Over the last few decades many Russian companies have raised debt financing from foreign capital markets. This has been done by setting up special-purpose companies ("Issuers
") in accordance with the laws of foreign states. Issuers' activities were limited to organising the placement of debt securities among investors ("Eurobonds
"). The Issuers would then use the funds raised to issue loans to Russian entities ("Loans"). The Loan conditions (term, amount, currency, interest rate, etc.) would be similar to the conditions of issue of the Eurobonds.
Until the change in the geopolitical situation in 2022, Russian borrowers made Loan payments to Issuers and Issuers in turn used the funds raised to make interest and redemption payments in respect of Eurobonds. Under subsection 8 of clause 2 of Article 310 of the Tax Code
of the Russian Federation ("the Tax Code
"), Russian borrowers were exempt from tax withholding obligations in relation to the payments concerned as long as certain conditions were met.
The newly introduced international restrictions have made it impossible for Russian borrowers to make Loan payments to Issuers in foreign currency. Accordingly, the Issuers likewise lack the funds needed to make Eurobond payments to Eurobond holders ("Holders