The most “friendly” jurisdictions in the Russian M&A market are the CIS countries, the United Arab Emirates, Hong Kong and Turkey

The most “friendly” jurisdictions when structuring M&A transactions in the Russian market are the CIS countries, the United Arab Emirates, Hong Kong and Turkey. Igor Smirnov, partner of ALTHAUS tax practice, spoke about this at the conference “Taxes-2023”, organized by the publishing house Kommersant.

“Top is the CIS, Emirates, Hong Kong, Türkiye. Now there are some nuances both in Turkey and in the Emirates, but more in the plane of dual purpose and sanctions issues,” Mr. Smirnov said. “Business must continue to work, and this is not even a matter of tax optimization, but survival. If the production has components, deliveries from abroad, then it is almost impossible to work with unfriendly countries (working with Kommersant) – you cannot make a payment. You need to structure this story in a natural way through third countries, it is desirable that the supplier is also from a friendly country, so that you feel comfortable working in this bundle.”

According to Igor Smirnov, in these cases, issues related to the impact of the possible suspension of double taxation avoidance agreements (DTAs) with unfriendly countries become more and more relevant.

In general, the M&A market shows trends of acceleration and digitalization. “On the one hand, if it is a foreign business, it is in a hurry somewhere, on the other hand, Russian business wants to get its margin, either to leave, there are also examples of this, or to reorient their business,” Mr. Smirnov explained. “The story continues when departing foreigners sell or lend to business management. The fork is quite famous. At the same time, for management it is always a difficult transition from managers to new shareholders, a wave of new questions, they need support. There are less and less deals with foreigners, as they are slowly leaving, and they are becoming more thoughtful, they have a little more time for them, there is some kind of stability. Last year, there were 2-3 days for du-deal, structuring a deal in a few hours, discussion and “take it or not take it”. Now it’s more like a deal.”

Several hundreds, if not thousands of transactions go through the queue to the government commission, the expert concluded. “The process is stretched out in time, there is a feeling that when a business stands in this queue, maybe it will not go anywhere. One gets the feeling that even if foreigners leave, they still remain in some form.”