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Divesting of personal assets

Olga Barschefsky, an individual living in Moscow, is a chemical engineer and managing director of a Russian company engaged in the manufacturing of masks protecting against biological and chemical weapons. The Russian company has received a license for the production of these masks from Olga who holds the world-wide patents on a new revolutionary invention which is used when producing the masks. Production of the masks is concentrated in a factory in Moscow from where the masks are exported worldwide. Olga also holds 50% of the shares in the Russian company. Ms Barschefsky receives substantial amounts of royalties (and dividends) from the Russian company for which she is subject to tax in the Russian Federation. She wonders whether she can exploit the patents in a more tax-effective way by bringing the patents offshore. At the same time, she intends to use the proceeds for both charitable purposes and the education of her grandchildren (at this moment, Olga has only one daughter of 12 years old). Suggested solution: This is a typical example of using a trust for divesting of personal assets. If such a trust is set up, the first question to be examined is: will there be any Russian tax implications (in particular gift tax) regarding the transfer of the shares and the patent to a foreign trust? As there is no Russian gift tax liability as yet, the assets can be transferred abroad to an offshore trust set up in a low-tax country. The exploitation of the patents and the shareholding in the Russian company will probably have to be structured through separate intermediate holding companies.

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