Tax Aspects of Acquisitions in Russia How can Due Diligence help? American Chamber of Commerce Tax Conference – Oct. 23, 2009 Maxim Grishin, FCCA Senior Audit Manager Alinga Consulting Group

Contents Tax Due Diligence: Risks and Opportunities Onshore taxation: “Asset deal” vs. “Share deal” Post acquisition: Tax deductibility of Goodwill

Onshore mergers and acquisitions Offshore deals   Corporate legislature   Disclosure Onshore deals   Gaining popularity   Transparency

Tax Due Diligence - risks Tax risks  Cash - Revenues and Costs  Social taxes – SPE  Relationship with a tax guy

Tax Due Diligence - opportunities Underutilization of Tax benefits  Traditions  Conservative  Tax cushion

Tax risks - mitigation Ways to mitigate  Declare and pay  Initiate a tax audit  Do an asset deal

Asset or share Comparison table Asset dealShare deal Transaction price VAT and CITGains taxed Tax risk Inheritance NoneFull Asset deal = buy a property complex, Civil Code

Tax Deductibility of Goodwill Assessment and deductibility Asset dealShare deal Assessed on Assets & Liabilities Investments RecordedInvestor DeductibilityYes, 5 yrsNo Goodwill = excess of payment over the Net Assets of the property complex

Taxes and deals Asset deal Surplus of Fair Value 200 over Carrying Value VAT on sale (200 * 18%) 36 Income Tax on surplus (100*20%) 20 Tax deductions (5 yrs 10% discounted) (15) Total consideration to be paid 141 Share deal Goodwill - surplus of FV over CV 100 Income tax for the Seller 20 Total consideration to be paid 120 Maximum tax provision to choose asset deal 21

Conclusion On shore deals - More expensive - Transparent - Less risk

Maxim Grishin, FCCA Senior Audit Manager - IFRS Chet Bowling Managing Partner Galina Klimenko Senior Audit Manager - RAS Alinga Consulting Group Audit & Taxation Department