Interim administration of Russian representative office
Country:Russia
We completed tax due diligence on a German pharmaceutical manufacturer's representative office in Russia to identify accounting risks, took over management of the representative office until it was wound up, incorporated the office into a local subsidiary, formalised employee transfers from the representative office to the subsidiary and arranged the office’s winding-up process.
Customer
The challenge
For many years, the customer had a registered representative office in Russia. It was an official division of the German legal entity, but it did not have the authority to carry out commercial activities on its behalf and thus generate revenues. Later, the manufacturer established a locally incorporated subsidiary company to undertake commercial activities. As a result, the company's operations were split between the subsidiary and the representative office, with the latter employing the majority of the staff. This dual structure was costly, and it made allocating costs within the company, such as those related to taxation and accounting, more difficult.
The solution
SCHNEIDER GROUP's first task was to undertake an informal tax audit of the representative office in order to identify accounting and tax risks. The audit findings revealed a number of employee-related risks, as well as tax issues and a number of legal inconsistencies in the representative office. Due to the issues caused by both entities operating at the same time, it was decided to phase out the representative office over time by closing it down and reassigning all employees to the subsidiary. The representative office, however, could not be closed until all outstanding issues with suppliers, customers, and tax and government authorities were resolved.
SCHNEIDER GROUP appointed a skilled member of staff as general manager of the representative office to keep costs down during the winding-up process. Our employee worked part-time, which was remarkably beneficial to the company because a professional was not required to be on site all the time, but only when needed. All tasks, such as requests from business partners and state authorities, internal communication, and financial cash flow planning, were centrally coordinated by the CEO from the German headquarters. This made it possible to keep the representative office's official operations on track for winding down and avoid any issues with tax authorities.
The result
All commercial activities were moved to a local subsidiary company, which was able to progress further on its own than when it was working in tandem with the local representative office. This saved the company money, especially on VAT. By taking over the lengthy and complicated process of closing the representative office while working on an hourly basis, SCHNEIDER GROUP's interim General Director ensured a cost-effective process for managing and handling all legal matters related to the winding-up. Despite the fact that the representative office was still officially open during this process, the customer did not incur large costs and avoided potential tax disputes. The German manufacturer's subsidiary is now successfully operating in Russia.