HOW ŠOLAK BECAME THE RICHEST SERB: Pulling out money and evading taxes – How the fictitious sales of SBB were financed (15)

In addition to the obvious feigning of actual ownership structure changes in his main company in Serbia through the formal sales and purchases of SBB, the real reason for Dragan Šolak to engage in all this comes to light when the flow of cash funding this operation is tracked.

The documents that the Kurir editorial staff have obtained reveal that all these fake purchases were financed by SBB's own funds. Misusing a number of regulations in this way helped develop a scheme to pull money out of Serbia in the form of fake expenditures, considerably reducing the tax base used to determine Šolak's company's tax liability to the Serbian state.

SBB financed its own "purchase"

Only a few months after SBB has been formally purchased by Adria Cable d.o.o., making the latter the sole owner of the Serbian cable operator, the company underwent a change of status. On 28 December 2007, once it had become SBB's sole owner, Šolak's purchasing company was merged with SBB (its daughter company) and ceased to exist as a result! The purchase of SBB was financed by the buyer getting a loan from its parent company – Adria Cable BV from the Netherlands. Once the status change was complete, instead of Adria Cable, which existed only in the period between 3 April and 28 December 2007, SBB – the purchased company – became the new loanee and debtor under the loan agreement with the Dutch company. On 30 May 2007, Adria Cable SARL Luxembourg concluded a loan agreement with its daughter company Adria Cable (SBB's buyer) in the amount of EUR 75 million. After the change in status, the loan repayment obligation was transferred to SBB, which repaid a portion of the loan in the amount of EUR 6.2 million. Following this, on 21 September 2012, Adria Cable SARL converted the remaining debt into SBB capital in the amount of EUR 28.7 million, having previously already converted a EUR 40-million debt.

Furthermore, on 30 May 2007, Adria Cable SARL concluded another loan agreement with its daughter company Adria Cable in the amount of EUR 47.5 million, of which it paid 44.9 million. After the status change, that loan repayment obligation was transferred to SBB as well, which repaid a portion of the loan in the amount of EUR 5.4 million; on

25 September 2012, the remaining part of the debt was also converted to SBB capital in the amount of EUR 39.5 million. In other words, during the first sale alone, SBB paid a total of EUR 11.6 million to purchase its own shares owned by third parties registered abroad, while the debt totalling EUR 108.3 million (recorded in the company balance sheets as an expenditure) was converted into company capital.

Operation repeated three times

Dragan Šolak repeated two more times what he had pulled off in 2007 – in 2012 and 2014. In all three transactions, when the ownership structure was fictitiously changed, SBB financed the purchase of its shares virtually by itself.

In each of these transactions, SBB was sold by companies from the Netherlands (Sabaline Investments BV in 2007, and Adria Cable BV in 2012 and 2014; when SBB was sold, the latter company rather incredibly became its owner again). On the other hand, the buyers were always companies registered in Serbia – resident taxpayers (Adria Cable d.o.o., Broadband Investment Beograd, and Adria Bidco d.o.o. Beograd).

Under the ownership share sales agreement concluded on 30 November 2012 between Adria Cable BV from the Netherlands as the ownership share seller, and Broadband Investment d.o.o. as the buyer, the agreed sales price stood at EUR 300.97 million. The buyer paid a portion of the price in the amount of 74.83 million, while the remaining debt totalling EUR 226.14 million was converted into SBB capital.

The third time around, on 6 March 2014, Adria Serbia Holdco BV from the Netherlands made an additional payment to its daughter company and SBB's buyer, Adria Bidco d.o.o., in the amount of EUR 140.9 million. Following this, on 13 March 2014, Adria Serbia Holdco BV converted its debt into Adria BidCo d.o.o. capital. The latter was merged with SBB through a status change, so the converted capital was transferred to SBB.

Following the pattern established in 2007, every time a transaction was completed, the buyer was merged with SBB. Each of the buying companies would transfer to SBB the obligation to pay the sales price or repay a loan; SBB was then practically obligated to finance its own purchase, i.e. the purchase of its shares owned by other parties.

Reducing the tax base and evading taxes

In all three transactions, the total amount of debt converted into capital was EUR 475.3 million (EUR 108.3 million in 2007; EUR 226.1 million in 2012; and EUR 140.9 million in 2014). These conversions resulted in an increase in SBB's costs, which led to a reduction of the base for the income tax that SBB would have to pay to the Serbian state.

In all likelihood, Šolak used these transactions to avoid paying the capital gains tax in Serbia, which he did by misusing the double taxation avoidance treaty that the Republic of Serbia had signed with the Netherlands. Moreover, in this way Šolak deftly avoided paying the withholding tax on the interest paid to the fictitious loaners from abroad.

However, there was more to this story. Such a business arrangement provided a good basis for evading taxes in other countries. Specifically, the Netherlands exempted from taxation the transferring of revenue to Luxembourg in the form of dividend. Using these facilities, Šolak managed to avoid paying the income tax in his own country, as well as transferring the revenue to his offshore companies. In this way, the entire amount originating from the sale of SBB could reach a tax haven without being taxed or with minimal taxation.

COMING UP NEXT: Tax games without borders – the business network made up of over 100 Šolak's companies