Friday, December 9, 2016

Beneficial Owner: Hunt for Phoenix

Co-authored by Vadym Avdieiev
 At one of international taxation events we heard from a colleague from Avellum law firm, Mr. Vadim Medvedev, about the very interesting case of Phoenix Capital LLC* related to the application of the concept of beneficial owner. We could not help, but examine the case in more details and share our findings with our dear readers.

So, what makes the case so special?

First of all, the case is memorable for featuring an unusual approach to a determination of beneficial owner. The case did not revolve around so familiar to us quotations of Article 103 of the Tax Code of Ukraine providing that agents cannot count as beneficial owners of an income.

The taxmen and courts went much further. They investigated into the ultimate beneficial owner of Ukrainian “Phoenix” that had paid the income to a Cyprus-based company named Okland Holdings Limited. They established that the ultimate beneficial owner of both of those companies had been the same person – a mysterious “PERSON_1” under the terminology of the Unified State Register of Court Rulings.

The evidence confirming the simultaneous ownership over those two companies was the information provided by Ukrainian bank “Pivdencombank” on the existence of  the indirect control of “PERSON_1” over Ukrainian “Phoenix” through a chain of non-resident companies. Moreover, surprisingly though, such “incriminating” evidence was also the letter of the Head of the Representative Office of Okland Holdings Limited referring to the same “PERSON_1” as the beneficial owner of this Cypriot company.

Unfortunately, we have been unsuccessful in finding information on how exactly the taxmen managed to obtain those “unique” pieces of evidence. Most likely, they were gathered during a criminal proceeding initiated against the management of Phoenix Capital LLC. The criminal proceeding is, as always, a “sealed book”. From a small fraction of information publicly available we have not managed to find answers to our questions.

If anyone of our readers is more familiar with the case of “Phoenix”, we would highly appreciate your comments regarding how the taxmen managed to “persuade” the bank and the representative of the Cyprus company to disclose such valuable information.

* There is a fair number of court judgments in the case rendered by courts of different instances. However, in our opinion, the details of the case are best covered in the Resolution of the District Administrative Court of Kyiv dated 4 March 2013 (

** The photo is from