Draft Law on Consolidated Group of Taxpayers Alexei Spirikhin Alinga Consulting Group 19 October 2011

Contents: 1.Draft law: definition, status and establishment of consolidated group of taxpayers (CGT); 2.Liable participant of consolidated group; 3.Collection of unpaid taxes of the Group. Suspension of bank operations; 4.Tax control over consolidated group of taxpayers; 5.Conclusions.

Definition, status and establishment of CGT Consolidated group of taxpayers (CGT):  voluntary union of profit tax payers aiming to compute and pay profit tax based on aggregate financial result;  Not a legal entity;  Established based on the Agreement concluded between the participants of the Group for the period not less than 2 years; Aggregate financial indicators of all the participants for the preceding year should not be less than:  15 billion rubles of paid taxes (Profit tax, VAT, excise tax and Mineral Extraction Tax);  100 billion rubles in revenues and other income;  300 billion rubles in assets (1 000 billion RUR in first draft)

Definition, status and establishment of CGT CGTs are only Russian legal entities where: Share of direct or indirect interest of one participant of the group in respect of each separate participant is not less than 90%; Amount of net assets exceed the amount of Charter Capital; Participant is not undergoing re-organization, liquidation or bankruptcy; Participant is not a resident of Special Economic Zones, does not apply special tax regimes and not a part of other CGT; Participants do not apply 0% tax rate ; Others

Liable participant (LP) of consolidated group Liable participant (LP) of CGT Liable participant (LP) of CGT:   Acts on behalf of the CGT;   Fulfills rights and obligations of CGT as a taxpayer;   Maintains tax registers of CGT;   Collects profit tax declarations from the participants;   Files profit tax declaration of CGT;   Bears responsibility for paying tax arrears, fines and penalties of the CGT.

Collection of unpaid taxes. Suspension of bank operations. Draft law sets out special procedures for collection of taxes which were not paid by the Group: Collection of taxes is made at the expense of LP’s cash in banks; If LP’s cash funds are not sufficient, taxes are collected at the expense of other participants; If the Group’s cash is not sufficient, collection is made at the expense of other assets. Suspension of the accounts is subject to the same procedures as collection of unpaid taxes.

Tax control over CGTs On-site tax audits in relation to CGTs On-site tax audits in relation to CGTs:  May be conducted on the territory of LP and on the territory of other participants of CGT simultaneously;  Individual filed audits of the participants’ taxes, different from profit tax, may be conducted at the same time as consolidated tax audit;  May not last more than 2 months, but may be increased for the number of months equaling the number of participants (apart from LP) but not more than for 4 months;  May be extended to 9 months or 12 months in exceptional cases. CGTs are not subject to Transfer Pricing rules!

Conclusions In our opinion the following factors affects the value of the draft law in current edition:   CGTs may only be established by a few number of taxpayers due to tough eligibility criteria (taxes, revenues and assets);   Difference in selection criteria of participants for TP and CGT means it is necessary to maintain two sets of tax accounts (additional administrative pressure);   Foreign related parties may not be the part of CGTs and as a result such operations are still subject to TP rules;   Procedures for collection of unpaid taxes at the expense of participants (if LP’s funds are not sufficient) and suspension of bank accounts are not clearly determined;   In some cases lack of clear tools of realization of LP’s and other participants’ rights and obligations.

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