22.01.2016 — Currency Devaluation And Foreign Exchange Rate Change Cannot Be Deemed Force Majeure in International Contracts, Russian CCI Says
The Russian Chamber of Commerce and Industry has published a Resolution providing for the procedure to establish the existence of a force majeure circumstance exempting parties to commercial international contracts and treaties from their obligations thereunder, as well as to issue certificates confirming force majeure. No procedure is provided for tortious claims.
According to the Resolution, the following circumstances can be considered force majeure: acts of God (earthquake, flood, hurricane), fire, disease outbreaks, strikes, war, terrorist attacks, prohibition of trade (including prohibitions effective with regard to specific countries, and as a result of international sanctions), as well as other circumstances beyond the reasonable control of the parties to the contract (treaty).
The following circumstances cannot be considered force majeure: entrepreneurial risks, such as contractual breach by other business partners, commercial unavailability of goods necessary for contractual performance, unavailability of funds required for contractual performance, financial and economic crisis, change in the foreign currency exchange rate, devaluation of national currency, as well as other circumstances excluded by the parties.
The Resolution sets forth a list of information and documents to be provided in order to trigger the force majeure certification procedure. A charge shall be payable for the issuance of the relevant certificate.
21.01.2016 — Russian Subsidiaries Advised to Be Cautious When Lending Money to Their Foreign Head Office - State Duma Considers Bill Against Asset Dissipation
The State Duma Committee on the Financial Market proposed a bill obliging Russian companies to return funds that have been paid pursuant to loans extended to foreign companies and individuals. According to the Central Bank, the outstanding loan commitments accrued since the beginning of 2004 amounted to USD 30.2 billion as of June 01, 2015.
According to the said bill, Russian individuals and legal entities will have to ensure that moneys transferred to foreign persons pursuant to loan agreements are returned to their bank accounts. Failure to ensure the return of such funds within the time-limits provided for by the loan agreement may result in the imposition of administrative fines on Russian residents: they may have to pay an interest amounting to 1/150 of the refinancing rate of the Russian Central Bank from the outstanding funds for every day of delay. The bill also provides for an alternative sanction - recovery of 3/4 of the outstanding funds from the Russian resident.
Under effective legislation, in order to extend a loan to a foreign person, among other things, the Russian entity has to provide a loan agreement to its bank. Nevertheless, the bank cannot control the return of funds to the Russian resident.
Notably, Russian companies are currently only obliged to ensure that payment for exported goods, as well as works and services rendered to foreign persons, and advance payments for non-imported goods are timely received.
The bill has been approved by the Russian Central Bank and the Russian Government.
20.01.2016 — Russian Employers to Pay Higher Fines for Delays in Salary Payment - State Duma to Consider Hotly-Debated Bill
The Russian Ministry of Labour and Social Protection proposed a bill targeted at late salary payment. According to the bill, employees will be entitled to a higher compensation (interest) rate for late salary payment, limitation periods within which such compensation claims can be brought will be extended, whereas control by monitoring authorities will be tightened and administrative fines will be increased. The bill is aimed at amending labour and civil procedural legislation, and has been approved by the Russian Government.
The Ministry of Labour and Social Protection proposes to introduce the following measures:
- a progressive compensation structure, whereby the compensation (interest) for salary payment delay shall be increased. Pursuant to the bill, after a 6-month delay, the daily compensation (interest) shall amount to 1/150 of the effective key interest rate of the Russian Central Bank (the current key interest rate is 11%). The said interest shall accrue on the unpaid salary on a daily basis. Meanwhile, according to the legislation in force (Article 236 of the Labour Code), the general compensation (interest) rate amounts to 1/300 of the refinancing rate of the Russian Central Bank;
- to specify that salary shall be payable no later than 10 days as of the end of the period for which it is due. The current wording of the Labour Code, according to which the salary shall be payable “at least every fortnight”, is deemed to have allowed delays in salary payment due to its vagueness;
- to ensure that inspections can be carried out by the Ministry immediately and without prior approval of the Public Prosecutor’s Office, upon receiving information on breach of salary payment deadlines;
- to increase the current one-month limitation period so as to allow employees to lodge salary payment complaints within 3 months from the moment the alleged breach took place.
The bill also proposes to increase administrative fines for salary payment delays. Thus, employers who are legal entities may have to pay a fine of up to RUB 100.000, whereas sole traders can face a fine of up to RUB 30.000.
Notably, a similar bill that has already been introduced by the Russian Communist Party, proposes to increase administrative fines imposed upon legal entities up to RUB 1.5 million and to introduce criminal liability (i.e. imprisonment of up to 3 years) for delays in salary payment.
Experts claim that the increase of administrative fines will not incentivise employers to timely pay salaries, as often they do not have the required funds due to their precarious financial condition. Moreover, higher fines will not benefit employees, as opposed to the progressive compensation (interest) rate, which is generally seen as a breakthrough measure. We will keep our readers informed of the bills’ development.
18.01.2016 — Russia and Hong Kong Sign Double Taxation Treaty
Russia and Hong Kong have signed a double taxation treaty. The treaty was signed by Yuri Zubarev, Russian Deputy Finance Minister, and the Secretary for Financial Services and the Treasury in the Government of Hong Kong Ceajer Chan Ka-keung. The treaty will come into force after the completion of ratification procedures on both sides.
The treaty provides for ways to avoid double taxation, prevent tax evasion and ensure information exchange between relevant authorities. It will not only substantially raise the attractiveness of investing in Russian assets for numerous Asian and Western investors established in Hong Kong, but will also attract more Russian investors to Hong Kong.
Russian companies have been showing interest in investing in Hong Kong, generally, however, they have been reluctant to do so, mostly due to the risk of double taxation, as the China-Russia Double Taxation Treaty does not cover Hong Kong. Nevertheless, experts claim that Russian companies prefer to work in China via Hong Kong, as well as to list on the Hong Kong Exchange in order to raise capital. Thus, the aluminium producer Rusal owned by Oleg Deripaska is the biggest issuer on the Hong Kong Exchange among Russian firms. The new double taxation treaty will strengthen economic ties between Russia and Hong Kong.