19.02.2016 — Ministry of Industry and Trade Threatens to Prohibit Fixing Rent in Foreign Currency

Due to the bleak economic situation in Russia, especially considering the drastic changes in the foreign currency exchange market, the issue of whether it is possible and necessary to fix the foreign currency exchange rate in lease agreements has been heatedly debated. Viktor Evtukhov, the Deputy Minister of Industry and Trade of the Russian Federation, has recommended that developers of retail real estate should voluntarily initiate the amendment of their lease agreements, so as to fix the rent in Russian rubles.

This recommendation will first and foremost affect retailers who sell their goods in retail chains. Thus, they had to deal with the fact that their rent has increased by nearly 2.5 times due to foreign currency exchange fluctuations, with no prospective boost in income in the nearest future. Importantly, however, the Ministry of Industry and Trade made it clear that should the developers fail to strike a deal with the retailers, it will prepare a relevant draft bill to deal with the problem.

It will be recalled that in the case Vimpelkom v Tizpribor, the Moscow Arbitrazh Court has recently established the margins of exchange rate fluctuations in a lease agreement, thereby ruling that Tizpribor shall review the terms and conditions of the agreement. The decision contradicts the well-established court practice that foreign currency exchange rates fluctuations shall not be considered a fundamental change of circumstances due to their foreseeability. The decision can therefore affect future case law and incentivise judges to rule in favour of lessees.

18.02.2016 — Rosstat Approves Form Completion Guidelines for SMEs Statistical Survey

The Federal State Statistics Service (Rosstat) has approved the guidelines on form completion for the purposes of carrying out a complete federal statistical survey of small and medium-sized enterprises (SMEs). The guidelines were approved by the Decree No. 33 dated January 29, 2016 “On the approval of the guidelines on federal statistical survey form completion No. PM “Data on key performance indicators of a small enterprise”.

Small enterprises meeting the relevant criteria are obliged to participate in the survey. Thus, such criteria include the number of employees (15-100), the entity’s profit excluding VAT, or the book value of assets (RUB 120 million - 800 million), the use of the Simplified Tax System etc. Sole traders and micro-enterprises not meeting the said criteria are not required to submit the survey form.

Notably, the new rules of form completion will already be effective during the first quarter of 2016. The filled in survey form shall be filed with the local department of Rosstat at the entity’s place of registration or place of business by April 29, 2016.

17.02.2016 — How to Challenge Acts Clarifying Legislation?

A number of federal laws amending legislation in force and regulating the challenging procedure of acts having the features of law-making acts and issued by federal executive authorities, in order to clarify legislation, were published on February 15, 2016. These amendments will become effective within 30 days as of their publication.

Thus, amendments have been introduced to the Arbitrazh Procedure Code. The Court of Intellectual Property rights will be empowered to review clarifications of IP legislation issued by executive state authorities as a first instance court. Among other things, the Court will review clarifications of legislation related to patent and selection patent rights, rights to topologies of integrated microcircuits, trade secrets (know-how), rights to means of individualisation of legal entities, goods, works, services and enterprises, rights to use results of intellectual activity within an integrated process.

The Administrative Procedure Code was amended so as to empower the Supreme Court to hear challenges of clarifying acts having the features of law-making acts, issued by federal executive authorities, other federal state authorities, the Bank of Russia, federal non-budget funds, including the State Pension Fund, the Social Insurance Fund, and the Federal Medical Insurance Fund.

When hearing the case the court shall determine the following:

1) whether the challenged act directly affects the rights, freedoms and legal interests of the claimant;

2) whether the challenged act has features of a law-making act, which enables its numerous application to any number of unspecified persons;

3) whether the provisions of the challenged act contradict the actual meaning of the legislation clarified by the said act.

The authority, organisation or the official that issued the act bears the burden of proving its legality, however the claimant shall prove that its rights, freedoms and legal interests were violated by the challenged act.

It is yet to be determined whether state authorities will be incentivised to prove that the challenged act has law-making features. Court practice will determine whether introducing the above legislative provisions can be deemed an effective measure.

16.02.2016 — De-offshorisation Policy in Action - New Law Prohibits Public Funding of Foreign Companies

The Federal law dated 15.02.2016 No. 23-FZ “On the introduction of amendments into the Budget Code of the Russian Federation” prohibits the provision of governmental financial support (i.e. subsidies and budget investments) to foreign legal entities, especially legal entities registered in offshore jurisdictions.

The amendments to the Russian Budget Code prohibit the Government from providing financial support to foreign legal entities, especially legal entities registered in offshore jurisdictions. Starting from 2017, subsidies, state or municipal guarantees, budgetary investments will no longer be provided to foreign legal entities. A similar prohibition will apply to Russian companies, provided that legal entities registered in offshore jurisdictions own at least 50% of their shares. Guarantees issued contrary to the said rules shall be considered void, and any payments made thereunder shall be returned to the state budget.

Moreover, funds received through governmental support may no longer be converted into foreign currencies, save for the cases when doing so is necessary, e.g. to purchase foreign high-technology equipment, as well as in other case provided for by statute. Failure to abide by the new rules of governmental financial support may result in the imposition of the obligation to return the monies to the respective budgetary system. These restrictions enter into force immediately after publication.

15.02.2016 — Taxpayers to Use Reviewed Cadastral Value for Land Tax Adjustment Only After New Value Is Made Public

The Russian Tax authority has clarified when applicants challenging the results of the cadastral value assessment can refer to the new cadastral value of land plots. In its Information letter dated 12.02.2016 “On the calculation of land tax”, the tax authority clarified that the new cadastral value of real estate can be referred to for the purposes of calculating land tax only after the relevant changes have been recorded in the state real estate cadastre.

Many entrepreneurs have recently initiated the challenging procedure of the cadastral value assessment, so as to decrease the payable land tax, alleging that the value of real estate has been greatly overestimated due to the use of mass assessment methods by state authorities. However, in order to use the decreased cadastral value for the purposes of land tax calculation, the applicant should first challenge the cadastral value in a special commission or in court, and then wait for the relevant changes to be introduced into the state real estate cadastre based on the court decision.

According to the tax legislation, taxpayers should take into account the information contained in the state real estate cadastre when calculating land tax. Therefore taxpayers cannot calculate land tax based on the new cadastral value, which has not been recorded in the cadastre.