Russian Deutsche Bank suspected of tax schemes with London

Russian Deutsche Bank suspected of tax schemes with London

The claims of Interregional Inspectorate for the largest taxpayers (MIFNS) No. 9 Russian Deutsche Bank said several sources close to the parties of a tax dispute arose. He is precedential in nature and volume of claims (for information , talking about additional Russian “daughter” of the largest German Bank profit tax for the sum more than 10 billion rubles), and therefore information about it is sold on the market. About the situation were heard from several representatives of the largest banks with foreign capital operating in Russia, which talked of .

The essence of the claims

On claim No. 9 by Deutsche Bank relate to currency swap transactions (a combination of two opposite conversion transactions — buying and selling of currency by the same amount with different dates of execution) which the Bank committed in 2013 and 2014. In essence, questions the tax authorities during the audit, Deutsche Bank originated the second part deals currency swaps, in which Deutsche Bank, first buying currency on the Russian market, then, closing the exchange position, selling it to Deutsche Bank AG in London. The aggregate currency swaps were profitable for the Bank: it bought foreign currency in the Russian market cheaper than they sell it to a related structure. However, the second part of transactions was realized at a rate lower than the rate of the Central Bank, thus, it is Deutsche Bank, according to the tax authorities, recorded a loss in the form of realized exchange rate differences, which went in reduction of tax base on profit in currency swap transactions. In other words, the tax authorities considered that the base from which the tax is charged, could be more.

According to sources , the suspicion MIFNS №9 has caused the fact that the implementation of the second part of the currency swap Russian Deutsche Bank with a related party, and also in the afternoon when the exchange rate on the next day was already predictable. Thus, reduction of tax base on a profit on these transactions, the tax authorities considered conscious. But the fact of transactions with the London affiliate structure — does not have a sensible economic meaning and aimed at only obtaining tax benefit through the reduction of tax liabilities.

As pointed out by the parties , the arguments of Deutsche Bank that the transaction with Deutsche Bank AG in London were made at market price, were within the accepted in Russia and in the world of normal banking practice and was necessary for compliance with the Russian Central Bank’s limit of open currency position (may not exceed 20% of the Bank’s capital. — ) while the tax authorities are not convinced.

The office of Deutsche Bank in London

Photo: Bobo FA / PIXSELL / PA Images / TASS

The situation being discussed

As indicated by the interlocutors , while there is discussion of a disputable situation between the tax and the Bank, but the latter have already attempted to bring the still out-of-court proceedings direct control in the face of the Central Bank and the banking community by the Association of regional banks of Russia (ASROS).

According to the head ACROSS Anatoly Aksakov, Deutsche Bank had informed the Association about the claim of the tax authorities and the Association has already undertaken efforts to discuss the situation with the Ministry of Finance (in charge of FTS). “We agreed with llya Trunina (Deputy Minister of Finance. — ) on professional discussion in the near future and hope it will solve the problem when the tax see tax optimization in transactions of Russian banks with foreign affiliates”, — said Aksakov.

In a press-service of the Bank of Russia traditionally did not comment on a situation in operating banks. In a press-service FNS also stated that it does not comment on disputes with specific taxpayers. Refused to discuss the situation and personally Evgeniy Those heads on No. 9. Deutsche Bank reported: “In the ongoing routine tax audit of Deutsche Bank is working with the tax authorities on the inspection that affects the transactions that make up the generally accepted in financial markets practice.”

The Risks Of Deutsche Bank

If the parties to the dispute and will not be able to negotiate the risks of potential additional taxes in the amount of more than RUB 10 billion Deutsche Bank threaten the preservation of their business in Russia, according to bankers interviewed. “Given that the global Deutsche Bank pays huge fines to Western regulators (as previously reported, Deutsche Bank agreed to pay for the mirror transactions with Russian shares $425 million banking regulator of the state of new York, as well as $204 million British control of the compliance behavior in the financial markets), as well as the fact that the profit of its Russian business significantly less of claims (according to the Russian reporting of Deutsche Bank, by 2016, its net profit amounted to a little more, and by the end of 2015, a little less than 2 billion rubles )the payment of this amount will require Bank recapitalization from the head structure, which has such opportunity and desire may simply not be”, — said a top Manager of one of the largest “daughters” of Western banks in Russia.

Market concerns

However, the bankers of the subsidiaries of foreign banks were more afraid for themselves. “All “daughters” of foreign banks are closely watching the situation around tax claims against Deutsche Bank, because Forex transactions with affiliated foreign entities conduct all polls — says a top Manager of one Bank with foreign capital. — It is normal market practice for such transactions less the risk, often better price. If this practice will be banned from tax, will suffer, “daughters” foreign banks in Russia: it will make their business is less marginal and more risky.”

Concerns shared by bankers and auditors. “In world practice, foreign exchange swaps are one of the most common money market instruments. Russia is highly integrated into the global financial system. So for the last five to seven years, the volume of transactions with this instrument, participants of the Russian financial market was strongly growing, which in itself causes additional interest to the tax authorities, — said the partner of Ernst & Young Irina Bykovskaya. — The tax authorities must declare their openness and willingness to hear the taxpayer’s position. Perhaps the tax authorities is not yet a full and detailed understanding of the functioning of financial markets, features of the conclusion and settlement of various financial instruments. But this market is very dynamic. Tax legislation not only in Russia but all over the world are not keeping pace with the dynamics of change of the instruments used in these markets. In this regard, the dialogue between business, the regulator, i.e. the Bank of Russia, on the one hand, and the tax authority on the other, is extremely important.” After all, what happens in fact: the tax authority, misunderstanding the nature, the economy, and especially the implementation of the deal, but seeing a loss on the transaction results, sees this as a deliberate underestimation of the tax base — by itself, this approach is not for the benefit of business development, sums it.

“Today, the practice of managing the foreign exchange and regulatory risks, under which such operations are performed, and their assessment from the point of view of taxation differ. Within the framework provided by the banks the documentation the tax authorities see no evidence of the reasonable nature of these transactions, sufficient to enable them to reduce the tax base on profit. If in the course of the dispute the Bank will be able to generate evidence that is not speculative, but actually risk-reduction transaction, he will win in court, — the Vice-President of FBK Alexey Terekhov. — The establishment of such a precedent for the market it would be difficult to overestimate”.