FRORIEP - «De-offshorization and protection of your investments in Russia and the CIS - Smart...

ZURICH | GENEVA | ZUG | LONDON | MADRID

Seminar «De-offshorization and protection of

your investments in Russia and the CIS -

Smart treaty planning»

June 7, 2016 Geneva

Russian de-offshorization and its possible impact on Swiss Wealth Management Industry

(Dmitry A. Pentsov)

What are the advantages of arbitration in Switzerland

(Jean Marguerat)

Can you protect your client’s investment in Russia and the CIS through investment treaties?

What is it and what protection do you get? A look inot Investor-State Arbitration

(Dr. Franz X. Stirnimann)

10 June 2016 |

Russian De-offshorization and Its

Possible Impact on Swiss Wealth

Management Industry

Dmitry A. Pentsov, Partner

FRORIEP

10 June 2016 |

Chamber of Commerce Switzerland-Russia & CIS Seminar

Geneva, 7 June 2016

1. OFFSHORIZATION IN RUSSIA: MAGNITUDE

The message of President Putin to the Federal Assembly, delivered on December 12, 2012:

the offshore nature of the Russian economy has become a byword; the experts call this

phenomenon as a "run from jurisdiction";

according to certain estimates, nine out of ten significant transactions, concluded by large

Russian companies, including, by the way, companies with the state participation, were not

governed by domestic law.


the sale of shares in TNK-BP for the amount of 50 billion US dollars was carried out outside

of the Russian jurisdiction, although it was well known that the sellers were Russian

citizens, whereas the buyer – one of the largest Russian companies;

according to expert estimates, in 2012 Russian goods with a total value of 111 billion US

dollars (one fifth of Russian export) passed through off-shores or semi off-shores;

one half of 50 billion US dollars of Russian investments to other countries passed through

off-shores.

10 June 2016 |

2. DE-OFFSHORIZATION CAMPAIGN IN RUSSIA: ORIGINS

De-offshorization" of the Russian economy is an economic development goal set by

President Putin in his address to the Federal Assembly, delivered on December 12, 2012:

the need of a comprehensive system of measures aimed at de-offshorization of the Russian

economy and the request to the Government to propose these measures;

the necessity to ensure the transparency of the offshores, as many countries do through

negotiations with off-shore zones and signing of the appropriate information exchange

agreements;

the necessity to correct deficiencies in the court system, law making and law enforcement;

the need to abolish the presumption of guilt of business, the accusatory tendency in law-

enforcement and judicial practice.

10 June 2016 |

2. DE-OFFSHORIZATION CAMPAIGN IN RUSSIA: ORIGINS


since 2012 nothing was properly done in the area of "de-offshorization", and the results are

hardly visible;

the profits of offshore companies, whose final beneficiary is a Russian person, shall be

subject to taxation on the basis of Russian law and their tax payments shall go to the

Russian budget;

the companies incorporated in a foreign jurisdiction shall not be entitled to receive

measures of state support, including the loans of the Foreign Economic Bank

(Vnesheconombank) and state guarantees;

these companies shall not be allowed to perform state contracts and contracts with entities

with state participation.

10 June 2016 |

3. LEGISLATION ON CONTROLLED FOREIGN COMPANIES AS

ONE OF THE PILLARS OF THE DE-OFFSHORIZATION

CAMPAIGN

Federal Law No. 376-FZ "On introduction of changes into Part One and Two of the Tax

Code of the Russian Federation (as concerns the taxation of profits of controlled foreign

companies and profits of foreign organizations)," dated November 24, 2014 (as

subsequently amended) (the "De-Offshorization Law").

Federal Law No. 140 FZ "On voluntary declaration of assets and bank accounts (deposits)

by individuals", dated June 8, 2015 (the "Capital Amnesty Law").

The key element of Capital Amnesty Law is the voluntary declaration program. It offers to

natural persons the guarantees of liberation from tax, administrative and criminal liability in

exchange for the reporting to the tax authorities their asses (plots of land, other real estate,

means of transportation, securities as well as participations in a share capital of Russian

and/or foreign organizations), controlled foreign companies where they are "controlling

persons", foreign bank accounts as well as bank accounts with respect to which they are

considered as beneficial owners pursuant to the Russian legislation.

The special declaration may be filed with the tax authorities from July 1, 2015 to June 30,

2016.

The form of the declaration as well as the procedure for its filing is prescribed by the

Annexes Nos. 1 and 2 to the Law.

10 June 2016 |

4. LEGISLATION ON FOREIGN BANK ACCOUNTS FOR CERTAIN

CATEGORIES OF PERSONS

Federal Law No. 79-FZ "On the prohibition to certain categories of persons to open and

possess accounts (deposits), to keep cash and assets in foreign banks, situated outside the

territory of the Russian Federation, to possess and(or) to use foreign financial instruments",

dated May 7, 2013.

Article 2 of the Law No. 79-FZ provides the list of "restricted persons", including:

persons occupying state positions; a consolidated list of "state positions" could be found in

the Decree No. 23 of the President of the Russian Federation "On the state positions of the

Russian Federation", dated January 11, 1995;

persons occupying positions at state corporations (companies, foundations and other

organizations, created by the Russian Federation on the basis of federal laws, where the

appointment and the removal are made by the President of the Russian Federation and the

Government of the Russian Federation);

spouses and minor children of these persons.

Other "restricted" categories include officials of public prosecutor’s office, judges, members

of the Federative Council and State Duma of the Federal Assembly of the Russian

Federation, customs officials and military personnel (see, Federal Law No. 102-FZ, dated

May 7, 2013, on introduction of modifications into certain legislative acts of the Russian

Federation, following the adoption of the Federal Law No. 79-FZ).

10 June 2016 |

5. MEASURES AIMED AT DISADVANTAGING OFF-SHORE

PARTICIPANTS IN RUSSIAN JUDICIAL PROCEEDINGS

Decision No. 14828 of the Presidium of the Supreme Arbitration Court of the Russian Federation in the

case Partnership of Apartment Owners "Skakovaya" v."ARTEX Corporation", dated March 26, 2013 (the

"Skakovaya" case).

Facts: "ComEks" LLC, a Russian company, acquired property rights to the space belonging to the

common property of residents of a multi-apartment house and subsequently re-sold this space to

"ARTEX Corporation", a company incorporated in the Commonwealth of Dominica. The acquisition of the

property rights was registered in the State Registry. The claims of the Partnership of Apartment Owners

for vindication of this property were rejected by the Arbitration Court of the City of Moscow, the Ninth

Appellate Arbitration Court and the Federal Arbitration Court of the Moscow Region. On appeal, the

Supreme Arbitration Court of the Russian Federation annulled the previous decisions and sent the case

to a new consideration.

Legal Issue: Who bears the burden of proof of bad faith in connection with the acquisition of property or

other facts, considered by the law as grounds for the protection of third parties, when the buyer is an

offshore company?

Held: The Supreme Arbitration Court placed the burden of proof of bad faith in connection with the

acquisition of property or other facts, considered by the law as grounds for the protection of third parties,

when the buyer is an offshore company, on this offshore company.

10 June 2016 |

6. THE MEANING OF A “CONTROLLED FOREIGN COMPANY”

UNDER THE RUSSIAN TAX CODE

Under the Tax Code, a controlled foreign company is a foreign organization which simultaneously

satisfies the following conditions:

the organization is not considered as a Russian tax resident;

the controlling persons of these organizations are organizations and (or) natural persons considered as

tax residents of the Russian Federation.

Individuals as "Russian tax residents": those individuals, who are actually present in the country for at

least 183 calendar days during twelve consecutive months. This 183-days period of physical presence

does not have to be uninterrupted. It is calculated by adding all calendar days when an individual was

present in the Russian Federation during these twelve months.

Organizations as "Russian tax residents": Under the Tax Code, the following categories of organizations

are considered as tax residents of the Russian Federation:

Russian organizations;

foreign organizations recognized as tax residents of the Russian Federation in accordance with an

international treaty on the tax matters – for the purposes of application of this treaty;

foreign organizations, whose place of management is located in the Russian Federation, unless provided

otherwise by international treaty on tax matters.

10 June 2016 |

6. THE MEANING OF A “CONTROLLED FOREIGN COMPANY”

UNDER THE RUSSIAN TAX CODE

As controlled foreign company shall also be recognized a foreign structure without legal

personality, the controlling persons of which are organizations and (or) natural persons

considered as tax residents of the Russian Federation.

A foreign structure without legal personality – organizational form, created in accordance

with the legislation of a foreign state (territory) without creation of a legal person (in

particular, foundation, partnership, trust, other forms of making collective investments and

(or) trust management), which in accordance with its personal law has the right to carry out

activities aimed at making profits (income) in the interests of its participants (shareholders,

principals or other persons) or other beneficiaries.

The "control" over foreign structures without legal personality, including trusts, is defined by

the Tax Code as the exercise or the possibility to exercise the decisive influence over the

decisions taken by the person carrying out the management of assets of this structure, with

respect to the distribution of received after-tax profits (income) in accordance with the

personal law and/or constitutive documents of this structure.

10 June 2016 |

7. SETTLOR AS A “CONTROLLING PERSON"

Under the general rule prescribed by the Code, the settlor of a trust is presumed to be its

"controlling person", unless he/she simultaneously meets the following conditions:

this person does not have right to receive (to demand the receipt), directly or indirectly, the

profit (income) of this trust, in full or in part;

he/she does not have right to dispose of the profit (income) of the trust, in full or in part;

he/she did not retain the right to assets, transferred into the trust (or, in other words, the

assets are irrevocably transferred into the trust), and this right is absent during the whole

period of existence of the trust as well as in case of its termination;

he does not exercise control over this trust.

Even though a certain person does not have any of the above rights, he/she may still be

recognized as a controlling person of a foreign trust when he/she preserves the right to

obtain these rights.

10 June 2016 |

8. PERSONS OTHER THAN A SETTLOR AS “CONTROLLING

PERSON"

As concerns persons other than settlors (for example, beneficiaries), in order to acquire the

"controlling" status, in addition to the exercise of "control" within the meaning of the Code,

this person should also satisfy one of the following three criteria:

to have the actual right to profit (its part);

to have the right to dispose of the assets of trust; or

to have the right to receive assets of trust in case of its termination.

In light of these statutory provisions, the "controlled" status of a foreign trust in Russia

essentially depends on whether this trust can be subsequently revoked by its settlor, or, in

other words, whether it is revocable or irrevocable as well as on the exact scope of powers

of its settlor and protector (if appointed by the settlor) with respect to the trust’s assets and

their distribution.

10 June 2016 |

9. REVOCABLE AND IRREVOCABLE TRUSTS AS

“CONTROLLED FOREIGN COMPANIES”?

A revocable trust with extensive reserved powers of settlor, including a power of

appointment, consisting in the possibility to direct the distribution of trust income and capital

to certain beneficiaries, and the power to add to or remove from the class of beneficiaries

should normally be recognized in Russia as "controlled foreign company".

The same result may be expected in case of an appointment of a Russian tax resident as

protector of a foreign trust with dispositive powers with respect to that trust’s assets,

including the power to consent to or veto dispositions to be made by the trustee.

Is unlikely to be recognized as "controlled foreign company" an irrevocable trust without

reserved powers of settlor and a protector who is not a Russian tax resident. This likely

outcome would not be affected by the existence of a letter of whishes signed by the settlor

and containing non-binding instructions to the trustee as to the desired course of action in

respect of trust administration and the distribution of trust property.

10 June 2016 |

10. DISCRETIONARY AND FIXED INTEREST TRUSTS AS

“CONTROLLED FOREIGN COMPANIES”?

Discretionary trusts may be defined as trusts where the trustee is under a duty to select

from among a class of beneficiaries those who are to receive, and the proportions in which

they are to receive, income or capital of the trust property (Warner J in Mettoy v Evans

[1990] 1 WLR 1587).

A settlor may find it appropriate to record his/her wishes in a non-binding letter of wishes or

ask trustee to draw up a memorandum and keep on file for further reference. The existence

of these documents should not result in the recognition of a certain trust as a "controlled

foreign company".

Reserved powers may take form of powers of appointment, under which an "appointor" can

direct the application of trust income and capital to certain beneficiaries.

Fixed interest trusts may be defined as trusts in which the trustees have no discretion as to

the objects of the trust and no discretion as to how the trust fund is to be divided among the

objects of the trust.

Irrevocable fixed interest trusts should not be recognized as "controlled foreign companies",

because the settlor and the beneficiaries of these trusts do not normally exercise control

over the decisions taken by the trustee with respect to the distribution of received after-tax

profits (income).

10 June 2016 |

11. TAXATION OF FOREIGN TRUSTS WHICH ARE RECOGNIZED

AS “CONTROLLED FOREIGN COMPANIES”

Once a certain foreign trust is recognized as a "controlled foreign company", its profits shall

be included into the taxable base of its "controlling person".

Under the Tax Code, as profits (losses) of this trust shall be considered the amount of its

pre-tax profits (losses) determined on the basis of its financial reporting, composed in

accordance with its personal law for a financial year, provided one of the following two

conditions is satisfied:

the permanent location of this trust is a foreign state which has an international treaty with

the Russian Federation on tax matters, with the exception of states (territories) which do not

ensure the exchange of information for the tax purposes with the Russian Federation;

an audit report is prepared with respect to the financial accounting, which does not contain

a negative opinion or a refusal to provide an opinion.

What is a "permanent location" of a trust?

10 June 2016 |

11. TAXATION OF FOREIGN TRUSTS WHICH ARE RECOGNIZED

AS “CONTROLLED FOREIGN COMPANIES”

Article 25.14(1) of the Tax Code of the Russian Federation:

duty to report the creation of a foreign trust within one month from the date of its creation;

Order No. MMB-7/14-177@ of the Federal Tax Service of the Russian Federation "On the

approval of the form and format of submission in electronic form of notification about the

participation in foreign organizations (about creation of foreign structures without legal

personality), as well as of the procedure for filling the form and the procedure of submission

in electronic form of notifications about participation in foreign organizations (about creation

of foreign structures without legal personality)", dated April 24, 2015.

duty to report a controlled foreign trust until March 20 of the year, following the tax period in

which the profits of this trust are attributable to this controlling person.

The first reporting deadline – March 20, 2017 (see Letter No. ED-3-13/1427@ of the

Federal Tax Service of the Russian Federation, dated April 4, 2016).

10 June 2016 |

12. REPORTING REQUIREMENTS: PRACITAL CONSIDERATIONS -

2016 / 2017

In 2016 the controlling persons of foreign trusts should determine whether for them it would be more

beneficial to distribute profits generated in 2015 or, instead, to pay Russian taxes on the undistributed

profits in 2017.

These profits shall be included into the taxable base of the controlling person as of the date when the

decision to distribute them is taken, or, in the absence of such decision, on December 31, 2016.

The amount of attributed profits shall be determined on the basis of the amount of profits to which the

controlling person has the right (shall have the right) in case of their distribution among persons, entitled

to receive them.

In 2017, the controlling persons of foreign trusts shall include into their tax declarations filed with Russian

tax authorities the undistributed profits of these trusts.

When the controlling person is an individual (or, in the Code’s terms, a "natural person"), the declaration

shall be filed until April 30, 2017, whereas the tax shall be paid until July 15, 2017.

On the other hand, when the controlling person is an organization, the declaration shall be filed and tax

shall be paid until March 20, 2017.

Depending on whether the controlling person is a natural person or an organization, the applicable tax

rate would be 13 percent or 20 percent, respectively.

10 June 2016 |

12. REPORTING REQUIREMENTS: PRACTITCAL

CONSIDERATIONS - 2016 / 2017

While the recognition of trusts as a "controlled foreign company" could result in additional

tax burden for their controlling persons, the insertion of this concept into the Tax Code also

creates new opportunities for the legitimate use of this instrument by Russian clients,

notably in succession matters.

Provided that a certain trust respects the mandatory inheritance rules of the Russian

legislation, it could be an efficient tool for a smooth transfer of foreign movable assets to the

settlor’s heirs outside of the scope of formal succession proceedings before a Russian

notary and, in particular, without the need to respect a mandatory six-month waiting period

imposed by Article 1163 of the Civil Code of the Russian Federation.

Since an irrevocable discretionary trust without the reserved powers of its settlor and veto

powers of Russia-based protector should not be considered as controlled foreign company,

a Russian tax resident may set up such structure for the benefit of his/her children without

the need to pay domestic taxes on its undistributed profits resulting from the use of the

trust’s assets.

Although the settlor will still be required to notify domestic tax authorities about the creation

of such trust, he/she should no longer be subject to a yearly tax reporting requirements

applicable to controlled foreign companies.

10 June 2016 |

DMITRY A. PENTSOV

His international private client work includes wealth

transfer and structuring, including trusts, acquisition

of aircraft and real estate, and relocation to Switzerland

Very experienced in the legal aspects of exploration, acquisition and development projects

in oil, gas and other natural resources

Other areas of practice include representing foreign investors in joint-venture projects; the

purchase and sale of securities; custodial relationships; the creation of investment funds

and institutions; and brokerage contracts

Extensive legal experience in Russia, other republics of the former Soviet Union, and New

York

10 June 2016 |

An associate in our Geneva office since 2006 and

partner since 2016; his specialisms include banking

and finance, international arbitration, and corporate and

commercial law.

[email protected] | Geneva Office | +41 22 839 63 00

What are the advantages of

arbitration in Switzerland?

Chamber of Commerce Switzerland-Russia & CIS Seminar

Geneva, 7 June 2016

Jean Marguerat, Partner

FRORIEP

10 June 2016 |

WHAT ARE THE ADVANTAGES OF ARBITRATION?

Arbitration is an alternative to state courts for dispute resolution, in

which the parties submit their dispute to a panel of neutral

specialists selected by them, who eventually issue an award.

Neutrality

Autonomy of the parties

Confidentiality

Efficiency

Enforcement (New York Convention)

Preferred dispute resolution method for commercial matters

10 June 2016 |

WHY SWITZERLAND?

Long-standing tradition in international

arbitration

First-choice as “seat” of the arbitration

Why?

Neutrality of Switzerland

Political, economical and judicial stability

Swiss law: respect of the autonomy of the

parties, combination of different legal

traditions

10 June 2016 |

The ASA was

created in 1974

WHY SWITZERLAND ? (CONT.)

International orientation of the Swiss economy and presence of

international organisations

Ideal geographic location and logistical considerations

Favorable arbitration legislation (PILA)

Swiss courts experienced in matters of international arbitration

Internationally renowned legal community (both as counsel and

arbitrators)

Cost competitive: limited appeal possibilities (Art. 190.2 PILA) and

effectiveness of the Swiss Supreme Court (5 months to render a

decision)

10 June 2016 |

SWISS RULES OF INTERNATIONAL ARBITRATION

Adopted in 2004 (950 cases managed)

Adaptation of well-established UNCITRAL Arbitration Rules (1976)

Administered by the Swiss Chambers’ Arbitration Institution (SCAI)

Free choice of seat, law, language and arbitrators

Innovative aspects in order to increase efficiency (consolidation and

joinder (Art. 4) / set off (Art. 21.5) / emergency arbitrator (Art. 43))

Confidentiality ensured: awards, orders and materials submitted (Art. 44)

Salient feature: expedited procedure (Art. 42)

- applicable for cases below CHF 1 mio. or if agreement of the parties - sole arbitrator - one exchange of briefs - one hearing - 6 months to render the award - 40% of the cases

10 June 2016 |

ARBITRATION IN SWITZERLAND UNDER THE SWISS RULES &

RUSSIA – CIS DISPUTES

Safe and neutral legal framework

Flexibility (choice of the arbitrator, law, seat, language)

Internationality (80% of the parties not Swiss, many Russian and CIS

users)

Cost effectiveness (reasonable administrative fees, fees of the

arbitrator controlled by the arbitral institution)

Confidentiality (orders, award and materials submitted by the parties)

Expeditious (expedited: 6 months / normal: 11 months)

Reputation: easy recognition and enforcement worldwide

10 June 2016 |

JEAN MARGUERAT

Practice includes international judicial assistance,

debt collection and bankruptcy proceedings

One of the authors of the Commentary on the Swiss Rules of International Arbitration

(2005)

Working languages French, English, Spanish and German

A “quick thinker” (Who’s Who Legal 2016)

10 June 2016 |

Specialised in dispute resolution, with particular

expertise in international arbitration and in international

litigation.


Can you protect your client's investment in

Russia and the CIS through investment

treaties? What is it and what protection do

you get?

A look into Investor-State Arbitration

Dr. Franz X. Stirnimann, Partner

FRORIEP

10 June 2016 |

PURSUING INVESTORS’ TREATY RIGHTS

• Usual remedies against adverse Government action and regulation

• Lobbying on domestic level, regulatory proceedings, domestic litigation

• Investment treaty arbitration – powerful tool to challenge the regulation in a more high-

profile legal framework

• Close to 3’000 BITs in force as well as numerous FTAs and multilateral free trade agreements such as NAFTA,

ECT, ASEAN

• Substantial increase in investment arbitration cases since 1995 (696 treaty-based cases filed through 2015)

• Examples of investment treaty claims (based on Swiss BITs)

Failure to honour a 1996 contract with SGS Société Générale de Surveillance for pre-shipment inspection

services (SGS v. Paraguay)

Alleged expropriation of commercial farms, forestry plantations and alleged failure to take adequate action to

prevent illegal squatters from invading the forestry (Border Timbers v. Zimbabwe)

Alleged expropriation of trademark rights as a result of anti-tobacco legislation (Philip Morris v. Uruguay)

• Strategic advantages of treaty arbitration:

Possibility of “treaty planning and protection” (based on dual nationality or foreign subsidiaries of investors)

Review of regulation according to different, international legal standards

Potential additional advantage to local regulatory proceedings: claim of damages

10 June 2016 |

“INVESTMENT” AND ARBITRATION CLAUSE

Is there an investment under the treaty?

• Usually broad definition of investment, with a catalogue of examples (including movable and immovable

assets, stocks, bonds, IP, goodwill, concessions)

• Special requirements under ICSID (contribution, duration, expectation of return, assumption of risk)

Is there a forum under an investment treaty?

• Usually broad arbitration options

• Typical BIT arbitration clauses provide several options (e.g. Article 10 Switzerland-Kenya BIT)

“[...] l'investisseur aura le choix entre:

• (a) le Centre international pour le règlement des différends relatifs aux investissements (CIRDI),

institué par la Convention pour le règlement des différends relatifs aux investissements entre Etats et

ressortissants d'autres Etats, ouverte à la signature à Washington le 18 mars 1965 (ci-après la

“Convention de Washington”); et

• (b) un tribunal arbitral ad hoc qui, à moins que les parties au différend n'en disposent autrement,

sera constitué conformément au règlement d'arbitrage de la Commission des Nations Unies pour le

droit commercial international (CNUDCI).”

10 June 2016 |

STATISTICS I

696 treaty-based cases filed through 2016

107 States have faced claims

Forums of arbitration

ICSID or its additional facility

(432)

Ad hoc arbitration under

UNCITRAL Rules (212)

Stockholm Chamber of

Commerce (34)

ICC (4)

Moscow Chamber of Commerce

and Industry (4)

Ad hoc arbitration (4)

10 June 2016 |

ICSID UNCITRAL SCC ICC MCCI Ad hoc

UNCTAD Investment Policy Hub, 2016

STATISTICS II

The outcomes (through 2016; out

of 444 concluded cases)

162 cases decided in favor of States

(36,5%)

117 cases decided in favor of investors

(26,4%)

114 cases settled (25,7%)

8 cases decided in favor of neither party

(liability found but no damages

awarded) (1,8%)

43 cases discontinued (9,7%)

10 June 2016 |

UNCTAD Investment Policy Hub, 2016

States Investors Settled Neither Discontinued

STATISTICS III

Enforcement

How often is enforcement against a State required?

States reportedly comply with arbitral awards as often as 90% of the time, per 2008 PwC

study

Settlement by (partial) payment and/or re-negotiation of investment contract

Examples of awards that States paid without need for enforcement:

Czech Republic paid over $270 million

Slovak Republic paid over $867 million

Certain States are notorious in resisting compliance with awards:

Argentina (historically – not anymore), Kazakhstan, Russia, Zimbabwe

10 June 2016 |

THE CLAIMANT / THE DEFENDANT

Who is the investor claimant?

Individuals as well as legal entities can be investors

Treaty Planning on personal level: multiple nationality of individuals

Treaty Planning on corporate level: companies with foreign affiliates

Who is the investment treaty defendant?

Host State

Possible limitations of responsibility of host State for acts of a State agency

Limitations and Extensions

Ratione temporis (all existing investment covered or only when made after the entry into

force?)

Admission requirements (e.g. admission under domestic foreign investment law)

Breach of an investment contract with a host state: is the investment treaty applicable?

Arbitration clause in the contract

Umbrella clause

10 June 2016 |

TREATY PLANNING

Ensure there is a “qualifying investor“ with a “qualifying investment“

• Locate the investor/holding company in a country with a favorable BIT with the host country

• Make sure there is an investment (capital contribution, if not incorporation of the business)

• Ensure that the relevant BIT is in force at the time the investment is made

• Check the precise wording of the BIT on which you wish to rely (e.g. BITs may require the “investor“ to have legal

personality – exclude certain kinds of trusts or foundations)

Anticipate consequences of investment failure by including, for example, a liquidated

damages clause

Document the host State is aware of your anticipated revenues and profits from the

investment

Keep records of State’s communications relating to investment

Keep detailed records of all project-related expenditures and costs, as well as funds

invested

Check whether BIT contains “fork-in-the-road“ or waiver clauses and avoid triggering

them by participating in local proceedings dealing with the same dispute

10 June 2016 |

TREATY PLANNING IN SWITZERLAND

Legitimate to organize investments in order to maximize protection under existing

treaties

Limits of nationality planning

Limits provided for in the BIT (e.g. “denial of benefits clauses”)

Prospective planning vs retroactive planning

Fraud or malfeasance (misuse of corporate personality)

Investment planning via Swiss BITs

Swiss investor must be organized or incorporated under the laws of Switzerland

A “real economic activity” in Switzerland is required by the Swiss investor

Company administration and management of the foreign investment are effectuated by directors,

employees or representatives in Switzerland

If a Swiss company makes an investment via another company in the target country, and is also

controlled by a non-Swiss parent company, the Swiss BIT-protection is usually available

When a Swiss holding company controls a non-Swiss subsidiary which, in turn, invests in a target

country, it is entitled to Swiss BIT-protection

10 June 2016 |

STANDARDS OF PROTECTION

Does the adverse measure violate any standard of treatment under the

treaty?

No expropriation without just compensation

Fair and equitable treatment (FET)

Non-impairment (arbitrary, unreasonable or discriminatory measures)

Full protection and security

National treatment

Umbrella clause

Most favored nation treatment (MFN)

• Possibility to pick from more favorable treatment provisions in other BITs concluded by the

host State

BIT/MFN-driven organization of assets

10 June 2016 |

DURATION, COSTS AND FINANCING

Duration

Jurisdiction phase (approx. 12 months)

Merits phase (approx. 10-14 months)

Costs

The biggest part of the costs are attorney fees

Interest can sought (Pre- and post-award interest; compound interest possible)

Financing

Arbitration costs are often awarded to prevailing party

Third-party funding as powerful finance option (arbitral award is considered by financing

firms a tradable asset with value)

10 June 2016 |

ENFORCEMENT

ICSID Convention

Recognition of award as binding; enforcement of “pecuniary” obligations as if the award

were a final municipal judgment among all 153 Contracting States

New York Convention

Very limited grounds for resisting recognition and enforcement (Art. V)

Few party defences against recognition and enforcement (Art. V(1))

Little discretion of court refuse recognition and enforcement (Art. V(2))

State immunity still applies:

States assets used for sovereign purposes vs. State assets used for commercial

purposes

10 June 2016 |

DR. FRANZ STIRNIMANN FUENTES

Fellow of the Chartered Institute of Arbitrators (CIArb)

More than 15 years’ experience in complex international

dispute resolution, judicial assistance, and Swiss, US and Spanish commercial legal

transactions

Acted as counsel and arbitrator in over 70 international arbitration and court proceedings in

Switzerland and other countries

Since many years recognized arbitration specialist by Chambers Global and Chambers

Europe, Who’s Who Legal International and Who’s Who Siwtzerland, Euromoney’s Expert

Guides

Admitted to practise in Geneva as well as in England & Wales and New York. Holds a

Doctor of Laws from the University of Zurich, a Master of Laws from Georgetown University

and has a License in Law from the University of Fribourg and Durham University in the UK

Bilingual in German, Spanish and English, fluent in French

10 June 2016 |

Franz specializes in international arbitration, litigation

and Swiss commercial law.


FRORIEP - «De-offshorization and protection of your investments in Russia and the CIS - Smart...

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Transcript of FRORIEP - «De-offshorization and protection of your investments in Russia and the CIS - Smart...