Patriotism of Roman Abramovich —billionaire turns to be Russian resident
Asset ownership scheme protects the businessman from the tax office.
The owner of Millhouse, Roman Abramovich is a resident of Russia and spends more than 183 days a year in this country. This was reported to Forbes by an acquaintance of the Russian billionaire. He claims that Roman Abramovich is a tax resident of Russia from the point of view of the legislation on controlled foreign companies (a number of pesky amendments have been removed from the law). Abramovich's representative, John Mann, has also confirmed this information. "It is only on television that Abramovich seems to be in London at all times. In fact, he spends a lot of time in Moscow," a source close to Millhouse explained.
The so-called de-offshorization act, initiated by the Russian President Vladimir Putin, was passed in 2015 to prohibit Russian citizens from using foreign jurisdictions to conceal their income. At the end of 2016, the owners of controlled foreign companies (CFC) are obliged to report for the first time about their income and to pay taxes in Russia (20% for legal entities and 13% for individuals). The authorities want the profit derived from the Russian assets to remain in Russia, and if it is still transferred abroad, then it must still be subject to a tax. Many businesses opted to become non-residents, so as to avoid these legal complications.
However, Abramovich has long been preparing for the tougher legislation and made his ownership more elaborate. Back when he divorced his wife Irina, it turned out that the real estate, yachts, and corporate shares had been registered on several Cypriot irrevocable trusts that had been holding assets for the benefit of his five children from Irina Abramovich — Anna, Arkady, Sonya, Arina, and Ilya (now the businessman has two more children from his marriage to Daria Zhukova).
According to the trust agreement, the property was administered by the managers — the head of the London office of Millhouse Yevgeny Tenenbaum and chief financial officer of Millhouse, Irina Panchenko. Both have been working with Abramovich since the 1990s. The scheme was developed in such a way that the assets formally belong to Abramovich’s children (beneficiaries). Therefore, it would not have been easy for the wife of Roman Abramovich to seize his wealth at the time of divorce. In the form of a settlement agreement though, she could get the assets and funds worth 300 million dollars, while the children could get all of their expenses covered.
Perhaps, an early transfer of assets to the children allowed Abramovich to easily deal with the legislation on controlled foreign companies, as certain lawyer suggests. "But this scheme works only if the children are of majority age, under the control, and live in tax haven," the lawyer stressed.
All assets had remained a party of the entrepreneur’s property, as Abramovich’s representative stated earlier. Last year, the billionaire transferred a total of 24% in the First Channel (which has been associated with changes in media legislation) to Russian jurisdiction over himself. According to SPARK, apart from his stake in the TV channel, Abramovich owns only two assets in Russia — the Rost registrar and the Belye Sady business center. The golf club at Skolkovo is now owned by his ex-wife. His major assets outside of Russia consist of 31.03% in the Evraz metallurgical company (via Cyprus offshore Lanebrook, together with Alexander Frolov and Alexander Abramov). In its financial reports, FC Chelsea names the Fordstam Company, controlled by Abramovich, as their beneficiary. There were some rumors in the media that one-third of the club can be registered on his son Arkady.
After the law had been enacted, the 23-year-old-son of Abramovich, Arkady, started to often sign deals with foreign companies himself. He is investing from an offshore jurisdiction, namely from the Cayman Islands through Zoltav Resources Company (its former name is Crosby Asset Management). Abramovich’s son owns 40% of its shares. Arkady became an investor before the age of majority and was a beneficiary of the ARA Capital Limited investment company, named for his initials. ARA Capital bought up mineral deposits, investing in mining in Australia, as well as in North and South America. Zoltav shows interest in Russian oil assets. The company bought the Bortovoe and Zapadno-Karabashskoe gas fields, the Royal Atlantic Energy company, and the Koltogorsky license area.
The source on the oil market says that M&A in Zoltav are still entrusted to Roman Abramovich’s managers, and it all contributes to a smooth background for his son. This is indirectly confirmed by the fact that Davidovich owns 4.48% in Zoltav through Erlinad Holdings Limited (BVI), which bought it from Matteson Overseas Limited (BVI) that belongs to Valery Oyf (associate of Abramovich Sr. and a member of the Highland board of directors, ex-senator of Omsk Region).
"The CIC law is quite politicized, and people become residents so as not to mar relations with the authorities. All those who returned from the offshore companies have demonstrated their loyalty to the country's leadership and the general course. In the latter case, such persons preclude the emergence of risks to their business for various reasons," a partner of Paragon Advice Group, Alexander Zakharov said.
According to a partner of UFG Wealth management Dmitry Klenov, many businessmen have decided to become non-residents. "You rarely become tax non-residents by chance, since the secretariat counts the number of days spent outside the country. Wealthy people even land their aircraft specifically at 00:01 to put a stamp on crossing the border the next day," Klenov explained. He believes that the law is actually fair, but few Russians are eager to disclose sensitive information, and many still believe that it is better to bypass the law than to obey it.
Abramovich is not the first of the billionaires to give part of his property to his children. Around the same period the CIC law was introduced, children of many other businessmen started to play a more vital role in this sphere. For instance, the son of Suleiman Karimov, Said, who has recently graduated from MGIMO, started to sign contracts for hundreds of millions. Since May 2016, the 35-year-old son of Yevgeny Giner, Vadim, has been controlling at least 75% of the shares of the British company Bluecastle Enterprises, which owns the CSKA club and related assets.
The prosecutors want the former Russian Federation Council member to go to prison for 14 years instead of 9 and pay a 500-million-ruble ($8.8 million) fine instead of 70 million rubles ($1.2 million).