27.10.2017 — Russia May Leave European Court of Human Rights
Russian authorities are now considering the possible suspension of membership in the European Court of Human Rights and the reduction of contributions to the organization’s budget. The State Duma officials expressed their dissatisfaction over the fact that the Russian delegation is deprived of the right to vote on the upcoming election of judges. Moreover, according to Russian authorities, the decisions of ECHR against Russia are politically charged and unjust.
The State Duma will consider the matter on the suspension of membership in the European Court of Human Rights simultaneously with the review of the draft state budget for 2018-2020. In particular, Russia intends to reduce contributions to the Council of Europe by the amount comparable to the amount designated for financing the ECHR’s activities (approximately USD 7-10 mln.).
The officials’ approach is explained by the fact that the Russian delegation will not vote in the upcoming elections of the ECHR judges. Russia was deprived of the right to vote in the Council of Europe, and its membership in the Parliamentary Assembly of the Council of Europe was suspended after the Crimea was incorporated into Russia. Another reason of the possible suspension of membership in the ECHR is, according to Russian state officials, politically charged decisions of the ECHR against Russia.
26.10.2017 — Federal Tax Service: Income Tax Shall Not Be Charged On Reimbursement of Employees’ Housing Expenses
In one of its recent explanatory statements the Federal Tax Service changed the earlier established tax authorities’ approach and elucidated that if the employer reimburses the housing expenses to non-local employees, income tax shall not be charged on the amounts paid to the employees. For these purposes the reimbursement of these expenses shall be formalized as a clause in the labor contract and in the company’s internal regulations. At that the employer shall pay the state insurance contributions from these amounts. The company also has the right to record these expenses with the view to decreasing the taxable base of the corporate profit tax.
Earlier during a long period of time the tax authorities followed the approach that the reimbursement of housing expenses to non-local employees by the employer constitutes the employee’s income in kind, and therefore income tax shall be charged on such amounts (see the earlier explanatory statements of the tax authorities, in particular, the Letters of the Ministry of Finance dated 14 November 2016 No. 03-03-06/1/66710, 14 September 2016 No. № 03-04-06/53726, 17 July 2015 No. 03-08-05/41253).
At that this approach was not supported by courts. According to the Supreme Court if the residential premises are leased on the initiative of the employer or if the respective employees’ housing expenses are reimbursed due to business need (in particular, in case a branch is established in another town or if foreign specialists are engaged), the housing expenses are aimed at serving the interests of the company, and not the employee, therefore income tax shall not be charged on such amounts.
The new explanatory statement of the Federal Tax Service is based on the abovementioned approach of the Supreme Court and changes the earlier established practice of the tax authorities (see Letter of the Federal Tax Service dated 17 October 2017 г. No. ГД-4-11/20938@). Now the fact that the employers do not assess income tax on the amounts of housing expenses paid to non-local employees will not lead to conflicts with tax authorities. Still, the employer shall formalize the reimbursement of such expenses as a clause of the labor contract and of the company’s internal regulation concerning the compensations and benefits. The employer shall also pay the state insurance contributions from these amounts. At that the company also has the right to record these expenses with the view to decreasing the taxable base of the corporate profit tax.
25.10.2017 — Should Seller of Real Estate Go Bankrupt, Purchaser Is at Risk of Both Not Receiving Purchased Property and Losing Purchase Price
The Economic Chamber of the Supreme Court adjudicated the dispute, where shortly after the parties entered into the sale and purchase agreement and the purchaser paid the purchase price, the seller became bankrupt before he registered the transfer of title to the purchaser. The purchaser claimed for the transfer of title in court. Still, the courts noted that such a claim cannot be granted since it will lead to priority of the purchaser of real estate before other creditors in bankruptcy proceedings. In such a situation the purchaser is only entitled to refund the transferred money according to the rules of priority of the creditors’ claims in the bankruptcy proceedings. This means that the purchaser is at risk of not retrieving the purchase price in full.
In the case adjudicated by the court the purchaser bought the building and paid the purchase price in full, but was late to register the transfer of title because the seller went bankrupt. After that the purchaser referred to the fact that the seller evades registering the transfer of title to the property and claimed that the transfer of title is registered compulsorily in court (case No. № А40-179202/2015). The opinions of the courts on whether such a claim shall be satisfied, varied. The matter was finally resolved by the Supreme Court that supported its previous position that after the seller goes bankrupt the purchaser is no longer entitled to claim that the property is transferred to him and that the transfer of title is registered.
According to the bankruptcy law non-property purchaser’s claims on the registration of the transfer of title in case of the seller’s bankruptcy shall be transformed to the monetary claims on retrieving the paid monetary sums according to the rules of priority of the creditors’ claims in the bankruptcy procedure. Otherwise the claims of the purchaser would have priority over other creditors’ claims, what is against the principles of bankruptcy law.
Therefore, the purchaser that buys the property from the seller on the verge of bankruptcy is at risk of not only not receiving the title to the property, but also not retrieving the purchase money in full.
24.10.2017 — Ministry of Justice Published Draft Concept on Regulating Legal Market
On 24 October the Ministry of Justice published the draft concept on regulating the legal market. The concept provides for step-by-step reforms and the introduction of the advocate’s monopoly from 1 January 2023. The reform is aimed at making the advocates’ community more attractive for other practicing lawyers, and in general was characterized as a balanced and compromised alternative. At the same time, the proposed amendments will unlikely contribute to the increasing of the quality of legal services.
According to the Draft the legal market will be reformed step-by-step. In 2018 new legislation will be developed aimed at making the advocates’ community more attractive for other practicing lawyers – the law will establish the forms of legal entities that may render legal services and professional advice, introduce taxation regulation, improve the efficiency of the advocates’ demand for information and advocate secret, etc. In 2019 the temporary simplified procedure for obtaining the advocate’s status for practicing lawyers will be developed, and starting from 2020 lawyers will have an opportunity to become advocates under these simplified rules.
The advocates’ monopoly is planned to be introduced on 1 January 2023. This means that only advocates will be entitled to render legal services, give legal advice and represent the clients in court. That would be a major change, since historically in Russia the lawyers are admitted to practice automatically after graduation from law school, and a special exam and the respective “advocate status” is only required for the lawyers involved in criminal defense. To the contrary, lawyers specializing in advising on corporate, commercial and other areas of private law believed the “advocate status” to be redundant and useless since in practice it is not associated with benefits, but imposes some additional duties in relation to the advocates’ association.
At the same time, the deputy Minister of Justice Denis Novak mentioned that the above timeframes are approximate and may be changed depending on the efficiency of the implementation of the reform.
Should the proposed Draft be implemented, foreign lawyers will be entitled to practice law only on the matters of their jurisdiction subject to registration in the special register kept by the Ministry of Justice. Moreover, the Draft stipulates that the legal services in respect of Russian law matters shall be rendered only by advocates’ entities established under Russian law, at that it is forbidden that such advocates’ entities are controlled by foreigners. This provision has already been largely criticized by the professional community as the threat to competition on the Russian legal market.
It is worth mentioning that the Draft only concerns legal consulting, and is not relevant to in-house councils, state officials and persons and organizations that render pro bono legal services only.
23.10.2017 — Constitutional Court: Decisions of Judicial Chambers of Supreme Court Shall Not Be Ground For Reviewing Final Court Decisions
Constitutional Court examined the individuals’ application on the non-compliance of the Russian Code of Civil Procedure with the Russian Constitution. In particular, the applicants complained about the provision on the possibility to review final court decisions on the ground that the Supreme Court changed its approach to the interpretation of law in the decisions of its Judicial Chambers. The Constitutional Court stated that the change of position of the Supreme Court expressed in a decision of Judicial Chamber is not a ground for reviewing the previously rendered final court decisions, because a new approach of the Supreme Court to the interpretation of law shall be expressed at the higher level, namely in the Decree of the Presidium or the Plenum of the Supreme Court. Besides, the Constitutional Court highlighted the need for the amendments to the legislation that would promote for the protection of the individuals’ rights in this regard.
In the case adjudicated by the court, the applicants were seven individuals that had previously resorted to the courts of general jurisdiction with claims against the regional offices of the Social Insurance Fund of the Russian Federation. All the claims were granted, the courts ruled for the individuals. But after the Judicial Chamber of the Supreme Court rendered a negative decision on a similar matter, all the positive decisions were overturned and the courts ordered that the individuals reimburse all the previously adjudged monetary amounts to the state budget. Therefore, the individuals applied to the Constitutional Court and requested to declare unconstitutional Art. 392 (4), para. 5 of the Russian Code of Civil Procedure establishing that a new approach of the Supreme Court in the interpretation of law is a ground for reviewing final court decisions.
Having considered the application, the Constitutional Court declared that this provision is in conformity with the Constitution, since in fact it does not provide that the final court decisions may be reviewed on the basis of the decisions of the Judicial Chambers of the Supreme Court, as it was the case in applicants’ situations. The Constitutional Court reaffirmed that the decisions of Judicial Chambers of the Supreme Court sometimes are not final, contrary to the Decree of the Presidium or the Plenum of the Supreme Court. The provision of the Russian Code of Civil Procedure shall be interpreted so that it allows to review final court decisions only if a change of approach of the Supreme Court to the interpretation of law is expressed at the higher level, namely in the Decree of the Presidium or the Plenum of the Supreme Court. Moreover, the Constitutional Court ordered to the Parliament to introduce amendments to the Russian Code of Civil Procedure to ensure the protection of the individuals’ rights in case the position of the Supreme Court changes, namely:
- Firstly, to review the earlier rendered decision on this ground, the respective Decree of the Plenum or Presidium of the Supreme Court shall expressly mention that the previous decisions may be reviewed, and the position of the Supreme Court applies retrospectively;
- Secondly, it is forbidden to apply retrospectively the interpretation of the legal provisions that deteriorate the position of the individuals against public agencies and offices (in particular, on pension, housing and other matters);
- Thirdly, the Parliament shall establish a procedural term during which the final decision may be reviewed on the ground of the change of the position of the Supreme Court.
This Decision of the Constitutional Court of Russia concerns only the provisions of the Code of the Civil Procedure (for the disputes between individuals). Yet, we believe that this approach shall also apply to the Code of Arbitrazh Procedure (establishes the rules of judicial procedural procedure between companies) that contains similar provisions.