16.06.2017 — Central Bank Lowers Key Interest Rate Further

On June 16 the Board of Directors of the Central Bank of Russia adopted another decision on lowering the key interest rate to 9%. In the opinion of the regulatory authority, there is a growth in the economic activities in Russia, and the inflation rate is approximately at the targeted level of 4%.

The Central Bank also believes there are grounds to expect further lowering of the key interest rate in the second half-year of 2017. Its decision will depend on the further dynamics of the Russian economy and the inflation level.

The next meeting of the Board of Directors of the Bank of Russia on the key interest rate will take place on July 28, 2017.  

15.06.2017 — Controversial Amendments to Tax Code: Mitigation of Formalism and Presumption of Bad-Faith Conduct of Taxpayers

Currently the bill on the amendments to tax legislation is receiving a second reading. On the one hand, the proposed legal developments mitigate the formalism of the tax authorities, in particular, technical errors and formal mistakes in the accounting documents will no longer be a ground for reassessment of taxes. At the same time the bill introduces the presumption of bad-faith conduct of the taxpayers, what, according to the experts, makes all the liberal developments nonsense and increases the tax risks for business.

The State Duma is working on the amendments to the Russian Tax Code on unjustified tax benefit. These amendments determine the situations, when the company will be unable to get tax deduction or benefit.

Among other liberal legal developments one very important is worth noting particularly. Formal violations, including the defects and inconsistencies in the tax invoices and other accounting documents, and formal negative characteristics of the counterparty will no longer be a ground to refuse to grant tax deduction. The most important criterion for the Federal Tax Service will be the fact that the economic operation in fact took place (the obligations under the contract were actually performed).

Still, the experts warn that the text of the bill contains the provisions that increase the risks for business. In particular, the burden of proof of the taxpayers’ good-faith conduct and the fact that the economic operation in fact took place is shifted to the taxpayers. Should the amendments be adopted, to get the tax deduction the company will have to prove that the transaction aimed at tax optimization had economic rationale behind it, and did not pursue only the purpose of tax evasion.

It is expected that the law is adopted in the second reading in the beginning of July 2017.

14.06.2017 — US Expands Sanctions Against Russia

On July, 14 the US Senate voted for the bill that expands the list of sanctions against Russia. The restrictions will embrace other sectors of economy, the list of sanctioned individuals will also increase in size.

At the first place the US plans to expand the sectoral sanctions. In particular, the measures concern restrictions in equity financing and debt financing (the term due was shortened from 90 to 14 days) to Russian energy sector, metals industry, mining and railway. Moreover, a ban to invest in Russian public bonds and privatization of Russian state enterprises will be introduced.

The document also provides for a complicated procedure of mitigating or lifting the sanctions. For this purpose the US President will have to convince the Congress that Russia has shifted its policy in respect of Syria and Ukraine.

At the moment the bill has been approved by the Senate and has been submitted to the consideration of the Congress.

13.06.2017 — Businessmen Who Act in Bad Faith Will Be Restricted in Future Activities

The new amendments to corporate legislation enter into force on 28 June 2017. The new legal developments are aimed at toughening the measures against abuses in doing business, such as operating through fly-by-night companies. The amendments will harsher the liability of the directors of the companies - they will be liable for the debts of the company, which was excluded from the State Register (EGRUL). Moreover, several measures concern the founders of such companies – actually, they will be banned from doing business for the next three years.

Primarily the amendments are aimed at reinforcement of the creditor’s rights and the extension of their opportunities to impose liability for the debts of the insolvent companies on their directors and founders, who acted in bad faith.

In particular, the newly introduced provision states that the exclusion of the company from EGRUL as inactive is equal to unilateral refusal from obligation (see Federal Law dated 28.12.2016 No. 488-FZ). Should the controlling persons of the company (namely, its management, founders and other persons, who in practice have an opportunity to influence the decisions of the company) act unreasonably or in bad faith, subsidiary liability for the company’s debts may be imposed on such persons.

Moreover, the bad-faith behavior of the controlling persons may impact their opportunity to do business in the future. Should the company be excluded from the register or should a note be made in the register on the invalid data (for instance, invalid data on the address or the general director), the director and the participant, who owns more than 50% of the share capital, in the next three years will be unable to:

  • incorporate a new legal entity;
  • purchase a share in a company;
  • be appointed as a general director.

In practice the implementation of these provisions will lead to the ban of the businessmen, who acted in bad faith, from doing business directly for some time. However, they still will be able to operate through the third parties.

12.06.2017 — Supreme Court Will Clarify Procedure for Adjudication of Cross-Border Disputes

At the moment the Supreme Court has almost completed the drafting of the Decree on the litigation with foreign entities, and other cross-border disputes with foreign element (particularly, cases concerning property located abroad, foreign intellectual property, etc.). The Supreme Court is planning to adopt extensive explanations concerning the situations, when Russian courts have jurisdiction over cross-border disputes, the determination of the legal status of foreign litigants, and the problem of their notification on the dispute. The document also contains several provisions aimed at protection from procedural abuse of rights by the parties involved in the litigation with foreigners.

The central issue of the draft Decree of Plenum of the Supreme Court is the issue of the delineation of jurisdiction between Russian and foreign courts. The basic criterion is the close link of the legal relations, which gave rise to a dispute, with the Russian territory. The issue of establishing such a link depends on the factual circumstances of the case. At that the following may serve as a criterion of such a link: the fact that the company has a representative office or a branch (including non-registered) on the territory of Russia, web-site in the Russian domain extension, focus on the Russian consumers, location of main evidence in Russia and other factors.

The draft Decree of Plenum also contains several provisions aimed at protection from procedural abuse of rights by the parties involved in the litigation. Particularly, a foreign legal entity, which objects to the jurisdiction of Russian courts, shall present such objections to the court in the first place, before going into the merits of the case. Otherwise the foreign litigant waives his right to object to the jurisdiction of the Russian court.

Furthermore, the Supreme Court wants to give several explanations that are important for the claimants initiating a lawsuit against a foreign entity, in particular on the confirmation of status of the foreign respondent and his notification on the legal proceedings. To confirm the status of the respondent, the claimant is to present to the court the documents on its state registration (the extract from the foreign commercial register, while tax documents are not sufficient for this purpose). Moreover, the principle of “effective notification” is introduced: if the claimant presents evidence that the foreign litigant is aware of the process (particularly, he has submitted documents to the court or has sent its representative, or made public announcements in the media), there is no need to notify him in accordance with the strict official procedure. Moreover, further the respondent is to follow the track of litigation on his own.

The draft Decree of Plenum of the Supreme Court will be adopted in the nearest future, as soon as it is polished up as a result of discussion.