A joint will is a raw format, an inheritance fund is overly complicated, and a personal fund is the preferred choice of government officials. RBC Pro has interviewed lawyers to gain insight into how new instruments of inheritance law really work in Russia.

Such legal constructs as joint wills, inheritance funds, personal funds, and inheritance contracts, came into existence in Russian legislation in 2022 when wealthy Russian testators began experiencing problems using similar instruments in the West. The initial test run revealed that some of them proved extremely popular, while others were strongly advised against.

“We recently provided legal support to a client for the structuring of the purchase of a high-budget residential property in France. We focused not only on purchasing the property, but also on building an effective ownership model. This model was designed to reduce tax costs, simplify the inheritance process, and minimize the administrative burden of enjoying the property,” commented Anton Kabakov, Partner, Forte Tax & Law. “We proposed setting up a special non-profit entity in France as a basis for the structure, in whose name the property was registered. The key element of the solution was dismemberment of ownership (démembrement de propriété). It essentially means the separation of economic interest from legal title: bare ownership (nue-propriété) passes to future heirs while the current owner retains the right to use and enjoy the property (usufruit). This mechanism, which is rooted in Roman law, makes it possible to effectively plan the transfer of property without changing the title owner, to minimize the tax base for property wealth tax (impôt sur la fortune immobilière), and in some cases, to completely avoid inheritance tax, which can be as high as 45% in France. The currency restrictions and sanctions were particularly challenging: it was necessary to circumvent the prohibitions on foreign currency loans between residents and non-residents, restrictions on participation in foreign entities, and to comply with applicable Russian currency regulation laws.”

Read the full article here on the RBC Pro website (in Russian).

The lawyers at Forte Tax & Law who specialize in dispute resolution have successfully represented a Russian IT group of companies in a lawsuit concerning the recovery of remuneration under an agency agreement.

Baltic Shipyard JSC, which is part of the United Shipbuilding Corporation, recently won a dispute with the Main Interregional Directorate of the Russian Federal Bailiff Service. This was a consequence of another case—Baltic Shipyard recovering €5.1 million from its Finnish counterparty, Wärtsilä Solutions OY, for the failure to supply marine equipment. As previously reported by Delovoy Peterburg, the foreign company was supposed to supply diesel standby generators, stern tube seals, and stern tubes to the Saint Petersburg shipyard. This equipment was intended for Project 22220 icebreakers Yakutia and Chukotka. But due to the sanctions imposed on Russia after the special military operation had started, the Finns refused to supply marine equipment to Baltic Shipyard.

Since the sanctions have restricted Russian businesses’ access to international arbitration tribunals (that usually handle disputes related to such contracts), the Russian government has introduced a new legal regulation to protect Russian entrepreneurs by enabling domestic companies to file claims against foreign companies with Russian state commercial courts.

In May 2023, the State Commercial Court of Saint Petersburg and the Leningrad Region recovered €5.1 million from Wärtsilä Solutions OY. This decision went all the way through all the courts that upheld it (in particular, in March of this year, the Russian Supreme Court refused to submit the cassation appeal filed by the Finnish company to the judicial board).

After receiving an enforcement order, Baltic Shipyard filed with the Main Interregional Directorate of the Russian Federal Bailiff Service an application seeking to initiate enforcement proceedings and, accordingly, to recover €5.1 million from its Finnish counterparty. However, the bailiffs refused to deal with this case, referring to the improper execution of the enforcement order.

Then Baltic Shipyard appealed the decision of the Main Interregional Directorate of the Russian Federal Bailiff Service in the State Commercial Court of Saint Petersburg and the Leningrad Region, which not only recognized the bailiffs’ inaction as illegal, but also obligated them to correct the violations committed.

As it turned out, the bailiffs returned the enforcement order, because Wärtsilä Solutions OY did not specify the details typical of Russian legal entities (Taxpayer Identification Number (INN), Primary State Registration Number (OGRN), etc.). The state commercial court pointed out that the foreign company had its identification number and location inserted in the enforcement order.

It is not easy to enforce a decision in Russia, either, for example, to foreclose on any asset of a foreign counterparty, and sometimes it is impossible. First of all, you may run into difficulties when searching for assets if your foreign agent owned something in Russia unofficially or if the ownership structure was indirect. Another question is that before leaving, foreign companies had sold their assets. And even if a Russian merchant won a dispute against his foreign counterparty, there are simply no assets that could be used to repay the debt.

“In particular, EU sanctions have imposed a ban on transactions with legal entities that have applied to a Russian court in connection with a transaction or contract, the performance of which was directly or indirectly affected by EU sanctions. These measures were taken in response to a significant number of disputes initiated by Russian businesses with the application of the rules on the exclusive jurisdiction of Russian state commercial courts (the legal regulation introduced after the start of the special military operation. — the editor’s note). If, using these rules, a Russian company files a claim with a Russian court against a foreign counterparty, then, in fact, it itself will become subject to EU sanctions. This approach taken by the EU gives rise to significant risks for Russian entrepreneurs: if a Russian legal entity has assets in the EU, then they can be arrested or frozen due to a legal dispute with a foreign counterparty in Russian state commercial courts,” commented Julia Talagaeva, Senior Associate, Forte Tax & Law.

For more information, click here (in Russian).

On November 18, 2020, the Russian Supreme Court ruled in favor of a large American manufacturer of self-propelled equipment whose interests were represented by Forte Tax & Law in a dispute with customs authorities. The Supreme Court reversed the decision of the first instance court as well as the decisions of the appellate and cassation instances.

In an article published in June, Delovoy Peterburg reported on how much lawyers receive for their representation services in court and on how much litigation costs can be recovered from losing parties.

New rules for reimbursement of costs for legal services are opening up broad prospects for recovery of debt of your clients in court. The Russian Supreme Court ruling of 21.01.2016 clarifies the procedure for reimbursement of costs incurred for court proceedings, and it is now easier for the winning party to a court case to get its costs for legal services reimbursed.