21.09.2018 — New US Sanctions Against Russia Came Into Effect

The latest batch of US sanctions against Russia related to the “Skripal case” has come into effect in August. Moody’s assessed the risks of the impact of these sanctions on the Russian economy as not critical. However, according to experts, the new sanctions will anyway lead to a slowdown in development of the Russian financial institutions and the Russian economy as whole.

The sanctions against Russia previously introduced by the US Government in response to Moscow’s alleged involvement in the nerve-agent attack in Britain have come into force on August, 27. The sanctions, among other things, concerned the supply of weapons and their elements to the Russian Federation, as well as the issue of licenses for arms exports to Russian state-owned companies.

In addition, sanctions were also imposed on Russia’s financial sector. As for the financial part of the sanctions, Moody’s experts believe that sanctions against state-owned banks are not likely to cause a significant impact to the national banking system, but will reduce the ability of Russian financial institutions to provide loans and promote for the economic growth.

At the same time, the rating agency has not had concerns about the statement of the US State Department about the reduction of the future export of goods to Russia for hundreds of millions of dollars, since these values ​​seem insignificant in comparison with the total volume of trade between the countries estimated at 12.6 billion Dollars. According to Moody’s, the sanctions will not affect the main groups of goods traditionally imported into Russia from the United States, such as civil aircraft and their parts, vehicles, consumer electronics and pharmaceuticals.

20.09.2018 — Amendments On Permitted Use Of Land Will Be Included In Land Code

The Civic Chamber of the Russian Federation is currently discussing the bill introducing amendments to the Land Code of the Russian Federation, which will touch upon the simplification of the procedure for changing the type of permitted use of land, as well as the new rights of members of private farms.

According to these amendments, it is planned to supplement the Land Code with a new chapter, in which the general procedure for establishing, defining and changing the types of permitted use of land plots will be prescribed, and exceptions from the general procedure will be listed. It is also planned to provide tenants and persons having the right of permanent use over land plots, with a right to send a notice for entering information about the selected type of permitted use or about the conditionally permitted use of the land plots to the Unified State Register of the Real Estate Property (EGRN).

The rights of private farm’s members will also be affected by the forthcoming changes. In accordance with the bill, members of private farms are provided with the right to build a house on land plots granted to the farm solely for the purpose of accommodation. In order to avoid possible abuses, the bill stipulates certain restrictions to the parameters of such house (like number of stores, area of the house, etc.), as well as the prohibition of the allocation and further sale of land plots under it.

Based on the results of discussions, the Civic Chamber will prepare its recommendations on improving the bill and will send the revised document to the State Duma for consideration in the first reading.

19.09.2018 — Tax Moratorium Will Be Prolonged For Next Six Years

The Chairman of the Government of the Russian Federation Dmitry Medvedev promised the business community to maintain the previous level of the tax burden for the next six years. At the same time, the business community worries that the real burden on private sector can be increased not at the expense of taxes, but at the expense of increasing the amount of quasi-tax payments. In this regard, the head of the Russian Government announced the preparation of long-awaited amendments to the Tax Code of the Russian Federation relating to the regulation of quasi-tax payments, which will establish a closed list of such payments.

During the Moscow financial forum, Dmitry Medvedev declared that there will be no major changes in the state fiscal policy during the next six years and pointed out some steps that will be taken within the framework of the Russian tax policy. In particular, the threshold for applying the simplified procedure for VAT refund will be reduced, and the deadline for the performance of the cameral tax audit to get reimbursement of this tax will be reduced from three to two months, that should shorten the time period for the reimbursement of these funds from the budget to entrepreneurs.

In addition, the Head of the Government said that a reform of quasi-tax payments will be implemented in the near future. At the moment the legislative framework for such payments is provided not by tax, but by other legislation (such as environmental fee, recycling and resort fees, etc.). In the course of the reform, it is proposed to include a separate chapter in the Russian Tax Code and to establish an exhaustive list of six non-tax payments, agreed as a result of cooperation of the business community with the Government. One of the important guarantees provided as a result of the reform is that state agencies and regional authorities will no longer have powers to establish additional non-tax payments after the amendments to the Russian Tax Code enter into force.

18.09.2018 — Supreme Court: Compensation For Seizure Of Land Plot Shall Be Determined Taking Into Account Market Value Of Analogous Land Plots

The Supreme Court adjudicated a dispute between the company and the state institution on the determination of the amount of compensation for land plots seized for state needs for the construction of a federal highway. Initially, the state institution offered to purchase the plots at a low price, and after the company refused to sell them, the state institution resorted to court. The expert examination determined the market value of the plots in the amount exceeding 6 times the amount proposed by the institution, and thus the institution asked the court to invalidate the expert report because of the methodological violations. The Supreme Court agreed with the institution and sent the case for a new consideration regarding the determination of the amount of compensation for the seizure of the land plots. In its decision the Supreme Court specified several aspects that shall be taken into account in the course of the determination of the fair price of the land plot.

In the case No. А41-89689/2016 the state institution was seizing land plots in the Moscow region from their owners in order to build a new federal highway. For this purpose, it concluded relevant sale and purchase agreements with the owners of land plots and paid the respective compensations for the seizure of the land plots for state needs. However, one of the companies that owned the land plots refused to sign the agreement, it argued that the proposed amount of compensation is significantly lower than the market value of the land plot. This served as a ground for the state institution to file the claim to court on forcible seizure of the land plots.

The court of first instance ordered an expert examination to determine the fair market value of the land plots, and according to the expert report the value of the land plots exceeded the compensation offered by the institution by more than 6 times. Courts of appeal and cassation instances agreed with the decision of the court of the first instance, according to which the institution had to pay a much larger amount of compensation than determined initially.

The institution appealed against the decisions of the courts to the Supreme Court and claimed for the invalidation the findings of the expert report. The state institution argued that the federal appraisal standards had been violated, namely, that when comparing the land plots to analogous, the experts used land plots with the highest price located throughout the whole Moscow region. The state institution also disregarded with the date when these presumably analogous land plots were offered for sale and drew the Supreme Court’s attention to the availability of analogous land plots in the relevant area. The Supreme Court agreed with the arguments of the state institution, abolished the decisions of lower courts that determined the amount of compensation for seized state plots based on the disputed expert report and remanded the case for a new examination.

This case exemplifies the risks of the investors and demonstrates that it is necessary to conduct an in-depth legal due diligence before purchasing the land to minimize the legal risks, including the risk of its seizure for state needs and the respective lengthy litigation in respect of the determination of the amount of compensation.

17.09.2018 — If Contract May Be Performed In Parts, Penalty Is To Be Calculated With Regard To Non-Performed Part

In one of the recent cases a dispute arose between the state customer and the supplier regarding the calculation of penalty for the supply of goods with delay. The contract provided that the goods were to be supplied in two installments, both of which were delivered with delay. Thus, the customer charged penalty on the entire contract price, without the view of the fact that contractual obligations had been performed in part. However, the courts ruled for the supplier, explaining that since separate items to be supplied, according to their characteristics, may be used autonomously and have consumer value for the customer, the penalty must be calculated with regard to the partial performance of the contract, that is, dates and amounts of actual deliveries of the goods shall be taken into account.

In the case at hand (case No. A40-208730/2015), the state customer and the supplier concluded a public procurement contract for the supply of several sets of power plants. The terms of the contract provided that for the late delivery of the goods a penalty shall be charged on the price of the goods that had not been delivered in time. The supplier supplied the goods in two batches, each was delivered late: in the first case, the delay constituted one week, in the second case it was more than a month. The customer accepted the goods delivered in installments, but subsequently charged penalty on the entire contract price from the first day of the delay until the day the contract was performed in full.

The supplier disagreed with this approach, pointing out that although the customer received half of the goods with a minor delay, but long before the delivery of the last installment. The courts of the first, appellate and cassation instances ruled for the supplier, explaining that the sets of equipment, because of their functional and technical properties, may be used autonomously and represent customer value for the customer. Thus, the accrual of penalties on the total contract price without taking into account partial performance of obligations of the delivery of goods is not in accordance with law. The Supreme Court also agreed with these arguments, refusing to accept the customer’s cassation appeal (Ruling of the Russian Supreme Court dated 30.08.2018 on the case N A40-208730/2015).