Tax Aspects of Acquisitions in Russia How can Due Diligence help?

American Chamber of CommerceTax Conference – Oct. 23, 2009

Maxim Grishin, FCCASenior 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 popularityTransparency

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 deal Share deal

Transaction price VAT and CIT Gains taxed

Tax risk Inheritance None Full

Asset deal = buy a property complex, Civil Code

Tax Deductibility of Goodwill

Assessment and deductibility

Asset deal Share deal

Assessed onAssets &Liabilities Investments

Recorded Investor Investor

Deductibility Yes, 5 yrs No

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 100 100

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, FCCASenior Audit Manager - IFRS

Chet BowlingManaging Partner

Galina KlimenkoSenior Audit Manager - RAS

Alinga Consulting GroupAudit & Taxation Department

www.acg.ru