HNWI, Investment Vehicles & OECD Exchange of Information: Yaroslav Abramov Speaks Out!

Spotlight
28 July 2015
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TL: You assist in the establishment of tax-efficient investment vehicles and groups for CIS-based or CIS-oriented businesses. What are some examples of investment vehicles you have used for these businesses?

YA: Previously, my colleagues and I mostly used investment vehicles consisting of either a UK or a Dutch holding company with investments channeled through Ultimate Beneficial Ownership (UBO) vehicles in jurisdictions such as Cyprus, British Virgin Islands (BVI), Mauritius and Seychelles (including funds in some of the referred jurisdictions like the Seychelles). Alternatively, sometimes there were multi-layer structures including several tiers of companies on top of the holding company including Maltese and Swiss companies. Also, Estonian companies with BVI on top were used on several occasions. Finally, UAE FZE (such as RAK) and Singapore/Hong Kong investment vehicles were used for immediate investments and trading in the Eastern market (for Asian part of the CIS) with a UK or Cyprus UBO company on top.

TL: What initial advice would you give to high-net-worth individuals (HNWI) on asset management and investment? What is a good place to start?

YA: I normally offer one of three options to HNWI: (1) a private asset management and investment plan using a private account with a reputable EU bank (sometimes including small private banking boutiques), which is most suitable for family capital; (2) private trust/fund investment vehicles (which most of my HNWI clients do not feel comfortable with), or: (3) a private holding company with the possibility of establishing subholdings (this option is more suitable for private business investments and HNWI with the perspective to attract an investing partner). Alternatively, I would simply advise to use a private banker or a residency-through-investment program.

TL: What are your thoughts on the new OECD/G20 standard for automatic exchange of information?

YA: I believe it is really on time. The world should not remain non-transparent anymore; there are too many risks. I always tell my clients they need to adopt transparency and make their assets more structured and clear, as they will get more value out of it in the end. Automatic exchange is just something that should have been introduced based on the previous OECD recommendations for DTTs and DITs. Why should one think of the mechanisms of assistance in civil and criminal cases if there is no mechanism for enforcement of information exchange, especially tax information?

TL: What is usually involved in the restructuring of business and personal assets? What is the approach you usually take?

YA: The main task is to persuade the client. Restructuring is always outside their zone of comfort, so there is much resistance. Almost each time, I’d hear the same: “It just works the way it is.” So I always start with a questionnaire, asking the client to declare his/her goal and purpose. When finalized, it shows how difficult the task is and then it becomes easier to persuade them to restructure.

TL: Are there any recent developments or changes in corporate taxation that have affected your clients? If so, which ones?

YA: Yes, definitely. Parliament in the Ukraine has recently developed a new stage of the UBO disclosure regulations, requiring not only all businesses to disclose the actual controlling UBOs regardless of jurisdiction, but also allowing the tax authorities to pierce the banking secrecy regime. We also expect, for example, that special regulations for the HNWI will get special regime of reporting and taxation soon with the applicable limitation of action set to ten years instead of the usual three.

TL: Is there anything else you would like to discuss? Please do so here.

YA: We still keep up with the changes in the transfer pricing laws. Recently, there were certain new amendments allowing for more freedom and flexibility in reporting, and yet the new list of controlled jurisdictions was adopted including almost all of the jurisdictions used in tax optimization (even those where DTTs work). We also expect that the market price concept will be reviewed soon including the goods traded on regulated goods markets and through stock exchanges. Finally, there is quite a draft pending regarding purely accounting issues of the controlled operations and revising the penalties in case of violations.