higher than the market value, which lowered the company's tax base;

- both companies are in the same group of persons, and the LLC, in turn, does not pay income and property taxes, since it is a resident of a special economic zone;

- inspection found that as the LLC Company "A" has contributed the property, namely, facilities and equipments, as the authorized capital. The above property was used not only by the company itself, but also by structures related to its activities. The LLC's dividends were transferred to the offshore account in the Netherlands.

As the inspectors of the Federal Tax Service found out, the ultimate beneficial owner of the Dutch offshore company is the owner (chairman of the board of directors) of the company "A".

According to the representative of the company, an appeal will be filed again. The reason for this is the lack of agreement between the tax service and the company itself on the issue of rent. The company argues that the procedure for determining the amount of rent is based on the expert opinion of an authoritative international company, and the amount fully corresponds to the current market price.

This statement did not cause a reaction from the Federal Tax Service.

Grounds for providing data to the Federal Tax Service

As is known, in 1996 the Russian Federation and the Kingdom of the Netherlands concluded an agreement "On avoidance of double taxation and prevention of tax evasion with respect to taxes on income and property". As a result, the agreement allows state authorities to exchange information on dividends, profits received, and on taxpayers. However, lawyers unanimously assert that no practical application of such opportunities was previously observed. The case described was the first example of obtaining comprehensive assistance provided by a foreign government body to Russian tax authorities.

Probably, this case will become a signal for those owners of offshore companies who do not think about the consequences and use transit companies registered in high-tax jurisdictions.

This precedent demonstrates the growing interest of the Russian tax service to documented facts and evidence, and attention is drawn not only to operations inside the Russian Federation, but also beyond its borders.

Many leading lawyers are of the same opinion: using of offshore companies in the Netherlands and other similar tax jurisdictions is now quite risky to the owners. Ultimately, they will be forced to change the structure of their activities or transfer business to the Russian Federation.