14.06.2018 — Russian President Is Granted Special Right To Regulate Activities of Legal Entities and Execution of Transactions
On 4 June 2018 legislative amendments came into force, providing for the right of the Russian President in exceptional cases to establish the specifics of the companies’ activities, transactions, and of the securities market regulation. The law does not specify what exceptional cases it refers to and when the Russian President is entitled to exercise these specific rights to impose extraordinary regulation on business activities.
Federal Law No. 133-FZ dated 04.06.2018 (the text of the law is available on the official portal of legal information) has introduced certain amendments to Russian law, in accordance with which in exceptional cases, the President of the Russian Federation is entitled to establish the specifics of regulatory environment in certain areas. At the same time, at present the text of the law does not establish which cases are considered exclusive for the purposes of application of this law.
In particular, in exceptional cases, the President can determine the specific legislative requirements in respect of the establishment, reorganization, liquidation and legal status of business entities in certain areas of business (including the requirements on information disclosure), as well as the requirements in respect of the execution of transactions, including their notarization and record keeping. In addition, the President has been granted the right to specify the legal status of securities issuers and traders, as well as record keeping in respect of the information on securities in certain areas of business.
13.06.2018 — Supreme Court Decided, When Contractual Penalty Cannot Be Reduced
The Economic Chamber of the Supreme Court recovered penalty for the delay in the performance of the works from the contractor in the amount substantially exceeding the price of the contract. The Supreme Court emphasized that courts cannot reduce the amount of the penalty if the respondent has not filed the respective motion, even if the court believes that the amount of contractual penalty is disproportionate. Moreover, the Supreme Court stressed out that contractual penalties may be reduced only when the case is examined in the court of the first instance, and not on a later stage.
In this dispute (case No. 301-ES17-21397), the courts were to decide whether the contractual penalty may be reduced. The customer and the contractor concluded a contract following the results of the tender procedures. The contractor performed the works with substantial delay, and the customer imposed penalties on the contractor in accordance with the terms of the contract. The amount of such penalties significantly exceeded the price of the contract. Since the contractor refused to pay the penalties, the customer resorted to court.
Courts were of different opinions as to whether contractual penalty should be reduced. Particularly, the court of the first instance recovered the penalty from the contractor in full. Courts of appeal and cassation, on the contrary, decided that the amount of the penalty was excessive, and the customer’s actions constituted abuse of right, and therefore reduced the amount of penalty on the court’s initiative.
The Economic Chamber of the Supreme Court agreed with the court of the first instance and decided that the customer’s actions did not constitute the abuse of right. The Supreme Court emphasized that the contractor was aware of all the terms of the contract, including those relating to the deadline for the performance of works and penalties in case of delay, and was not forced to enter the contract on these terms. Furthermore, the Supreme Court reminded that respondents shall file a motion on the reduction of contractual penalty in the court of the first instance, and in this case the contractor failed to do so. Thus, the penalty was recovered from the contractor in full, despite the fact that its amount exceeded the price of the contract.
12.06.2018 — VAT Rate May Increase To 20% In 2019
The Government announced that from 1 January 2019, the VAT rate will be raised from 18% to 20%. This news was perceived negatively by the business community, and experts expect rise in prices and decrease in consumption. In such a way the Government once again violates the moratorium on the increase of taxes introduced by the President: in 2017, despite the repeated promises of the Ministry of Finance, the average tax burden on business increased.
On 14 June the Russian Prime Minister Mr. Dmitry Medvedev announced an increase in the value-added tax (VAT) rate by 2 percent from 18% to 20% from 1 January 2019. The final decision on raising VAT has not been adopted yet, but experts warn that the increase in the tax burden is not the best option to cover the budget deficit, as the rise of taxes will lead to higher prices, lower effective demand, and ultimately will negatively affect both businesses and ordinary citizens.
It should be noted that over the past year, the tax burden on business in Russia has grown from 9.6% to 10.8%, despite the repeated promises of the Ministry of Finance that in the coming years the tax burden would not rise.
11.06.2018 — Russian President Signed Counter-Sanctions Law Against US And Other States
Russian law on counter-sanctions provides for the right of the Russian President and Government to introduce retaliatory sanctions in response to wide range of policy and unfriendly acts of the United States and other foreign states. Restrictive measures can be established in respect of the governments, countries and individuals under their jurisdiction.
On 4 June 2018 the Russian President signed the Federal Law No. 127-FZ dated 04.06.2018 “On Measures for Reaction (Counteraction) to Unfriendly Actions of the United States of America and Other Foreign States” (the text of the law is available on the official portal of legal information).
The law does not in itself contain new sanctions or counter-sanctions, but authorizes the President and the Government of the Russian Federation to impose restrictive measures against foreign countries, their companies, officials and citizens. Such measures may include suspension of international cooperation, restriction of exports and imports of foreign companies’ products and a ban on the participation of foreigners in state procurement and privatization of state property.
The development and introduction of specific counter-sanctions is delegated to the executive authorities. Counter-sanctions shall be introduced by the Russian Government upon the decision of the President, which may be taken on the basis of proposals of the Russian Security Council.