As yesterday reported by Kommersant, they may be associated with the tax on dividends, listed through a Cypriot company to the British Virgin Islands (BVI) entities from 2009 to 2015. RBC wrote that FTS recognized the Cypriot firms, which held only a 5% tax on dividends, as technical ones and the real beneficiaries were companies from the BVI, where there are no benefits. Tax specialists have supported the courts of two instances. Severstal is not alone: many Russian companies paying generous dividends through Cyprus in other jurisdictions may find themselves in similar situations.

In last week's financial report for 2016, Severstal, owned by Alexey Mordashov, who hass 79.2% of the company, indicated that as of December 31 "separate companies of the group had actual and potential demand from the Russian tax authorities in respect of taxes, fines and penalties in the amount of approximately $400 million"(24.3 billion rubles. at the current rate).

Analysts say that it is almost an order of magnitude greater than the sum of the FNS requirements for Severstal at the end of 2015 ($44 million), and 200 times more than the amount at the end of 2014 ($2 million). The company recognized that changes in tax law, which came into force in January 2015 (the so-called Foreign-Controlled Companies Act), "could potentially affect the tax position of the group."

However, as the newspaper notes, the representatives of Severstal declined to comment on the situation.

But experts are convinced that the tax claims against Severstal are likely related to the payment of dividends to shareholders of Cyprus, the ultimate beneficiary of which is Mr. Mordashov. And, since the autumn of last year, Severstal has lost a tax lawsuit in the Moscow Arbitration Court with a claim amount of about 1 billion rubles, one can expect that the tax authorities will credit additionally taxes for subsequent periods.

RBC Vologda wrote about the dispute, in which the Federal Tax Service after the audit of Severstal assessed additional tax to the company in the amount of 6.96 billion rubles in 2011; dividends paid to its shareholders in Cyprus: Astroshine Limited, Loranel Limited, Rayglow Limited, Pearlgreen Limited, at that time owned by the companies from the BVI. With Cyprus, the Russian Federation has an agreement on avoidance of double taxation (held only 5% of the tax), while with the BVI there's no such agreement. The Court agreed with the Federal Tax Service, that the Cypriot companies are 'technical' ones, and the final recipients of the income are the BVI-registered intities, withholding tax on dividends which should be 15%.

During the proceedings two major arguments were put forward: "the transit nature of" transfer of Cypriot companies to dividends and the fact that they did not own the assets, except for Severstal shares, and did not conduct activities other than getting the money to transfer it to the companies from the BVI. Also in the judgment it was noted that the companies by statute were "significantly limited in the rights of disposal of the applicant's shares."

On October 31, 2016 the Moscow Arbitration Court dismissed the Severstal's claim against the accrual of 982 million rubles in taxes and penalties, and on February 1, 2017 the Court of Appeal dismissed the appeal. The dispute has not yet been commented upon by the FTS or Severstal, saying that "not all the courts have made their decisions". Though the aforementioned financial report states that "the management disagrees with the tax authorities' claims."

By the way, as noted by Vedomosti in March 2016, the Federal Tax Service also has claims to how Alexey Mordashov in 2009-2010 shaped the ownership of Severstal: the tax authorities require LLC Capital, belonging to the businessman, 214 million rubles in income tax and more than 100 million rubles in penalties. From the materials of Severstal, it follows that since mid-2015, Alexey Mordashov has controlled the Cypriot shareholders of Severstal through his Capital.

Analysts, such as Oleg Petropavlovsky from BCS, indicate that although for Severstal the amount of the tax claims ($ 400 million) is not very significant, what is much worse, is that foreign investors may consider the action of Cherepovets company an attempt to avoid taxation. And this contradicts the investment policy as it is declared by Severstal. 

However, as Petropavlovsky notes, it concerns the entire Russian big business. Other players with a similar ownership structure may face the same claims, if they paid big dividends: for example, MMC Norilsk Nickel, NLMK, FosAgro and Akron.

As partial confirmation of the reality of the threat can serve such facts as the decisions of Norilsk Nickel and NLMK to make adjustments in the chain of ownership of shares. For example, Vladimir Potanin (30.3% of MMC) from October 2014 removed a BVI entity from the chain of ownership structure, and Vladimir Lisin (84% of NLMK) in mid-2015 eliminated a company from the Bahamas. In MMC, its main shareholder Viktor Rashnikov owns the company through the Cypriot entitites.

The Moscow lawyers faimilar with the situation suggest that many businessmen change the ownership structure, forming it so that all the companies in the chain look "non-technica", and "really existing assets." And those who do not do it, are actually hoping "for a miracle": that the tax authorities will not have time for them. That's a reckless approach, because Cyprus is actively disclosing information to the Federal Tax Service.