Why Russian taxpayers seeking BVI-Cyprus treaty benefits are at risk
07 June 2012
Russian companies undertaking so-called BVI-Cyprus sandwich structures to gain tax treaty benefits on royalty income are taking a serious risk according to advisers, despite a recent taxpayer victory in the Federal Arbitration Court of the Ural's Circuit.
In a tax audit for 2006-2008, the Russian tax authorities determined that retail company Element Trade had incorrectly deducted expenses of RUB470 million ($14.5 million) from its Russian tax base for royalty payments made for the use of a trademark.
The royalty payments were made to a BVI company, Worrens Consolidated (Worrens), which acted as the trademark right-holder, through a Cypriot entity called Richmoney Trading (Richmoney) which was acting as the trademark licensor.
Worrens had initially purchased the trademark from a Russian individual who was a director of Element Trade’s parent company.
“The royalty structure outlined in the court ruling is a plain vanilla tax structure which solely, from a tax perspective, allows one to move royalty income in a pre-tax manner to a no-taxed jurisdiction such as...
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