Why Russian taxpayers seeking BVI-Cyprus treaty benefits are at risk
07 June 2012
Joe Dalton
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...
This article is available to subscribers and current trialists of International Tax Review only. Please log in or subscribe for access to the rest of the article.
Alternatively take a free trial, giving you 7 days of access.
Subscribe now
This article is available to subscribers only. To read the rest of this article please subscrbe.
Subscribe
Free trial
This article is available to trialists and subscribers only. Please take a free 7 day trial to read the rest of the article.
Free trial