Russian ministry drafts rules for designating significant cos, procedure for determining payments to foreigners

MOSCOW. Aug 11 (Interfax) - Russia's Economic Development Ministry has drafted resolutions that set out rules for including a Russian company in the list of economically significant organizations (ESO) and the procedure for determining the amount and process of paying compensation to a foreign holding company in connection with the discontinuation of its corporate rights in regard to the ESO.

The draft resolutions, which have been published in the federal portal for laws and regulations, have been drawn up to carry out provisions of the August 4 federal law (No. 470-FZ) that regulates "corporate relations at companies that are economically significant organizations."

The rules stipulate that the federal government body responsible for regulating the business area or sector of the economy that is the core business activity of the Russian company (sectoral body) must draw up a "reasoned proposal" to include the company in the ESO list. This proposal must be presented to the Economic Development Ministry with an attached draft government act on including the company in the list, approved if necessary by relevant federal agencies. The ministry then presents the draft act to the government.

The second draft resolution approves the procedure for determining the amount and process of paying compensation to a foreign holding company for shares (equity stakes) in an ESO that were not distributed among persons that became direct owners of these shares (equity stakes).

The document stipulates that the "amount of compensation subject to payment is determined based on the number of shares (equity stakes) in the economically significant organization transferred to it, less the number of shares (equity stakes) distributed among persons who entered into direct ownership."

Compensation will be paid in compliance with the procedure for carrying out transactions established by the Russian president in line with the June 4, 2018 law (No. 127-FZ) "On measures to remedy (counteract) the unfriendly actions of the United States of America and other foreign nations."

At the beginning of August, President Vladimir Putin signed a law that allows Russian beneficiaries of Russian ESOs, via the courts, to receive direct dividends from them, as well as direct ownership of shares and equity stakes, bypassing foreign entities from "unfriendly" jurisdictions.

Under the law, the mechanism for returning direct control to Russian beneficiaries applies only to ESOs in which foreign entities from "unfriendly" jurisdictions (foreign holding companies, or FHC) or owners from such countries own at least 50%.

The list of "significant" organizations is supposed to be compiled by the government and there is no option to challenge inclusion in the list. The list will include companies that meet a number of criteria. Firstly, they must meet one of the following conditions: have total revenue (including legal entities that together with the company are part of the same group) in excess of 75 billion rubles, total assets in excess of 150 billion rubles, paid taxes of at least 10 billion rubles or over 4,000 employees.

Secondly, an ESO or its subsidiary must be either a systemically important credit institution; introduce technologies and software for publicly significant services or participate in the creation and modernization of highly productive and high paying jobs; or be designated a subject of critical information infrastructure or a primary employer of a town as of February 1, 2022.

Thirdly, Russian beneficiaries' share of direct or indirect equity participation in the foreign holding company must be greater than a certain level. Under the general rule, it must exceed 50% or be over 30% if they could determine the decisions of the FHC at the last meeting of management bodies or over 20% if the shareholders of the FHC or the ESO itself are subject to blocking sanctions by "unfriendly" countries or their alliances.