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- Maintenance of Industrial Safety
- Industrial Safety Review
- Declarations of Industrial Safety
- State Control over Industrial Safety
- CERTAIN TAX CONSEQUENCES Notwithstanding the summary descriptions contained in this Information Statement, holders of RAO UES
- Russian tax consequences for RAO UES, Holdcos and Subsidiaries
- Russian tax consequences for shareholders of RAO UES General
- Tax Consequences Relating to the Exercise of Redemption Rights
- Holders of RAO UES Shares and RAO UES DRs should consult with their own tax advisors concerning application of a relevant double tax treaty.
Health and Safety
The Subsidiaries’ operations are subject to various Russian health and safety regulations.
The principal law regulating industrial safety is the Federal Law ‘‘On Industrial Safety of Dangerous
Industrial Facilities’’ No. 116-FZ dated July 21, 1997, as amended (the ‘‘Safety Law’’). The Safety Law
applies, in particular, to industrial facilities and sites where certain activities are conducted, including sites
at which lifting machines are used. The Safety Law also contains a comprehensive list of sites and facilities
where dangerous substances are used.
Maintenance of Industrial Safety
Companies that operate industrial facilities and sites of the type speciﬁed in the Safety Law have a wide
range of obligations under both that law and the Labor Code of the Russian Federation dated
December 30, 2001, as amended (the ‘‘Labor Code’’). In particular, they must limit access to such sites to
qualiﬁed specialists, maintain industrial safety controls and maintain insurance for third-party liability for
injuries caused in the course of operating industrial sites. The Safety Law also requires these companies
to enter into contracts with professional wrecking companies or, in certain circumstances, create their own
wrecking services, conduct personnel training programs, develop and maintain systems to cope with
accidents and inform the Federal Service for Ecological, Technological and Nuclear Supervision of any
Industrial Safety Review
The authorities are required to conduct an industrial safety review of any construction, reconstruction,
liquidation or other activities conducted at regulated industrial sites. Any deviation from the relevant
project documentation during the process of construction, reconstruction or liquidation of industrial sites
is prohibited unless it has been reviewed by a licensed expert and approved by the Federal Service for
Ecological, Technological and Nuclear Supervision.
Declarations of Industrial Safety
In certain cases, companies operating industrial sites must also prepare a declaration of industrial safety
which summarizes both the risks associated with operating a particular industrial site and the measures
that the company is implementing in order to mitigate such risks and ensure compliance with applicable
industrial safety requirements. This declaration must be made by the chief executive ofﬁcer of the
company, who is personally responsible for the completeness and accuracy of the data contained therein.
State Control over Industrial Safety
The Federal Service for Ecological, Technological and Nuclear Supervision has broad authority in the
area of industrial safety. Industrial accidents may be investigated by a special commission led by a
representative of the Federal Service for Ecological, Technological and Nuclear Supervision. The
company operating the hazardous industrial facility where the accident took place bears all the costs of
such investigation. Ofﬁcials of the Federal Service for Ecological, Technological and Nuclear Supervision
have the right to access industrial sites and may inspect documents to ensure the company’s compliance
with safety rules. The Federal Service for Ecological, Technological and Nuclear Supervision may suspend
or terminate operations or impose administrative liability.
Any company or individual violating industrial safety rules may incur administrative and/or civil liability,
and individuals may also incur criminal liability. A company that violates safety rules in a way that has an
adverse impact on the health of an individual may also be required to compensate that individual for lost
earnings, as well as health-related damages.
Employment and Labor
Labor matters in Russia are primarily governed by the Labor Code, which regulates the establishment and
termination of labor relations and the rights and duties of employees and employers.
As a general rule, employment contracts are concluded for an indeﬁnite term. However, Russian labor
legislation permits employment contracts in certain cases to be entered into for a ﬁxed term of up to ﬁve
Employment may be terminated by the agreement of the employer and employee, upon the expiration of
the relevant employment contract or on the basis of other grounds established by the Labor Code. In
addition, an employee has the right to terminate an employment contract on giving a minimum of two
weeks’ notice. An employer may terminate an employment contract only on the grounds speciﬁed by the
Labor Code, including absenteeism, breach of industrial safety rules and certain other serious breaches
of employment duties.
The Labor Code provides an employee with certain minimum rights, which may be extended by an
employment contract, including the right to a working environment which complies with health and safety
requirements and the right to receive a salary on a timely basis and participate in the management of the
In addition, an employee is entitled to certain protections in speciﬁed circumstances. For example, an
employee dismissed from an enterprise due to downsizing or liquidation is entitled to receive compensation,
including a severance payment and, depending on the circumstances, salary payments for a certain period
The Labor Code also provides protections for speciﬁed categories of employees. For example, except
under a limited number of circumstances, an employer cannot dismiss minors, expectant mothers, mothers
with a child under the age of three, single mothers with a child under the age of 14 or other persons caring
for a child under the age of 14 without a mother.
Any termination by an employer that is inconsistent with the Labor Code may be invalidated by a court,
and the employee may be reinstated and compensated. Lawsuits resulting in the reinstatement of illegally
dismissed employees and the payment of damages for wrongful dismissal are increasingly frequent, and
Russian courts tend to support employees’ rights in most cases. Where an employee is reinstated by a
court, the employer must compensate the employee for unpaid salary for the period between the wrongful
termination and reinstatement, as well as for emotional distress.
The Labor Code generally sets the regular working week at 40 hours. Any time worked beyond 40 hours
per week, as well as work on public holidays and weekends, must be compensated at a higher rate. Annual
paid vacation leave under the law is generally 28 calendar days. The retirement age in the Russian
Federation is generally 60 years for males and 55 years for females.
The minimum salary in Russia, as established by federal law, is calculated on a monthly basis and is
RUB 2,300 as of the date of this Information Statement. Although the law requires that the minimum
wage be at or above the minimum subsistence level, the current minimum wage is generally considered
to be less than such minimum level of subsistence.
The Labor Code deﬁnes a strike as the temporary and voluntary refusal of workers to fulﬁll their work
duties with the intention of settling a collective labor dispute. Russian legislation contains several
requirements for legal strikes. An employer may not use an employee’s participation in a legal strike as
grounds for terminating that employee’s employment contract, although employers are generally not
required to pay wages to striking employees for the duration of the strike. Participation in an illegal strike
may be adequate grounds for termination of an employment contract.
Trade unions in Russia still retain signiﬁcant inﬂuence over employees and may affect the operations of
large industrial companies in Russia. The activities of trade unions are generally governed by the Labor
Code and the Federal Law ‘‘On Trade Unions, Their Rights and Guaranties of Their Activity’’ No. 10-FZ
dated January 12, 1996, as amended (the ‘‘Trade Union Law’’).
The Trade Union Law deﬁnes a trade union as a voluntary union of individuals with common industrial
and professional interests that is incorporated for the purposes of representing and protecting the social
and labor rights and interests of its members. National trade union associations, which coordinate
activities of trade unions throughout Russia, are also permitted.
As part of their activities, trade unions may:
• represent their members and guarantee their individual rights;
• represent and guarantee the collective rights of employees;
• negotiate and conclude collective contracts and agreements on behalf of employees;
• participate in the settlement of individual and collective labor disputes;
• request information relating to social and labor issues from employers, their unions and state and
• monitor compliance by employers and ofﬁces with labor legislation;
• participate in the formation of state programs for employee rights and environmental protection;
• participate in strikes; and
• monitor redundancy of employees and seek action by municipal authorities to delay or suspend mass
Russian laws require that companies cooperate with trade unions and do not interfere with their activities.
Trade unions and their ofﬁcers enjoy certain guarantees. If a trade union discovers a breach of labor laws,
it may notify the employer with a request that the breach be remedied and, if there is an immediate threat
to the health of employees, work be suspended. The trade union may also apply to state authorities and
labor inspectors and prosecutors to ensure that an employer does not violate Russian labor laws. Trade
unions may also initiate collective labor disputes, which may lead to strikes.
To initiate a collective labor dispute, trade unions must present their demands to the employer. The
employer is then obliged to consider the demands and notify the trade union of its decision. If the dispute
remains unresolved, a reconciliation commission attempts to end the dispute. If this proves unsuccessful,
collective labor disputes are generally referred to mediation or labor arbitration.
Although the Trade Union Law provides that those who violate the legal rights granted to trade unions
and their ofﬁcers may be subject to disciplinary, administrative or criminal liability, no speciﬁc sanctions
for these violations are set forth in Russian legislation.
CERTAIN TAX CONSEQUENCES
Notwithstanding the summary descriptions contained in this Information Statement, holders of RAO UES
Shares and RAO UES DRs should consult with their own tax advisors concerning the overall tax
consequences of the Spin-Offs.
Russian tax consequences for RAO UES, Holdcos and Subsidiaries
Under the Russian Tax Code, the transfer of Subsidiary Shares from RAO UES to the Holdcos within the
Spin-Offs and their further transfer from the Holdcos to the relevant Subsidiaries within the mergers of
the Holdcos into the relevant Subsidiaries should not trigger proﬁts tax obligations for RAO UES, the
Holdcos and the Subsidiaries, as these transactions are covered by the speciﬁc provision regulating income
tax application established for corporate reorganizations under Russian tax legislation. The transfer of the
Subsidiary Shares from RAO UES to the Holdcos within the Spin-Offs and their further transfer from the
Holdcos to the relevant Subsidiaries within the mergers of the Holdcos to the relevant Subsidiaries should
not be subject to VAT and other Russian taxes under the Tax Code either.
The subsequent distribution of Subsidiary Shares to RAO UES shareholders should not trigger Russian
proﬁts tax and VAT for the Subsidiaries to the extent such distribution is regarded as accomplished within
the framework of the Spin-Offs and exempt from taxation under the Tax Code speciﬁc provision relating
to the corporate reorganization. Should such technical position be challenged by the FSFM and/or the
authorized governmental agencies including tax authorities this may lead to unfavorable tax treatment of
the corresponding distribution for the Subsidiaries. Expenses incurred by RAO UES in respect of the
redemption of its shares will establish the acquisition cost of so called ‘‘treasury shares’’ and will not
impact the proﬁts tax base of RAO UES until the subsequent sale of these shares.
Upon the state registration the Holdcos shall be subject to general tax procedures as well as the tax
authorities administration procedures. Meanwhile, the Tax Code does not provide speciﬁc tax compliance
and tax audit rules in a situation where state registration of entities set up as a result of the Spin-Offs (the
Holdcos) is followed by the immediate state registration of their mergers into other entities. Such
legislative uncertainty may lead to additional tax administration issues for the Subsidiaries which will be
recognized as the Holdcos’ successors for tax purposes.
Russian tax consequences for shareholders of RAO UES
The following is a summary of certain Russian tax consequences for the ‘‘resident’’ and ‘‘non-resident
holders’’ (as deﬁned below) of RAO UES Shares and RAO UES DRs relating to the Spin-Offs and the
exercise of redemption rights. The summary does not seek to address the applicability of, and procedures
in relation to, taxes levied by regional or municipal authorities of the Russian Federation. Nor does the
summary seek to address the availability of double tax treaty relief under speciﬁc double tax treaties.
For the purposes of this summary, a ‘‘resident holder’’ means (1) a physical person actually present in the
Russian Federation for an aggregate period of 183 days or more (excluding days of arrival into Russia but
including days of departure from Russia) in any period consisting of 12 consecutive months; or (2) a legal
entity, organized under Russian law. Moreover, unless otherwise stated, for the purposes of this summary
a ‘‘resident holder’’ means also a legal person or organization, in each case not organized under Russian
law, that holds or disposes RAO UES Shares or RAO UES DRs through a permanent establishment in
For the purposes of this summary, a ‘‘non-resident holder’’ means a physical person actually present in the
Russian Federation for an aggregate period of less than 183 days in any period consisting of
12 consecutive months (presence in Russian is not considered interrupted if an individual departs for short
periods (less than six month) for medical treatment or education) or a legal person or organization, in
either case not organized under Russian law, that holds or disposes RAO UES Shares or RAO UES DRs
other than through a permanent establishment in Russia.
The residency rules may be affected by an applicable tax treaty. It is anticipated that the Russian tax
residency rules applicable to legal entities may change in the future.
For the purposes of this summary, a ‘‘tax agent’’ means a legal entity organized under Russian law or a
legal person or organization, in either case organized under a foreign law and paying out income
attributable to its permanent establishment or, arguably, any other registered presence in the Russian
Federation, which pays out dividend or capital gains income to non-resident holders.
The Russian tax rules applicable to ﬁnancial instruments such as the RAO UES DRs are uncertain and
ofﬁcial interpretive guidance is limited. Both the substantive provisions of Russian tax law and the
interpretation and application of those provisions by the Russian tax authorities may be subject to more
rapid and unpredictable change than in a jurisdiction with a more developed capital market and tax
system. The interpretation and application of these tax provisions will in practice rest substantially with
local tax inspectors.
For Russian tax purposes, it is unclear under the applicable federal legislation if a holder of a RAO UES
DR will be treated as the holder of the underlying RAO UES Shares because of the absence of any ofﬁcial
interpretative guidance on the beneﬁcial ownership concept in Russia by the tax authorities and the fact
that the Depositary (and not the holders of the DRs) is the legal holder of the shares under Russian law.
Although in the years 2005-2007 the Russian Ministry of Finance have issued a number of private
clariﬁcations stating that DR holders should be treated as the beneﬁcial owners of the underlying shares
for the purposes of the double tax treaty provisions applicable to taxation of dividend income from the
underlying shares, provided that beneﬁcial ownership rights and the tax residencies of the DR holders are
duly conﬁrmed, in the absence of any ofﬁcial clariﬁcation from the Russian tax authorities on the
application of relevant double tax treaties there is a risk that application of the corresponding double tax
treaties towards DR holders will be disallowed by the Russian tax authorities, including local tax
This summary assumes that non-resident holders of RAO UES DRs will be treated as non-resident
holders of RAO UES Shares for Russian tax purposes. References below to RAO UES Shares should be
understood to refer as appropriate to RAO UES Shares that are held directly, as well as those RAO UES
Shares the ownership of which is represented by RAO UES DRs.
Tax Consequences Relating to the Exercise of Redemption Rights
As discussed above, RAO UES shareholders entitled to vote and who either vote against the Spin-Offs
or do not vote on the transactions, may elect to have RAO UES redeem their RAO UES Shares if the
Spin-Offs are approved. The sub-section below reﬂects relevant Russian tax treatment for those holders
of RAO UES Shares who exercise their redemption rights.
RAO UES believes that the redemption of RAO UES Shares by RAO UES should be treated as sale of
shares in Russia and this summary outlines the tax consequences if the redemption of RAO UES Shares
under the Spin-Offs is in fact treated in this way.
Capital gains arising from the sale, exchange or other disposition of Shares by individuals who are Russian
resident holders must be declared on the holder’s annual tax declaration and are subject to personal
income tax at a rate of 13%.
The tax base in respect of a sale of the securities by an individual is calculated as the sale proceeds less
documentary conﬁrmed expenses related to the purchase of such securities (including the cost of such
securities and expenses associated with the purchase, holding and sale of such securities).
Capital gains arising from the disposition (including redemption) of the shares by a Russian resident
holder that is a legal entity or organization will be taxed at the regular Russian proﬁts tax rate of 24%.
Russian tax legislation contains the requirement that proﬁt arising from operations with securities quoted
on a stock exchange must be calculated and accounted for separately from proﬁt from operations with
securities that are not quoted on a stock exchange and from operating proﬁt. As RAO UES Shares are
quoted on a stock exchange, Russian resident holders that are legal entities may be able to apply losses
arising in respect of the shares only to offset capital gains, or as a carry forward to offset future capital
gains, from the sale, exchange or other disposition of securities quoted on a stock exchange. Special tax
rules apply to Russian legal entities that hold a dealer license.
Where non-resident holders who are individuals elect to have RAO UES redeem their RAO UES Shares,
proceeds from the sale of RAO UES Shares by such holders (subject to any available tax treaty relief)
considered Russian source income will be subject to a 30% Russian personal income tax on the gross
amount of proceeds received minus documentary supported expenses, including the cost of acquisition.
The tax agent is required to withhold the applicable tax and to report to the Russian tax authorities on
the income realized by the non-resident holder individual and the tax withheld upon the redemption of
RAO UES Shares.
If the sale is made by a non-resident holder individual through a tax agent the acquisition cost and related
expenses may be deducted from the sale price at the source of payment. Where the sale, exchange or
other disposition of the DRs or the Shares is made in Russia but not through a tax agent, generally no tax
withholding needs to be made and the non-resident holder individual will have an obligation to ﬁle a tax
return with the Russian tax authorities. The acquisition cost and related expenses can be claimed for
deduction in the tax return. The purchaser will be required to report the Russian tax authorities on the
income realized by the non-resident holder individual upon the sale of the Shares or the DRs by April 1
of the year following the reporting period.
Under certain tax treaties between Russia and other countries, including the treaties with the United
States and the United Kingdom, holders of RAO UES Shares may be eligible for exemption from Russian
taxation of proceeds of individuals received from the redemption of shares (see ‘‘— Tax treaty relief
— non-resident holders’’ below).
As discussed above, there is a risk that treaty relief will not be available for holders of RAO UES DRs.
Holders of RAO UES Shares and RAO UES DRs should consult with their own tax advisors concerning
application of a relevant double tax treaty.
Under Russian tax legislation, non-resident holders of RAO UES Shares that are legal entities and that
elect to have RAO UES redeem their RAO UES Shares will be exempt from Russian taxation on the
proceeds received, provided that 50% or more of RAO UES’ assets are not considered to be real property
as deﬁned in Russian civil legislation located in Russia.
If more than 50% of RAO UES’ assets consist of real property located in Russia at the time of the
redemption (assuming that repurchase will occur outside foreign stock exchanges), the proceeds received
from the redemption of RAO UES Shares by RAO UES (subject to any available treaty relief) will be
subject to Russian income tax and RAO UES will be required to withhold an amount equal to 24% of any
holder’s gain in the case where the holder is able to document the costs connected with acquisition of the
RAO UES Shares or otherwise 20% of the gross proceeds from the exercise of redemption rights where
the holder fails to provide documents to support the costs connected with acquisition.
Some tax treaties entered into by the Russian Federation provide for elimination of taxation of capital
gains in Russia for non-resident holders that are legal entities qualifying for the relevant treaty beneﬁts.
Under the U.S.-Russia Tax Treaty, capital gains from the redemption of RAO UES Shares realized by
U.S. holders that are legal entities should be exempt from taxation in Russia, unless 50% or more of the
ﬁxed assets of RAO UES were to consist of immovable property located in Russia.
Since relief from capital gains taxation in Russia provided by the U.S.-Russia Tax Treaty referred to above
is no more beneﬁcial for a U.S. holder (legal entity or organization) than the treatment provided by the
current Russian domestic tax legislation, it is unlikely that the need will arise for non-resident holders that
are legal entities to seek to obtain the beneﬁt of the U.S.-Russia Tax Treaty in relation to capital gains
resulting from redemption of RAO UES Shares.
Under the U.K.-Russia Tax Treaty, capital gains from the redemption of RAO UES Shares by U.K.
resident holders that are legal entities should not be subject to tax in Russia, unless the value of such
shares or the greater part of their value is derived directly or indirectly from immovable property located
in Russia and the shares are not quoted on an approved stock exchange.
There is a risk that the tax agents which are obligated to withhold tax on capital gains may not have
sufﬁcient information regarding RAO UES’ assets to conclude what percentage consists of immovable
property and could therefore conservatively seek to withhold tax on the consideration paid to the
non-resident holders that are legal entities disposing their RAO UES Shares. If there is an applicable
double tax treaty, non-resident holders of RAO UES Shares that are legal entities may apply for a refund
of a portion of the withholding tax. However, there is no assurance that such refund will be obtained. See
‘‘— Advance tax clearance.’’
As discussed above, there is a risk that treaty relief will not be available for holders of RAO UES DRs.
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