Irish SPV of Russian oil giant unaffected by sanctions

A Dublin-based internal financing arm of Russian state-controlled oil giant Rosneft has said it remains unaffected by international sanctions against its Moscow-based parent, as its loans to various parts of the group rose to $352.5 million (€283.2 million) in 2016.

Accounts for Rosneft International DAC, with an address on Merrion Square in Dublin, show that its loans to various units and affiliates of the Russia’s largest publicly-quoted oil company rose from $342.2 million a year earlier.

The directors of the company concluded that, after US and EU sanctions against Russia, resulting from the country’s military invasion of Ukraine’s Crimean peninsula in 2014, they “did not identify any factors that would impact the company’s going concern status”.

Ireland has emerged in the past decade as the jurisdiction of choice for Russian firms to set up tax-efficient special purpose vehicles (SPVs) to finance group activities either via inter-company loans or by raising dollar-denominated eurobonds.

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Property crash

SPVs, established under 1997 tax legislation designed to make the IFSC an attractive place for “tax-neutral” international debt securitisation, came under the spotlight last year amid political controversy over how overseas funds have used them to house loans bought after the property crash. This prompted the Government to tax Irish property holdings in SPVs, also known as section 110 firms, in the last Finance Act.

Rosneft International DAC had a $291.5 million loan from its own parent at the end of 2016 to fund its own activities, down from $389.1 million a year earlier. The Irish unit has subsidiaries based in Cyprus, Jersey and the British Virgin Islands. The company was sitting on $2.9 million of potential so-called deferred tax assets, which could be used to lower future tax bills. However, it has not officially recognised the asset as the tax-efficient nature of the SPV means that it is unlikely to generate enough taxable profits to use it against.