6 October 2010

1. New limitation on deductibility of interest on foreign currency loans: issues and possible solutions Roustam Vakhitov, Head of International Tax Services Group 6 October 2010

2. Deductibility of interest on foreign currency loans as of 2011 • Issues • Limitation of deductibility of interest on foreign currency loan from 15% to 0,8 of refinancing rate of Central Bank of Russia, i.e. to 6%+ Solutions • Reduction of interest rate under current loan agreement. • Issuing loans in roubles • Use of international tax treaties 2

3. Double tax treaties The purpose of double tax treaties is to ensure that there is no double taxation: • Double juridical taxation (double taxation of same income derived by the same person) – as a general rule Example: no credit for tax withheld at source. Interest income - 100. Withholding tax in Russia is 20,profit tax in the Netherlands 25.5. Total tax baseis 200. The income of 100 has been taxed twice. Total taxamounts to 45.5%. • Double economic taxation (double taxation of same income in hands of different persons) – only in cases specifically envisaged in the treaty Example: transfer pricing. Profit generated by a Russian company - 100, profit generated by a Dutch company - 100. The profit of the Russian company is increased to 150, the profit of the Dutch company is unchanged. Total tax base equals 250. The income of 50 has been taxed twice. Total profit tax accrued on the profit of 50 amounts to45.5%. 3

4. Eliminating economic double taxation of interest– particular Russian treaties (1) • Double economic taxation of interest in cases when such interest cannot be deducted from tax base in Russia • USAwas the first country to include a provision in its treaty with Russia making interest fully deductible USA HoldCo Interest 100 RusCo Russia Income 500 4

5. Eliminating economic double taxation of interest– particular Russian tax treaties(2) • Belgium – an unfavourable tax treaty (10% withholding tax on dividends, 10% withholding tax on interest) • The first tax treaty allowing full deduction of interest in case of indirect participantion Belgium HoldCo SubholdCo Third jurisdiction Interest 100 RusCo Russia Income 500 5

6. Eliminating economic double taxation of interest– particular Russian tax treaties(3) 6

7. Eliminating economic double taxation of interest– particular Russian tax treaties(4) 7

8. 12 Speaker Roustam Vakhitov, Head of International Tax Services Group, Pepeliaev Group Tel.: +7 495 967 0007 Email: r.vakhitov@pgplaw.ru Roustam Vakhitov specialises in international taxation. Before joining Pepeliaev Group, he worked at consulting companies in Russia, the Netherlands and Luxembourg. He has been working on international tax matters since 2002. Roustam has particular expertise in tax structuring, especially in terms of using the Benelux countries, as well as in legal support for transactions involving financial instruments. He is Head of the International Tax Section at the Research and Expert Council of the Russian Chamber of Tax Advisors and is a full member of the International Fiscal Association. Roustam Vakhitov is speaks English and Dutch languages. He is the author of numerous publications on international tax issues. 8

9. Contact details 12, Krasnopresnenskaya Nab., Entrance 7 World Trade Center-II Moscow 123610, Russia Tel.: +7 (495) 967 0007 Fax: +7 (495) 967 0008 E-mail:info@pgplaw.ru www.pgplaw.ru 54, Shpalernaya St. Golden Shpalernaya Business Center St. Petersburg 191015, Russia Tel.: +7 (812) 333 0717 Fax: +7 (812) 333 0716 E-mail: spb@pgplaw.ru 9