09.06.2017 — Companies May Choose Court of First Instance at Their Discretion

The Supreme Court ruled that the companies may agree to have their dispute adjudicated by any arbitrazh court of first instance. Moreover, the Supreme Court explained that the court chosen by the parties may be situated in a region that has nothing to do with the parties to the contract.

Yet, when the parties conclude a prorogation agreement they should take into account that the subject-matter jurisdiction (the “level” of the court, which has jurisdiction to resolve the matter) and the exclusive jurisdiction (in particular, the real estate disputes shall be adjudicated at its location) cannot be changed.

In all other cases the parties are free to choose a court to adjudicate their dispute without regard to any criteria, such as the respondent’s registered address, location of his property, etc. (Decision of the Supreme Court dated 25.05.2017 No. 2017 305-ЭС16-20255).

08.06.2017 — Supreme Court: No Income Tax for “Golden Parachutes”

The Supreme Court resolved a case, in which the Federal Tax Service reassessed taxes for a major company and obliged it to pay income tax on the severance payments made upon termination of labor contracts with top managers. The Supreme Court ruled for the company and declared that irrespective of the grounds for termination of the labor contract, income tax shall not be charged on the compensations paid upon termination due to the exclusion, provided by tax legislation (Article 217(3) of the Russian Tax Code).

In the case adjudicated by the court the tax authorities alleged that the provisions of Article 217(3) of the Russian Tax Code, which state that income tax shall not be charged on “all kinds of compensations upon the termination of the labor contract, provided by effective law” are not applicable to the “golden parachutes”, paid when the employee is dismissed by mutual agreement of the parties, since law does not impose an obligation on the employer to pay the compensation to the employee in such a case.

The court of the first instance and the cassation court ruled for the Federal Tax Service obliging the company to pay additional income tax to the budget. Still, the Supreme Court disagreed with such a decision and explained that the federal law provides for a tax exemption, which is applicable to all the payments made in connection with the employee’s dismissal irrespective of its grounds. Therefore, the provisions of Article 217(3) of the Russian Tax Code shall apply to the compensations paid upon termination even if the employee is dismissed by mutual agreement of the parties (case No. А42-7562/2015).

07.06.2017 — Bill on Mandatory Notarization of All the Immovable Property Transactions Introduced to State Duma

A bill has been introduced for the consideration of the State Duma, which provides for amendments to the civil legislation in respect of the formalization of the transactions with immovable property. The bill provides for substituting the currently effective requirement that the transactions with immovable property shall be concluded in writing with the requirement on their mandatory notarization before the application to the Rosreestr on the state registration of the transfer of title is made.

Currently the notarization is required only in the cases when it is provided by law (in particular, notarization is necessary for the transactions with the shares in a limited liability company) or if the parties so agree.

The bill proposes to amend the current legal requirements to the form of the transaction and introduce to Article 8.1 of the Russian Civil Code the provision that makes it mandatory for the parties to notarize all the transactions, which lead to the accrual, change or termination of the right to the property, which requires state registration. Should the proposed amendments be approved, the new developments will primarily concern the transactions with real estate. In particular, the counterparties will have to notarize the sale and purchase agreements, leases, pledges, servitudes and some other transactions.

In the opinion of the bill drafters these amendments will promote the stability of the turnover of the immovable property and will strengthen the guarantees of the rights of the real estate owners. On the other hand, some are apprehensive about the increase of the transaction costs related to the immovable property turnover. 

06.06.2017 — Supreme Court: If Contract with Currency Clause Is Terminated, Money Shall Be Returned in Rubles at Current Exchange Rate

The Supreme Court was to resolve a dispute, the key problem of which was whether a currency clause survives the termination of the contract and what currency exchange rate shall be applied to the return of the money, paid by the parties earlier. The Supreme Court ruled that even after the contract is terminated, the currency clause remains in force. Therefore, the settlements between the parties, including the return of the previously paid money, shall be made at the current rate of exchange.

In the case adjudicated by the court the client purchased a trip on a cruise, but there was a fire on the liner, and the cruise was cancelled. The tour operator proposed to refund the money for the trip. Still, the dispute aroused in respect of the amount of the money to be returned. The price in the contract was denominated in Euro, still all the invoices were issued and paid in Rubles.

Therefore, the tour operator agreed to return the client the amount in Rubles, which the client had paid in fulfillment of the contract. However, the client insisted that the money shall be returned with regard to the foreign currency, indicated in the contract, and the sum to be returned shall be converted into Rubles at the current exchange rate. Thus, taking into account the appreciation of the Euro after the conversion the tour operator was to pay the customer additionally 50% of the price of the tour (RUB 2.6 mln. in addition to RUR 3.4 mln. paid earlier).

The Supreme Court ruled for the client and indicated that the distinction shall be made between the currency, in which the obligation is denominated (the currency of the debt) and the currency, in which the monetary obligation shall be discharged (the currency of payment). If the contract price is indicated in the foreign currency (Euro in this case), irrespective of the sum actually paid in Rubles, the money shall be returned with regard to the initial amount in Euro, and the settlements shall be made in Rubles at the current exchange rate (Decision of the Supreme Court dated 16.05.2017 No. 5-КГ17-15). 

05.06.2017 — Russia to Introduce Tax-Free Shopping for Foreigners

The Russian Ministry of Finance has developed a bill aimed at introduction of tax-free. The amendments to the tax legislation, proposed by the Ministry of Finance, if approved, will allow foreign nationals (except for the nationals of the countries that are members of the Eurasian Economic Union) to recover the value added tax from goods purchased from Russian retailers, when such goods are exported from the customs territory of the Eurasian Economic Union.

The bill provides for implementing some additional provisions to the Russian Tax Code. Besides the proposal to implement the system of value added tax refund when the goods are exported, the bill provides for the recovery of the VAT amount, calculated by the taxpayers-retailers for the goods sold to foreign nationals.

The amendments proposed by the Ministry of Finance are in compliance with the provisions of the Treaty on the Eurasian Economic Union and are aimed at performance of the obligations of Russia under the international treaties and improving competiveness of the Russian domestic market.