Alinga Consulting Group: "Update on Doing Business in Russia"
A Breakfast Seminar

Date: May 25, 2010
Place: Association of European Business (AEB) premises - Krasnoproletarskaya, 16, bld.3, entrance 8, floor 4, office 7. Find a map to AEB office here.
Time: 9.00 to 10.30 (Registration with coffee & pastries from 8.30 to 9.00).

AGENDA

Legal

Recent changes to criminal liability for economic (tax) offenses
Anatoly Gakenberg, Head of Legal Practice

Overview of changes to OOO Law - debt/equity conversion; registration of change of shareholder
Leonid Romanov, Senior Lawyer

"Progressive" New Law on Discrimination
Anatoly Gakenberg, Head of Legal Practice

Overview of recent changes in Migration Law
Anatoly Gakenberg, Head of Legal Practice

Q&A

Accounting & Tax

Major changes in Tax Legislation in 2010 – Profit tax, Social Tax & VAT
Chet Bowling, Managing Partner

Transfer Pricing – main elements of draft law
Roman Zheltopuzov, Manager - Accounting Department

Negative Net Assets - ways to increase Net Assets
Chet Bowling, Managing Partner

Q&A

The seminar is free of charge. Working language – English. Translation will not be provided. Spaces are limited with priority given to current clients and partner firms.

RSVP required. Please contact Kristina Kirillova or call 7 495 988 21 91, ext. 114

Alinga Consulting Group is proud to announce that Anatoly Gakenberg has joined its team as the new Head of Legal Practice.
4 February 2010

Anatoly has previously worked for Squire, Sanders & Dempsey, where he represented foreign investment funds in private equity transactions in Russia. Additionally, his experience includes roles as in-house counsel for a Russia-based trade company and serving as a founding partner of an Israel-based law firm established in 1999.

Anatoly specializes in cross-border mergers and transactions, debt and equity financing transactions and corporate governance issues involving Russia-based and international corporate clients operating in Russia and the CIS in the real estate, oil and gas and consumer goods sectors. He will now manage the delivery of Alinga's existing legal services, which includes business formation, consultation on corporate, labor, and migration law, and dispute resolution, and audits of corporate documents. He will also work to expand this suite to other areas.

Anatoly holds two law degrees, one from Yaroslavl State University (LLB 1996) and the second from the University of Kansas (JD 2008). He acquired a strong corporate law background after nine years of private practice in Israel, where he handled a broad range of cross-border corporate, real estate and litigation matters. He is admitted to practice law in Israel (1999) and the Commonwealth of Massachusetts (2009) and is fluent in English, Russian, and Hebrew.

Chet Bowling, Managing Partner for Alinga Consulting Group said: "Anatoly's wide knowledge and experience in international law, business, and service standards are exactly what Alinga was looking for to help maintain and develop its legal department. We are excited to have him onboard."

Anatoly added that "Alinga is a great new step in my career. I look forward to helping its clients maintain their legal presence in Russia and uphold the highest standards of corporate governance."

Accounting and Tax Implications For Transferring Debt To Charter Capital
24 January 2010

At the end of 2009, legislation was passed loosening restrictions on debt restructuring in a company’s charter capital. More specifically, as of 2010, company shareholders or third parties can make monetary claims on the charter capital of an OOO. This decision must be passed by all company shareholders unanimously. Likewise, additional shares of a joint-stock company (AO) may be paid with claims if those shares are sold in a private offering.

Let’s take an example of what this first situation might look like in practice. A company might have a loan and not be able (or not want) to pay it off, while the lender may not insist on having it paid in cash. In this case the company has the right to transfer the debt to the company’s charter capital.

From a legal point of view, this is an advantageous change for companies.

But what are the tax and accounting implications of transferring debt to the company’s charter capital?

The accounting implications are straightforward and simple. After making the changes to charter capital in the company’s foundation documents and in the State Register, the appropriate changes should be made in the financial accounting (the exact procedure for doing so is mapped out in the Russian version of this article).

The tax implications of transferring debt to the company’s charter capital, however, are a little more complicated.

According to Russian tax law, the value of any property, property rights, or other rights which are received into a company’s charter capital, are not calculated as income when determining profit tax. Thus, transferring debt to the charter capital does not entail making any changes to the profit tax base.

However, what happens with accrued interest on such debts?

The Ministry of Finance and the tax authorities have repeatedly declared that accrued interest, which is declared as an expense, when forgiven must be treated as income to offset the previous declared expense.

This must be done regardless of whether or not the loan itself had been recorded as income. The tax authorities explain this on the basis that expenses in the form of accrued interest were counted as an expense, but that expense was never paid. Therefore the company did not undergo any actual loss.

It is extremely likely that the tax authorities will take the same position regarding transferring debt to the charter capital.

The opinion of the tax experts at Alinga Consulting Group, however, holds that this transfer of debt does not result in unrealized profit for the company-borrower. This is because when restructuring debt, the debt itself is not forgiven and, accordingly, is not a gratuitous transfer.

A founding shareholder who leaves the company can demand the return of his part of the charter capital, which would lead to a realized company expense.

Please note, however, that if a company decides to transfer a debt to the charter capital, and decides not to count the interest as unrealized profit, they should be prepared to defend such a position if the matter is brought to court.

Changes on Charter Capital Rules – Legal Implications
20 January 2010

The largest change to corporate law in 2010 is the partial lift of the ban on debt restructuring in a company’s charter capital/company shares.

Company shareholders or third parties can now make monetary claims on the charter capital of an OOO (Point 4 of Article 19 “On Limited Liability Companies). This decision must be passed by all company shareholders unanimously.

Likewise, additional shares of a joint-stock company (AO) may be paid with claims if those shares are sold in a private offering (Point 2 of Article 34 “On Joint-Stock Companies”).

The global practice of debt restructuring in the charter capital demonstrated a need for Russia’s strict ban on this activity to be lifted. This will give businesses some much needed flexibility in working with their debt amid the crisis.

Some additional requirements were introduced in the case that a joint-stock company’s net assets decrease. In particular, a company’s board of directors is obligated to include a report with the annual financial statements that shows the value of the net assets and outlines the measures being taken in regard to financial restructuring. This report needs to be approved by a general assembly of company shareholders.

The company will also be obligated to publish information on decreasing the value of net assets (see Federal Law № 352 from 27/12/2009 for more detailed information).

These changes are a logical continuation of state economic policies in the face of the crisis. The effects of the new changes will be seen in spring 2010 at the earliest, when it will become clearer how state agencies and members of the commercial sphere use the new norms.