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

In a special series, Kurir reveals how exactly this
controversial billionaire fulfilled his 'American dream'
in the murky waters of the Balkan transition

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