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Rus­sia sanc­tions 31 for­eign com­pan­ies
On 11 May 2022, the Rus­si­an Gov­ern­ment sanc­tioned 31 en­tit­ies from the EU, US, UK, Singa­pore and Switzer­land and their con­trolled en­tit­ies (the “Sanc­tioned Per­sons”) pur­su­ant to De­cree of the Rus­si­an Pres­id­ent No. 252* dated 3 May 2022 (the “De­cree”). The list of the above men­tioned en­tit­ies is set out in Rus­si­an Gov­ern­ment Reg­u­la­tion No. 851* (the “Reg­u­la­tion”). The Rus­si­an Min­istry of Fin­ance may sub­mit pro­pos­als to the Gov­ern­ment to amend this list.Un­der the De­cree, fed­er­al state au­thor­it­ies, state au­thor­it­ies of con­stitu­ent en­tit­ies of the Rus­si­an Fed­er­a­tion, oth­er state au­thor­it­ies, mu­ni­cip­al au­thor­it­ies, as well as leg­al en­tit­ies and in­di­vidu­als un­der the jur­is­dic­tion of the Rus­si­an Fed­er­a­tion (the “Reg­u­lated Per­sons”) are pro­hib­ited from:lower-al­phaper­form­ing trans­ac­tions (in­clud­ing for­eign trade con­tracts) with Sanc­tioned Per­sons;dis­char­ging out­stand­ing ob­lig­a­tions to Sanc­tioned Per­sons (in­clud­ing ob­lig­a­tions un­der for­eign trade con­tracts); an­d­car­ry­ing out fin­an­cial op­er­a­tions with Sanc­tioned Per­sons as be­ne­fi­ciar­ies. The Rus­si­an Min­istry of Fin­ance is en­titled to is­sue of­fi­cial cla­ri­fic­a­tions for para­graphs a) and b) above, and the Bank of Rus­sia may give cla­ri­fic­a­tions for para­graph c) above.The Reg­u­la­tion also sets out ad­di­tion­al cri­ter­ia for qual­i­fy­ing the fol­low­ing trans­ac­tions as re­stric­ted un­der para­graphs a) and b) above:trans­ac­tions to the be­ne­fit of Sanc­tioned Per­sons; trans­ac­tions provid­ing for the call at Rus­si­an ports of ves­sels owned and/or chartered by, for or on be­half of Sanc­tioned Per­sons; an­dtrans­ac­tions provid­ing for pay­ments or se­cur­it­ies trans­ac­tions in­volving and/or to the be­ne­fit of Sanc­tioned Per­sons.The re­stric­tions lis­ted above will ap­ply if Reg­u­lated Per­sons are aware that the ac­tions are taken to the be­ne­fit of Sanc­tioned Per­sons.The De­cree also im­poses a ban on the ex­port out­side of the Rus­si­an Fed­er­a­tion of products and/or raw ma­ter­i­als pro­duced and/or ex­trac­ted in the Rus­si­an Fed­er­a­tion if they are sup­plied to (i) Sanc­tioned Per­sons, and/or (ii) oth­er per­sons by Sanc­tioned Per­sons.Al­though the Reg­u­la­tion pro­hib­its trans­ac­tions with Sanc­tioned Per­sons only in the case of per­form­ance of the trans­ac­tions and op­er­a­tions un­der para­graphs a) to c) above, we be­lieve that, based on the De­cree, the list of Sanc­tioned Per­sons should also ap­ply for the pur­pose of pro­hib­it­ing rel­ev­ant ex­port op­er­a­tions (un­less oth­er­wise provided for in reg­u­la­tions or of­fi­cial cla­ri­fic­a­tions).Cer­tain trans­ac­tions with Sanc­tioned Per­sons may be al­lowed on the basis of spe­cial per­mits as may be pro­posed to the Gov­ern­ment by the Rus­si­an Min­istry of Fin­ance.We will con­tin­ue to mon­it­or these de­vel­op­ments and keep you in­formed of changes.* In Rus­si­an
The In­tel­lec­tu­al Prop­erty Law Re­view 2022
The coronavir­us pan­dem­ic has con­tin­ued to im­pact all as­pects of life over the past year, re­quir­ing gov­ern­ments, busi­nesses and in­di­vidu­als to ad­just and ad­apt. Now that bor­der re­stric­tions and shut­downs due to the vir­us are lessen­ing and in­ter­na­tion­al trade re­mains high, the need to main­tain the world’s in­ter­con­nec­ted­ness and re­li­ance on in­ter­na­tion­al trade is en­hanced and, at the same time, the stakes in­volved with that trade have in­creased con­sid­er­ably. Against this back­drop, in­tel­lec­tu­al prop­erty prac­ti­tion­ers must nav­ig­ate a vari­ety of leg­al sys­tems and in­tel­lec­tu­al prop­erty laws in which many dif­fer­ences re­main, des­pite some move­ments to­ward har­mon­isa­tion. Read the Rus­sia chapter in the In­tel­lec­tu­al Prop­erty Law Re­view 2022, pre­pared by Ant­on Bankovskiy in early Feb­ru­ary 2022. The chapter provides an over­view of the Rus­si­an reg­u­la­tions in the in­tel­lec­tu­al prop­erty in­dustry.This art­icle was pre­pared for and first pub­lished by The Law Re­views in April 2022. 
Morator­i­um on bank­ruptcy in Rus­sia un­til 1 Oc­to­ber 2022 already im­pact­ing...
The Rus­si­an Gov­ern­ment has in­tro­duced* a morator­i­um on cred­it­ors fil­ing bank­ruptcy cases from 1 April 2022 and un­til 1 Oc­to­ber 2022. The new morator­i­um (un­like the COV­ID-re­lated morator­i­um of 2020) ap­plies by de­fault to all in­di­vidu­als, in­di­vidu­al en­tre­pren­eurs and leg­al en­tit­ies (ex­cept for cer­tain real es­tate de­velopers who are debt­ors that have already been in­cluded on the Re­gister of Prob­lem­at­ic Prop­er­ties).How does the morator­i­um af­fect cred­it­ors’ rights?Cred­it­ors can­not file a new bank­ruptcy pe­ti­tion against any debt­or un­til 1 Oc­to­ber 2022 un­less such a debt­or has de­clared a waiver of the morator­i­um. Cred­it­ors’ ap­plic­a­tions filed dur­ing the morator­i­um peri­od with a com­mer­cial court will be re­turned. A cred­it­or’s no­tice of in­ten­tion to ap­ply for bank­ruptcy of a debt­or is also not sub­ject to pub­lic­a­tion in the pub­lic re­gister un­til the end of the morator­i­um.The morator­i­um does not ap­ply to bank­ruptcy cases that have already been ini­ti­ated. Thus, courts will hear as usu­al cases in which the courts have ruled on the ac­cept­ance of a bank­ruptcy pe­ti­tion be­fore 1 April.Debt­ors will have the dis­cre­tion to waive ap­plic­a­tion of the morator­i­um, which will mean that bank­ruptcy pro­ceed­ings can be ini­ti­ated against them and oth­er en­vis­aged re­stric­tions can be lif­ted (see sec­tion be­low). To waive the morator­i­um, the rel­ev­ant in­form­a­tion must be entered in the Uni­fied Fed­er­al Re­gister of Bank­ruptcy In­form­a­tion.Hav­ing said that, the morator­i­um does not pre­vent debt­ors from fil­ing for their own bank­ruptcy on their own ini­ti­at­ive. However, as a gen­er­al rule, dur­ing the morator­i­um peri­od, the fail­ure of man­age­ment to file a bank­ruptcy pe­ti­tion – if there are signs of bank­ruptcy or in­solv­ency – does not res­ult in man­age­ment be­ing held sub­si­di­ar­ily li­able for the debt­or’s ob­lig­a­tions (un­less signs had already oc­curred be­fore the morator­i­um was in­tro­duced).How does a morator­i­um af­fect on­go­ing busi­ness op­er­a­tions?The morator­i­um already af­fects busi­nesses by im­pos­ing cer­tain re­stric­tions not re­lated to bank­ruptcy pro­ceed­ings, such as:Par­ti­cipants and share­hold­ers are not al­lowed to exit the com­pany, and debt­ors can­not buy back out­stand­ing shares or par­ti­cip­at­ory in­terests.It is not per­mit­ted to ter­min­ate the debt­or’s ob­lig­a­tions by set-off if this would vi­ol­ate the or­der of pri­or­ity of cred­it­ors’ claims.It is not per­mit­ted to pay di­vidends or in­come on par­ti­cip­at­ory in­terests or to dis­trib­ute profits among the debt­or’s par­ti­cipants.No for­feits, fines, pen­al­ties and oth­er fin­an­cial sanc­tions will be ap­plied for fail­ure to ful­fil mon­et­ary ob­lig­a­tions and ob­lig­at­ory pay­ments.No fore­clos­ure of pledged prop­erty, wheth­er through court or out-of-court pro­ceed­ings, is al­lowed.En­force­ment pro­ceed­ings on prop­erty claims arising pri­or to the morator­i­um are sus­pen­ded (in this case, seizures on the debt­or’s prop­erty and oth­er re­stric­tions on the dis­pos­al of the debt­or’s prop­erty are not lif­ted).What can cred­it­ors do be­fore the morator­i­um ex­pires?The morator­i­um sig­ni­fic­antly af­fects the cred­it­or’s means for en­for­cing the debt­or’s ob­lig­a­tions. Dur­ing the morator­i­um peri­od, we re­com­mend that cred­it­ors:file a law­suit to col­lect the ex­ist­ing debt from the debt­or in or­der to be able to col­lect the debt through en­force­ment pro­ceed­ings or to ini­ti­ate bank­ruptcy pro­ceed­ings after the end of the morator­i­um;ob­tain writs of ex­e­cu­tion and ap­ply to bailiffs or a bank to col­lect the debt in the fu­ture. Al­though en­force­ment pro­ceed­ings are sus­pen­ded for the dur­a­tion of the morator­i­um, this does not de­prive the cred­it­or of the right to ob­tain a writ of ex­e­cu­tion. Courts con­tin­ue to is­sue writs of ex­e­cu­tion and en­force­ment pro­ceed­ings may be ini­ti­ated on their basis. No en­force­ment is car­ried out by bailiffs dur­ing the morator­i­um peri­od. If the cred­it­or ap­plies to a bank (or cred­it or­gan­isa­tion), the bank will ac­cept the writ of ex­e­cu­tion, but will leave it un­ex­ecuted un­til the end of the morator­i­um. However, dur­ing the sus­pen­ded en­force­ment pro­ceed­ings, the bailiff is still en­titled to seize or pro­hib­it the dis­pos­al of the debt­or’s prop­erty in or­der to pre­serve the pos­sib­il­ity of fore­clos­ure after the morator­i­um has been can­celled;mon­it­or the debt­or’s fin­an­cial situ­ation and the pre­ser­va­tion of its prop­erty. The morator­i­um does not im­pose a ban on cred­it­or chal­len­ging the debt­or’s di­vest­ment trans­ac­tions or the ap­plic­a­tion of in­ter­im meas­ures in court dis­putes and en­force­ment pro­ceed­ings in re­la­tion to the debt­or’s as­sets (pro­hib­i­tions on the dis­pos­al of prop­erty or seizure);take great care in gath­er­ing and pre­par­ing evid­ence of losses to suc­cess­fully prove these losses. Since no pen­al­ties for the debt­or’s fail­ure to ful­fil its mon­et­ary ob­lig­a­tions are pay­able from the be­gin­ning of the morator­i­um, the cred­it­or is en­titled to re­cov­er dam­ages from the debt­or without hav­ing to wait un­til the end of the morator­i­um to com­pensate for its losses.* In Rus­si­an
What will hap­pen to for­eign in­tel­lec­tu­al prop­erty in Rus­sia?
In re­sponse to in­ter­na­tion­al sanc­tions, Rus­sia is­sued a series of reg­u­la­tions in the area of in­tel­lec­tu­al prop­erty.Dur­ing the last two months, there have been alarm­ing sig­nals that the in­tel­lec­tu­al prop­erty of for­eign right­shold­ers could be threatened or lose pro­tec­tion in Rus­sia. However, these con­clu­sions ap­pear pre­ma­ture.In re­sponse to the cur­rent de­vel­op­ments, the at­ten­tion of vari­ous mar­ket play­ers and stake­hold­ers has been drawn to the fol­low­ing is­sues:• Can Rus­si­an com­pan­ies use for­eign pat­en­ted in­ven­tions, util­ity mod­els or in­dus­tri­al designs without ob­tain­ing con­sent or without the need to pay the right­shold­ers?• Do the same rules ap­ply to oth­er types of in­tel­lec­tu­al prop­erty?• What does the in­tro­duc­tion of par­al­lel im­port­a­tion in Rus­sia mean for for­eign com­pan­ies?• Is trade­mark squat­ting now al­lowed in Rus­sia?• Fol­low­ing the so-called “Peppa Pig” case, will the rights of for­eign com­pan­ies be pro­tec­ted be­fore the Rus­si­an courts?Based on ex­ist­ing le­gis­la­tion and case-law, the fol­low­ing an­swers to these ques­tions con­firm that in­tel­lec­tu­al prop­erty will re­main pro­tec­ted in Rus­sia.Use of for­eign pat­en­ted in­ven­tions or in­dus­tri­al design­sOn 6 March 2022, the Rus­si­an Gov­ern­ment (the “Gov­ern­ment”) is­sued De­cree No. 299*, which amended the meth­od for de­term­in­ing the amount of com­pens­a­tion to a right­shold­er for the use of its pat­ent-pro­tec­ted ob­ject without con­sent (“Com­puls­ory Li­cens­ing”). For pat­enthold­ers from for­eign states that com­mit “un­friendly acts” against Rus­sia (“Un­friendly States”), this com­pens­a­tion was re­duced to zero.It is im­port­ant to note that this pro­ced­ure only ap­plies when the Gov­ern­ment trig­gers the mech­an­ism of Com­puls­ory Li­cens­ing set out in Art­icle 1360 of the Rus­si­an Civil Code.The art­icle al­lows for the use of an in­ven­tion, util­ity mod­el or in­dus­tri­al design without the con­sent of the pat­entee, sub­ject to the fol­low­ing lim­it­a­tions:•  the pro­vi­sions may only be ap­plied in the lim­ited cases strictly laid down in the art­icle;•  this de­cision is taken by a sep­ar­ate Gov­ern­ment de­cree and ex­tends solely to the spe­cif­ic pat­ent held by a par­tic­u­lar right­shold­er for a lim­ited peri­od of time;•  such a de­cision gives this pat­ent use to a spe­cified com­pany, not to any per­son or en­tity;•  the pat­entee must be provided with the com­pens­a­tion es­tab­lished by Gov­ern­ment de­cree (for com­pan­ies from “Un­friendly States” – zero, for com­pan­ies from oth­er coun­tries – a 0.5% roy­alty, as has been the case since 2021);•  this de­cision does not lim­it the right­shold­er’s abil­ity to ex­er­cise its rights with­in the Rus­si­an Fed­er­a­tion or to li­cense these rights to someone else.An­swer­ing the ques­tion of wheth­er Rus­si­an com­pan­ies are ob­liged to pay com­pens­a­tion to pat­ent own­ers from “Un­friendly States” when us­ing their pat­ent-pro­tec­ted ob­jects, the an­swer is yes, they do. The Gov­ern­ment can make ex­cep­tions for a par­tic­u­lar Rus­si­an com­pany and a par­tic­u­lar pat­ent.As for ex­cep­tions, Art­icle 1360 of the Rus­si­an Civil Code has been used only twice for the peri­od of its ex­ist­ence since 2008, and in both cases it was re­lated to vi­tal drugs.In ad­di­tion, it should be re­called that Art­icle 1360 of the Rus­si­an Civil Code was ad­op­ted in ac­cord­ance with the pro­vi­sions of Art­icle 31 of the TRIPS Agree­ment and it is sim­il­ar to the same leg­al pro­vi­sions in oth­er coun­tries.Can Com­puls­ory Li­cens­ing be ap­plied to oth­er types of in­tel­lec­tu­al prop­erty?Art­icle 1360 of the Rus­si­an Civil Code (the rule on Com­puls­ory Li­cens­ing) ap­plies only to in­ven­tions, util­ity mod­els or in­dus­tri­al designs and can­not be ap­plied to oth­er in­tel­lec­tu­al prop­erty, in­clud­ing soft­ware or trade­marks.Fur­ther­more, there is no oth­er sim­il­ar reg­u­la­tion for oth­er in­tel­lec­tu­al prop­erty ob­jects in Rus­sia.Par­al­lel im­port­a­tion in Rus­siaOn 29 March 2022, the Gov­ern­ment is­sued De­cree No. 506*, which partly leg­al­ised par­al­lel im­port­a­tion, by es­tab­lish­ing the in­ter­na­tion­al prin­ciple of ex­haus­tion of rights to in­ven­tions, util­ity mod­els, in­dus­tri­al designs and trade­marks.This means that if genu­ine goods have been leg­ally put on the mar­ket by the right­shold­er in any part of the world, these goods can then be freely sold in the ter­rit­ory of Rus­sia without the ad­di­tion­al con­sent of the right­shold­er. This prin­ciple will not ap­ply to all goods, but only to those lis­ted in a spe­cial list* pre­pared by the Rus­si­an Min­istry of In­dustry and Trade. The De­cree is meant for products of com­pan­ies that de­clared their exit from the Rus­si­an mar­ket and do not im­port their products to Rus­sia.The Rus­si­an Min­is­ter of In­dustry and Trade noted* that the list of goods al­lowed for par­al­lel im­ports will be nar­rowed (goods will be ex­cluded from the list) if for­eign com­pan­ies de­cide to con­tin­ue op­er­at­ing in Rus­sia and sup­ply their products to the Rus­si­an mar­ket.A sim­il­ar sys­tem with cer­tain spe­cif­ic fea­tures also ap­plies in the US.Is trade­mark squat­ting now al­lowed in Rus­sia?Over the past few weeks, amid news of for­eign com­pan­ies leav­ing the coun­try, sev­er­al dozen trade­mark ap­plic­a­tions have been sub­mit­ted to the Rus­si­an Trade­mark Of­fice, “Rospat­ent”, that were identic­al or con­fus­ingly sim­il­ar to well-known for­eign brands.However, the pro­ced­ure for re­gis­ter­ing a trade­mark at Rospat­ent, as in any oth­er pat­ent of­fice around the world, gen­er­ally con­sists of the fol­low­ing steps:•  sub­mis­sion of a trade­mark ap­plic­a­tion to the pat­ent of­fice for re­gis­tra­tion;•  a trade­mark ex­am­in­a­tion (in­clud­ing check­ing wheth­er the re­gis­tra­tion in­fringes someone else’s rights on their trade­marks);•  a trade­mark re­gis­tra­tion.Any­one is en­titled to ap­ply for the re­gis­tra­tion of a trade­mark, but this does not mean that any mark will be re­gistered. In fact, Rospat­ent has con­sist­ently denied re­gis­ter­ing des­ig­na­tions even dis­tantly re­sem­bling re­gistered trade­marks.Moreover, on 1 April 2022, as the is­sue be­came highly pub­li­cised, Rospat­ent re­leased its po­s­i­tion* re­gard­ing trade­marks sim­il­ar to well-known for­eign brands, not­ing that a pre­vi­ously re­gistered identic­al or sim­il­ar trade­mark known in Rus­sia pre­vents the re­gis­tra­tion of the trade­mark in ques­tion.Will the rights of for­eign com­pan­ies be pro­tec­ted be­fore Rus­si­an courts?The dis­cus­sion about the in­ab­il­ity of for­eign com­pan­ies to de­fend their rights be­fore Rus­si­an courts began with the “Peppa Pig” case*.On 3 March 2022, the Com­mer­cial Court of the Kirov Re­gion dis­missed the law­suit of a UK com­pany for the trade­mark in­fringe­ment of the Peppa Pig char­ac­ters, call­ing the very fact of go­ing to court an ab­use of rights, be­cause the com­pany is re­gistered in a state that has im­posed sanc­tions against Rus­sia.The case has been strongly cri­ti­cised by the Rus­si­an busi­ness com­munity. The de­cision is not cur­rently in force and is be­ing re­viewed by the court of ap­peal.In oth­er words, as of today, no judg­ments in Rus­sia have been fi­nal­ised that would deny a for­eign com­pany pro­tec­tion of its rights on the grounds that it is re­gistered in an “Un­friendly State”.Moreover, later judg­ments rais­ing the is­sue of the “un­friendly” ori­gin of com­pan­ies have not fol­lowed this ap­proach. The courts reasoned that the ori­gin of an en­tity does not in it­self in­dic­ate an ab­use of rights by that en­tity. This reas­on­ing has been re­flec­ted in the fol­low­ing judg­ments:•  De­cision* of the Com­mer­cial Court of the Chelyab­insk Re­gion dated 29 March 2022 in case No. A76-42835/2021;•  De­cision* of the Com­mer­cial Court of Mo­scow dated 31 March 2022 in case No. A40-162262/2020;•  De­cision* of the Fifth Com­mer­cial Court of Ap­peal dated 1 April 2022 in case No. A51-20464/2021;•  De­cision* of the Com­mer­cial Court of the Krasnodar Ter­rit­ory dated 4 April 2022 in case No. A32-4335/2022;•  De­cision* of the Com­mer­cial Court of the Re­pub­lic of Al­tai dated 4 April 2022 in case No. A02-31/2022;•  De­cision* of the Com­mer­cial Court of the Re­pub­lic of Ud­mur­tia dated 8 April 2022 in case No. A71-16168/2021.Con­clu­sion­Due to re­cent events, Rus­si­an in­tel­lec­tu­al prop­erty law has un­der­gone changes, but these al­ter­a­tions have not un­der­mined the pro­tec­tion of in­tel­lec­tu­al prop­erty rights for for­eign com­pan­ies. Mean­while, many fea­tures of the new laws have been taken out of con­text and mis­rep­res­en­ted.In es­sence, all counter-sanc­tions taken by the Gov­ern­ment are primar­ily eco­nom­ic in nature, aimed at sup­port­ing the eco­nomy (e.g. lim­it­ing the with­draw­al of cur­rency) and de­liv­er­ing prop­er coun­ter­meas­ures (e.g. re­stric­tions on flights or trans­port). Meas­ures in the area of in­tel­lec­tu­al prop­erty are pin­pointed and aimed at pro­tect­ing spe­cif­ic in­terests as is the case with Com­puls­ory Li­cens­ing, which was only used in the past in cases of vi­tally needed drugs.Thus, in­tel­lec­tu­al prop­erty is still pro­tec­ted by law and leg­al prac­tices, both for Rus­si­an and for­eign com­pan­ies.* In Rus­si­an
En­sur­ing the sus­tain­able op­er­a­tion of air­craft and sup­port­ing Rus­si­an civil...
Re­cently ad­op­ted acts amend the pro­ced­ure for the re­gis­tra­tion of rights to and trans­ac­tions with air­craft, as well as the pro­ced­ure for per­form­ing agree­ments on the lease of for­eign air­craft and air­craft en­gines. The amend­ments were ad­op­ted as meas­ures to counter the ef­fects of in­ter­na­tion­al sanc­tions on Rus­si­an civil avi­ation.Amend­ments re­gard­ing the pro­ced­ure for re­gis­ter­ing air­craft and trans­ac­tions with such as­set­sOn 14 March 2022, Fed­er­al Law* No. 56-FZ amended the Rus­si­an Air Code and oth­er Rus­si­an le­gis­lat­ive acts (the “Law”).The Law has ves­ted the Rus­si­an Gov­ern­ment with the powers in 2022 to de­term­ine the pro­ced­ure of state re­gis­tra­tion of civil air­craft in the Rus­si­an State Re­gister of Civil Air­craft, the rights to and trans­ac­tions with air­craft. To im­ple­ment these powers, on 19 March 2022 the Gov­ern­ment ad­op­ted Reg­u­la­tion* 411.Reg­u­la­tion 411 es­tab­lishes the fea­tures of re­gis­tra­tion for civil air­craft owned by lessors from “un­friendly” for­eign states, the list of which is com­piled by the Gov­ern­ment, and op­er­ated by Rus­si­an less­ees. The list of the “un­friendly” states is com­prised of, in par­tic­u­lar, EU mem­ber states (in­clud­ing Ire­land), US, UK and Singa­pore.Thus it is no longer re­quired to provide for the pur­poses of re­gis­tra­tion of air­craft:doc­u­ments evid­en­cing the own­er­ship of the op­er­ated air­craft (the ap­plic­ants should only sub­mit cop­ies of the lease agree­ments); an­da doc­u­ment evid­en­cing the ex­clu­sion of the op­er­ated air­craft from the for­eign re­gister of the civil air­craft, provided that the ap­plic­ant sub­mits a no­tice or let­ter from the com­pet­ent au­thor­ity of the coun­try in which the air­wor­thi­ness cer­ti­fic­ate of the op­er­ated air­craft was can­celled or sus­pen­ded.In ad­di­tion, the Law has re­duced the term of state re­gis­tra­tion of rights to air­craft in Rus­sia from one month to ten days.Pro­ced­ure for per­form­ing ob­lig­a­tions un­der con­tracts on lease of air­craft and air­craft en­ginesPur­su­ant to the Law, on 19 March 2022 the Gov­ern­ment ad­op­ted Reg­u­la­tion* 412 spe­cify­ing the fea­tures of the per­form­ance of agree­ments on lease of the op­er­ated air­craft and air­craft en­gines op­er­ated by Rus­si­an less­ees and owned by lessors of the “un­friendly” states (the “Lease Agree­ments”). The pro­vi­sions of Reg­u­la­tion 412 ap­ply to Lease Agree­ments entered in­to be­fore 24 Feb­ru­ary 2022.Set­tle­ments un­der the Lease Agree­ments must be made in a spe­cial man­ner, namely Rus­si­an res­id­ents must make lease and oth­er pay­ments un­der the con­tracts provid­ing for the ac­quis­i­tion of, lease of air­craft, aux­il­i­ary power units and/or air­craft en­gines (the “Ob­lig­a­tions”) to for­eign per­sons (and their con­trolled per­sons, ex­cept for those re­gistered in Rus­sia) con­nec­ted with the “un­friendly” states (the “Re­stric­ted Per­sons”) by cred­it­ing funds in roubles to a type “S” ac­count opened with a Rus­si­an bank in the name of a lessor that is a Re­stric­ted Per­son.(For more de­tails, see our pre­vi­ous eAl­ert: “Rus­si­an Pres­id­ent signs de­cree on the tem­por­ary pro­ced­ure for pay­ments to cer­tain cred­it­ors”.)The Ob­lig­a­tions to com­pan­ies which are Re­stric­ted Per­sons will be deemed duly per­formed in 2022 if they are dis­charged to:some of their af­fil­i­ated res­id­ent com­pan­ies by trans­fer­ring funds to such a com­pany’s ac­count with a Rus­si­an bank or VEB.RF state cor­por­a­tion in roubles (re­gard­less of the cur­rency of the Ob­lig­a­tion) in the amount of the rouble equi­val­ent at the Bank of Rus­sia’s of­fi­cial ex­change rate as of the pay­ment date; and­some of their af­fil­i­ated non-res­id­ent com­pan­ies which are not Re­stric­ted Per­sons by trans­fer­ring funds in the na­tion­al cur­rency of the state of in­cor­por­a­tion of such com­pan­ies or in roubles (re­gard­less of the cur­rency of the Ob­lig­a­tion) in the amount of the rouble equi­val­ent at the Bank of Rus­sia’s of­fi­cial ex­change rate as of the pay­ment date.A de­tailed pro­ced­ure for mak­ing set­tle­ments un­der the Ob­lig­a­tions to the per­sons spe­cified above is set out in the rules es­tab­lished by Gov­ern­ment Reg­u­la­tion* No. 635 dated 11 April 2022.Oth­er pro­ced­ures for dis­char­ging ob­lig­a­tion­sThe Rus­si­an Gov­ern­ment Com­mis­sion for Con­trol over For­eign In­vest­ments is en­titled to is­sue per­mis­sions to dis­charge the Ob­lig­a­tions to Re­stric­ted Per­sons not in the spe­cial man­ner de­scribed above, but in ac­cord­ance with the pro­vi­sions of the con­tract or oth­er­wise.Ad­di­tion­al pro­vi­sions­Less­ees are ob­liged to en­sure the op­er­a­tion, main­ten­ance and re­pair of the op­er­ated air­craft, air­craft en­gines, in­sur­ance of the op­er­ated air­craft and re­in­sur­ance of the risks con­nec­ted with in­sur­ing the op­er­ated air­craft.The less­ee’s ex­port of the op­er­ated air­craft and air­craft en­gines out­side of Rus­sia is gen­er­ally pro­hib­ited sub­ject to cer­tain ex­cep­tions.We will con­tin­ue to mon­it­or these de­vel­op­ments and keep you in­formed of any changes.* In Rus­si­an
Rus­si­an Pres­id­ent signs de­cree on ad­di­tion­al counter sanc­tions meas­ures
On 18 March 2022, De­cree of the Rus­si­an Pres­id­ent No. 126* “On Ad­di­tion­al Tem­por­ary Eco­nom­ic Meas­ures to En­sure Fin­an­cial Sta­bil­ity of the Rus­si­an Fed­er­a­tion in the Sphere of Cur­rency Reg­u­la­tion” (the “De­cree”) entered in­to force.Ad­di­tion­al powers of the Cent­ral Bank of the Rus­si­an Fed­er­a­tion (the “CBR”)Un­der the De­cree, the Board of Dir­ect­ors of the CBR may lim­it the amount of:•       pre­pay­ments or ad­vance pay­ments made by non-res­id­ent leg­al en­tit­ies (oth­er than cred­it in­sti­tu­tions) un­der cer­tain con­tracts with for­eign res­id­ents: from 1 April 2022*, such pay­ment may not ex­ceed 30% of the amount of ob­lig­a­tions un­der con­tracts for the pro­vi­sion by a non-res­id­ent of ser­vices, per­form­ance of works, trans­fer of in­form­a­tion and res­ults of in­tel­lec­tu­al activ­it­ies, if the amount of ob­lig­a­tions un­der the con­tract ex­ceeds USD 15,000;   •    funds trans­fers from non-res­id­ent leg­al en­tit­ies re­gistered in the states lis­ted in Rus­si­an Gov­ern­ment De­cree No. 430-r dated 5 March 2022 (the “Un­friendly States”) or to ac­counts or banks and oth­er fin­an­cial mar­ket or­gan­isa­tions in the Un­friendly States; and   •    for­eign cur­rency that can be pur­chased by non-res­id­ent leg­al en­tit­ies in the do­mest­ic for­eign ex­change mar­ket: from 1 April 2022*, such en­tit­ies can­not pur­chase for­eign cur­rency.Any trans­ac­tions in ex­cess of such lim­its must be ap­proved by the Gov­ern­ment Com­mis­sion for the Con­trol over For­eign In­vest­ments in the Rus­si­an Fed­er­a­tion (the “Com­mis­sion”).Ad­di­tion­ally, un­til 31 Decem­ber 2022*, res­id­ents will have to ob­tain per­mis­sions from the CBR to pay for a share, con­tri­bu­tion, or unit in the as­sets of a non-res­id­ent leg­al en­tity or a con­tri­bu­tion to a non-res­id­ent un­der a simple part­ner­ship agree­ment with in­vest­ments in the form of cap­it­al con­tri­bu­tions (a joint ven­ture agree­ment).The CBR may also al­low* res­id­ents to sell for­eign cur­rency pro­ceeds with­in more than three busi­ness days or not to sell for­eign cur­rency pro­ceeds that will be ap­plied for the dis­charge of ob­lig­a­tions in for­eign cur­rency un­der fa­cil­ity agree­ments with Rus­si­an banks (it is also pos­sible to sell less than 80% of the total amount of for­eign cur­rency pro­ceeds on the basis of the Com­mis­sion’s per­mis­sion).Dis­charge of ob­lig­a­tions un­der bank ac­count (de­pos­it) agree­ments entered in­to with cer­tain bank­sUntil 1 Septem­ber 2022, ob­lig­a­tions in for­eign cur­rency un­der bank ac­count (de­pos­it) agree­ments entered in­to by res­id­ent leg­al en­tit­ies with cred­it in­sti­tu­tions in re­spect of which re­strict­ive meas­ures have been in­tro­duced by the Un­friendly States after the oc­cur­rence of such ob­lig­a­tions are deemed duly per­formed if they are dis­charged in Roubles.Cla­ri­fic­a­tions of pre­vi­ous de­creesThe De­cree also con­tains some cla­ri­fic­a­tions on the ap­plic­a­tion of De­crees 79* and 81*.The De­cree per­mits cred­it­ing for­eign cur­rency to ac­counts or de­pos­its of of­fi­cial rep­res­ent­at­ive of­fices of the Rus­si­an Fed­er­a­tion, rep­res­ent­at­ive of­fices of fed­er­al ex­ec­ut­ive bod­ies, for­eign rep­res­ent­at­ive of­fices and branches of res­id­ent leg­al en­tit­ies, and their em­ploy­ees that are opened with for­eign banks and fin­an­cial in­sti­tu­tions without ob­tain­ing the Com­mis­sion’s per­mis­sion, which is re­quired un­der De­crees 79 and 81 for cred­it­ing by res­id­ents of for­eign cur­rency to their ac­counts (de­pos­its) opened with for­eign banks and oth­er fin­an­cial or­gan­isa­tions.Also, the re­quire­ments of De­cree 79 on the sale of for­eign cur­rency pro­ceeds do not ap­ply to for­eign cur­rency cred­ited in con­nec­tion with im­ple­ment­ing pro­jects re­lated to the pro­duc­tion of li­que­fied nat­ur­al gas in the Rus­si­an Arc­tic to the ac­counts of or­gan­isa­tions that im­ple­ment such pro­jects.In ad­di­tion, not­with­stand­ing the re­quire­ments of De­cree 81, it is now pos­sible to grant loans and cred­its to res­id­ents who are con­trolled by per­sons from the Un­friendly States without ob­tain­ing the Com­mis­sion’s per­mis­sion.Ex­emp­tions for per­sons con­trolled by Rus­si­an be­ne­fi­ciar­ies­For the pur­poses of the De­cree, per­sons con­trolled by Rus­si­an be­ne­fi­ciar­ies (leg­al and nat­ur­al per­sons), in­clud­ing through for­eign per­sons, are not re­cog­nised as per­sons re­lated to the Un­friendly States, if in­form­a­tion on such con­trol is dis­closed to the Rus­si­an tax au­thor­it­ies.We will con­tin­ue to mon­it­or these de­vel­op­ments and keep you in­formed of any fur­ther changes.* In Rus­si­an
Rus­si­an Fed­er­al Tax Ser­vice gives re­com­mend­a­tions on pay­ing VAT on elec­tron­ic...
As we pre­vi­ously re­por­ted, for­eign pro­viders of elec­tron­ic ser­vices may face prac­tic­al dif­fi­culties with pay­ing VAT to the Rus­si­an budget.As a solu­tion to this prob­lem, in its Let­ter No. SD-4-3/[email protected]* dated 30 March 2022 the Fed­er­al Tax Ser­vice of Rus­sia (the “FTS”) gave a num­ber of re­com­mend­a­tions on pay­ing VAT for elec­tron­ic ser­vices provided by for­eign en­tit­ies.The FTS re­com­mends that Rus­si­an cus­tom­ers of elec­tron­ic ser­vices cal­cu­late, with­hold and pay VAT them­selves as tax agents. It is also re­com­men­ded that Rus­si­an cus­tom­ers (i.e. leg­al en­tit­ies and self-em­ployed en­tre­pren­eurs) in­form for­eign ser­vice pro­viders that they act as tax agents and pay VAT to the Rus­si­an budget.It is cla­ri­fied that in such a case, Rus­si­an tax au­thor­it­ies will have no grounds to re­quire that the for­eign en­tity re­peatedly pay VAT to the budget and re­cog­nise the rel­ev­ant trans­ac­tions in its VAT tax re­turns. By vol­un­tar­ily with­hold­ing VAT, Rus­si­an cus­tom­ers re­tain the right to de­duct the in­put VAT. This po­s­i­tion is in line with the stand­ard ap­proach pre­vi­ously set out by the FTS in its Let­ter No. SD-4-3/[email protected]* dated 24 April 2019.   At the same time, this re­com­mend­a­tion of the FTS seems to be more rel­ev­ant for fu­ture pay­ments for elec­tron­ic ser­vices to for­eign ser­vice pro­viders and does not re­solve the prob­lem with pay­ing VAT for the first quarter of 2022, if the cus­tom­er failed to vol­un­tar­ily pay VAT to the budget due from pay­ments made to the for­eign ser­vice pro­vider.Fur­ther­more, this re­com­mend­a­tion will not ap­ply to for­eign ser­vice pro­viders if elec­tron­ic ser­vices are provided to cus­tom­ers who are in­di­vidu­als.Fi­nally, in its new let­ter the FTS does not cla­ri­fy wheth­er pro­vi­sions re­gard­ing the vol­un­tary pay­ment of VAT to the budget and the eli­gib­il­ity of Rus­si­an cus­tom­ers for VAT de­duc­tion ap­ply if the for­eign pro­vider of elec­tron­ic ser­vices is not re­gistered with Rus­si­an tax au­thor­it­ies. Ac­cord­ing to the lit­er­al in­ter­pret­a­tion of Art­icle 171 (2.1) of the Rus­si­an Tax Code, VAT de­duc­tion is pos­sible only sub­ject to sup­port­ing doc­u­ments show­ing the iden­ti­fic­a­tion de­tails of a for­eign e-ser­vices pro­vider as be­ing tax-re­gistered in Rus­sia.Thus, the new cla­ri­fic­a­tions provided by the FTS demon­strate the com­mit­ment of Rus­si­an tax au­thor­it­ies to ad­dress­ing the prob­lems that for­eign busi­nesses cur­rently face. However, they do not solve all chal­lenges in pay­ing VAT to the Rus­si­an budget, in­clud­ing for the first quarter of 2022. Giv­en the above, for­eign pro­viders of elec­tron­ic ser­vices should dis­cuss with their for­eign banks in ad­vance wheth­er it is pos­sible to pay VAT to the Rus­si­an budget, and to con­sider al­tern­at­ive pay­ment op­tions (e.g. via in­ter­me­di­ar­ies).We will con­tin­ue to mon­it­or the situ­ation and keep you in­formed of any fur­ther changes.* In Rus­si­an
UK halts co­oper­a­tion with Rus­sia on tax in­form­a­tion ex­changes
On 17 March 2022, the UK Treas­ury an­nounced the sus­pen­sion of the ex­change of tax in­form­a­tion with Rus­sia.The sus­pen­sion of the ex­change of tax in­form­a­tion means that Rus­sia will not re­ceive in­form­a­tion un­der any of the cur­rent ex­change of in­form­a­tion mech­an­isms with the UK, in­clud­ing the Ex­change of In­form­a­tion on Re­quest (EoIR) and Coun­try-by-Coun­try Re­port­ing (Cb­CR).Fol­low­ing the UK, the Chan­nel Is­lands (Jer­sey and Guern­sey) and the Isle of Man are also sus­pend­ing ex­change of tax in­form­a­tion with Rus­sia.Com­ment­sIt is worth not­ing that the UK sus­pen­ded the ex­change of fin­an­cial in­form­a­tion un­der the Com­mon Re­port­ing Stand­ard (CRS) with Rus­sia in 2019. There­fore, the cur­rent de­cision does not en­tail any sig­ni­fic­ant changes for Rus­si­an tax­pay­ers in terms of is­sues re­lated to the ex­change of in­form­a­tion un­der the CRS.The ter­min­a­tion of the ex­change of in­form­a­tion on re­quest (EoIR) could have a neg­at­ive im­pact on the con­firm­a­tion of eli­gib­il­ity for tax re­lief un­der the cur­rent double tax­a­tion treaty. More gen­er­ally, it lim­its ac­cess to in­form­a­tion on UK coun­ter­parties of Rus­si­an tax­pay­ers, which is in­form­a­tion that can be re­ques­ted as part of audits in Rus­sia.In the ab­sence of the pos­sib­il­ity to re­quest in­form­a­tion from for­eign tax au­thor­it­ies, Rus­si­an tax au­thor­it­ies will have for the pur­pose of audits only those doc­u­ments and in­form­a­tion avail­able to the tax­pay­er, which the tax­pay­er was able to ob­tain from for­eign coun­ter­parties or from pub­lic sources. As prac­tice shows, tax au­thor­it­ies may refer to the fact that such in­form­a­tion is in­suf­fi­cient, and, as a res­ult, tax be­ne­fits will be denied. At the same time, in some cases a lack of ac­cess to for­eign in­form­a­tion may, on the con­trary, pre­vent tax au­thor­it­ies from mak­ing ad­di­tion­al tax as­sess­ments, which has been en­vis­aged as one of the pur­poses of sus­pend­ing the data ex­change.The ces­sa­tion of the ex­change of coun­try-by-coun­try re­ports (Cb­CR) will res­ult in Rus­si­an tax au­thor­it­ies not be­ing able to ob­tain a re­port from the UK side, re­quir­ing the au­thor­it­ies to re­quest it dir­ectly from Rus­si­an tax­pay­ers be­long­ing to UK-led mul­tina­tion­al groups of com­pan­ies (MGCs, a Rus­si­an equi­val­ent of MNE). At the same time, the right not to sub­mit a coun­try re­port at the re­quest of tax au­thor­it­ies with ref­er­ence to Art­icle 105.16-3(6) of the Rus­si­an Tax Code will be lost. In prac­tice, this could lead to an in­crease in the ad­min­is­trat­ive bur­den on Rus­si­an tax­pay­ers and the pos­sible im­pos­i­tion of pen­al­ties in the event of fail­ure to provide the re­ques­ted in­form­a­tion, giv­en the ex­ist­ing prac­tic­al dif­fi­culties with the ex­change of in­form­a­tion in an MGC with Rus­si­an par­ti­cip­a­tion.Rus­sia may an­nounce mir­ror meas­ures in the near fu­ture.For ex­ample, in re­sponse to the UK’s ac­tions, Rus­si­an tax au­thor­it­ies may in­clude the UK in the List of States (Ter­rit­or­ies) that do not ex­change in­form­a­tion for tax pur­poses with the Rus­si­an Fed­er­a­tion, ap­proved by Or­der No. MMV-7-17/[email protected] of the Fed­er­al Tax Ser­vice dated 11 Oc­to­ber 2019 (the “List”).The in­clu­sion of the UK in this List will have im­plic­a­tions for the tax­a­tion of con­trolled for­eign com­pan­ies (CFCs).Thus, on the basis of Art­icle 25.13(4)(2) of the Rus­si­an Tax Code, Brit­ish com­pan­ies whose shares are traded on stock ex­changes will be re­cog­nised as CFCs.In ad­di­tion, with­in the mean­ing of Art­icle 25.13-1(7) of the Rus­si­an Tax Code, the in­clu­sion of a coun­try in the List means that the ex­emp­tion of profits of the CFC will not be avail­able ac­cord­ing to the fol­low­ing cri­ter­ia:   In or­der to de­term­ine the profits of a CFC us­ing fin­an­cial state­ments, the fin­an­cial state­ments must be audited.As a res­ult, the sus­pen­sion of the ex­change of tax in­form­a­tion will af­fect the at­tract­ive­ness of the UK as a jur­is­dic­tion to host hold­ing com­pan­ies and CFCs. If the cur­rent re­stric­tions re­main in place over the longer term, Rus­si­an groups with UK ele­ments may need to re­con­sider their struc­ture, in­clud­ing tak­ing in­to ac­count the pos­sible re­lo­ca­tion of UK com­pan­ies to oth­er jur­is­dic­tions.In prac­tice, how­ever, this trend could also be ex­ten­ded to oth­er European jur­is­dic­tions. Ac­cord­ing to me­dia re­ports, Ger­many* and the US* have also an­nounced the sus­pen­sion of the ex­change of tax in­form­a­tion.We will con­tin­ue to mon­it­or de­vel­op­ments and keep you in­formed of fur­ther changes.* In Rus­si­an
Bill in­tro­duced in Rus­si­an State Duma al­low­ing sus­pen­sion and ter­min­a­tion...
On 22 March 2022, Pavel Krashe­n­in­nikov, Head of the State-build­ing and Le­gis­la­tion Com­mit­tee of the Rus­si­an State Duma, sub­mit­ted a bill*, which makes it pos­sible to ter­min­ate and sus­pend ob­lig­a­tions due to sanc­tions im­posed on Rus­sia. The bill also es­tab­lishes the pos­sib­il­ity for parties to be re­leased from li­ab­il­ity for breach of con­tract.The fol­low­ing de­scribes this le­gis­lat­ive ini­ti­at­ive in more de­tail:Ter­min­a­tion of ob­lig­a­tion­sAc­cord­ing to the bill, an ob­lig­a­tion is ter­min­ated in full or in part if its per­form­ance “ob­ject­ively be­comes defin­it­ively im­possible” “in the con­text of ‘un­friendly’ ac­tions of for­eign states and in­ter­na­tion­al or­gan­isa­tions as­so­ci­ated with the im­pos­i­tion of re­strict­ive meas­ures” against Rus­si­an in­di­vidu­als and com­pan­ies (i.e. for­eign sanc­tions).Ex­emp­tion of li­ab­il­ity for breach of ob­lig­a­tion­sThe bill provides an ex­emp­tion from li­ab­il­ity for a breach of ob­lig­a­tion for a per­son who proves that prop­er per­form­ance has “ob­ject­ively proved to be tem­por­ar­ily im­possible” in the con­text of for­eign sanc­tions. In this case, the ob­lig­a­tions se­cur­ing the de­faul­ted trans­ac­tion are also un­en­force­able un­less the parties agree oth­er­wise after the bill comes in­to force.Ter­min­a­tion of con­tractThe bill in­tro­duces the right to uni­lat­er­ally ter­min­ate a con­tract if the oth­er party to the con­tract has not per­formed, or per­formed im­prop­erly, its ob­lig­a­tion be­cause such per­form­ance is tem­por­ar­ily im­possible in the con­text of sanc­tions. The party au­thor­ised to do so must give a ter­min­a­tion no­tice to the oth­er party with­in a reas­on­able time. The col­lat­er­al se­cur­ing the ob­lig­a­tions of the parties, which shall sur­vive the uni­lat­er­al ter­min­a­tion of the con­tract or are con­nec­ted with the ter­min­a­tion, shall con­tin­ue to ex­ist, un­less oth­er­wise provided for by law or the con­tract.Se­cur­ity de­positThe bill sub­stan­tially mod­i­fies the treat­ment of se­cur­ity pay­ments.  Un­der this draft law, after 23 Feb­ru­ary 2022, the parties may enter in­to an agree­ment for a se­cur­ity pay­ment to se­cure oth­er ob­lig­a­tions. The pay­ment could con­sist of the de­pos­it of shares, bonds, oth­er se­cur­it­ies or gen­er­ic items.Re­pay­ment by Rus­si­an joint-stock com­pan­ies of loans is­sued by their for­eign con­trolling per­son­sThe bill en­titles Rus­si­an joint-stock com­pan­ies, in­stead of re­pay­ing a loan to lenders who are for­eign con­trolling per­sons of such com­pan­ies, to place ad­di­tion­al shares of a cer­tain cat­egory or type in fa­vour of such lenders. At the same time, joint-stock com­pan­ies are al­lowed to is­sue pref­er­en­tial shares whose nom­in­al value may ex­ceed 25% of the share cap­it­al.The bill does not re­quire proof of a caus­al link between the im­pos­i­tion of sanc­tions and the de­cision to place ad­di­tion­al shares in fa­vour of a lender in­stead of re­pay­ing the loan and pay­ing in­terest on it.Pro­tec­tion not for al­lAc­cord­ing to the bill, the above sup­port meas­ures do not ap­ply to per­sons who “con­trib­uted to the ‘un­friendly’ ac­tions of for­eign states and in­ter­na­tion­al or­gan­isa­tions re­lated to the im­pos­i­tion of re­strict­ive meas­ures” against Rus­si­an in­di­vidu­als and or­gan­isa­tions. The bill does not cla­ri­fy ex­actly what is meant by “con­trib­ut­ing”.Let­ter from the Cham­ber of Com­merce and In­dustry of the Rus­si­an Fed­er­a­tion­In con­nec­tion with the bill, the Cham­ber of Com­merce and In­dustry of the Rus­si­an Fed­er­a­tion has sus­pen­ded its re­view of ap­plic­a­tions for the is­su­ance of find­ings of force ma­jeure un­der con­tracts that were con­cluded with­in the frame­work of do­mest­ic eco­nom­ic activ­ity in con­nec­tion with sanc­tions on for­eign com­pon­ents and equip­ment (Let­ter No. PR/0181* of the Cham­ber of Com­merce and In­dustry of the Rus­si­an Fed­er­a­tion dated 22 March 2022).* In Rus­si­an
Rus­si­an Fed­er­al Tax Ser­vice sets morator­i­um on tax audits of IT com­pan­ies
On 24 March 2022, the Rus­si­an Fed­er­al Tax Ser­vice is­sued Let­ter No. CD-4-2/[email protected]*, which (the “Let­ter”) es­tab­lishes a vir­tu­al morator­i­um for on-site tax audits, in­clud­ing re­peat audits, of ac­cred­ited IT com­pan­ies un­til 3 March 2025 in­clus­ively.The only ex­cep­tion is where an audit is sched­uled with the con­sent of the head or deputy head of a high­er tax au­thor­ity or the Rus­si­an Fed­er­al Tax Ser­vice. The lower tax au­thor­ity must sub­mit a reasoned re­quest in or­der to sched­ule an on-site audit.At the same time, any on-site audits launched be­fore the Let­ter was is­sued are sub­ject to com­ple­tion in the pre­scribed man­ner. No ex­ten­sion or sus­pen­sion of these audits ac­cord­ing to Art­icle 89 of the Rus­si­an Tax Code should oc­cur.   Fur­ther­more, the audit sus­pen­sion is tem­por­ary in or­der to re­duce the ad­min­is­trat­ive bur­den on IT com­pan­ies in the peri­od between 2022 and 2024, and does not mean that this peri­od will not be audited in prin­ciple. In prac­tice, by schedul­ing an audit in March 2025 after the morator­i­um ex­pires, the tax au­thor­it­ies will have the right to audit the 2022-2024 peri­od as well.The Let­ter con­tains no ad­di­tion­al cri­ter­ia for the morator­i­um, apart from re­quir­ing an IT com­pany to have a state ac­cred­it­a­tion cer­ti­fic­ate. In oth­er words, the morator­i­um will also form­ally ap­ply to ac­cred­ited IT com­pan­ies that are not eli­gible for cor­por­ate profits tax or in­sur­ance con­tri­bu­tion in­cent­ives un­der Rus­si­an law.The chosen leg­al form of the doc­u­ment in­tro­du­cing the morator­i­um is also note­worthy: the Let­ter is of an in­tern­al nature and ad­dressed to lower tax au­thor­it­ies. To date, we are not aware of any fur­ther le­gis­lat­ive ini­ti­at­ives in this area.The Let­ter im­ple­ments one more tax sup­port meas­ure for the IT in­dustry an­nounced in Rus­si­an Pres­id­ent De­cree No. 83 dated 2 March 2022, on which we pre­vi­ously re­por­ted. Also, in pur­su­ance of that De­cree, Law No. 67-FZ dated 26 March 2022 has set the cor­por­ate profits tax rate at 0% for the peri­od between 2022 and 2024. The Min­istry of Fin­ance and the Min­istry of Di­git­al De­vel­op­ment are cur­rently ne­go­ti­at­ing the de­tails of an­oth­er meas­ure an­nounced in the De­cree: ex­tend­ing the list of IT activ­it­ies sub­ject to pref­er­en­tial treat­ment where fur­ther de­vel­op­ments can also be ex­pec­ted.Our ex­perts con­tin­ue to closely mon­it­or this is­sue and will keep you in­formed of any fur­ther changes.* In Rus­si­an
New tax in­cent­ives: anti-crisis tax pack­age for in­di­vidu­als
On 26 March 2022, Rus­sia’s Pres­id­ent signed Fed­er­al Law 67-FZ* in­tro­du­cing an anti-crisis pack­age of tax sup­port meas­ures for busi­nesses and in­di­vidu­als.Be­low is our over­view of the main changes rel­ev­ant to in­di­vidu­als. Earli­er, we have cir­cu­lated our over­view of cor­por­ate tax changes.Per­son­al in­come tax­Tax­a­tion of in­terest on bank de­pos­it­sThe new Law ex­empts in­di­vidu­als from tax­a­tion on in­come re­ceived in 2021 and 2022 in the form of in­terest on de­pos­its (i.e. ac­count bal­ances) with banks loc­ated in Rus­sia.The Law also ad­justs the pro­ced­ure for cal­cu­lat­ing the amount of in­terest sub­ject to per­son­al in­come tax in fu­ture peri­ods. For in­stance, the highest of the key rates of the Cent­ral Bank of the Rus­si­an Fed­er­a­tion (CBR) set on the first day of each month in a tax peri­od will be used to cal­cu­late the non-tax­able threshold for each tax peri­od, rather than the CBR key rate set on the first day of such a tax peri­od as ap­plic­able be­fore ad­op­tion of the Law.These meas­ures are aimed at re­du­cing the tax bur­den on in­di­vidu­als due to a sig­ni­fic­ant in­crease in the CBR key rate in 2022 and are also de­signed to en­cour­age the pub­lic to hold their mon­ies on bank de­pos­its with Rus­si­an banks. Ma­ter­i­al gain­In­come in the form of ma­ter­i­al gain re­ceived in 2021-2023 is now ex­empt from per­son­al in­come tax.Note that this refers to any ma­ter­i­al gain, al­though in its ori­gin­al ver­sion the bill ex­emp­ted only ma­ter­i­al gain from sav­ings on in­terest for us­ing funds bor­rowed from em­ploy­ers. Re­ceiv­ing as­sets from con­trolled for­eign com­pan­ies (CFCs)Per­son­al in­come tax will not ap­ply to in­come in the form of as­sets (ex­clud­ing cash) and/or prop­erty rights re­ceived in 2022 from a for­eign com­pany or un­in­cor­por­ated en­tity in re­la­tion to which the tax­pay­er is a con­trolling per­son and/or par­ti­cipant as of 31 Decem­ber 2021. The ex­emp­tion will ap­ply to the as­sets or prop­erty rights that were owned by a for­eign com­pany (en­tity) as of 1 March 2022.In­di­vidu­als are there­fore giv­en the op­por­tun­ity for a tax-free trans­fer of as­sets from CFCs. When trans­act­ing in the re­ceived as­sets at a later stage, an in­di­vidu­al will be able to re­cog­nise the ex­penses for re­ceiv­ing such as­sets ac­cord­ing to their CFC’s ac­count­ing data, but up to the mar­ket value of the as­sets re­ceived.Oth­er taxesThe fol­low­ing meas­ures re­lated to prop­erty tax, land tax, trans­port tax and tax ad­min­is­tra­tion are identic­al to those ap­plied to com­pan­ies:Prop­erty tax and land tax­Ca­das­tral value as of 1 Janu­ary 2022 will be used to cal­cu­late per­son­al prop­erty tax and land tax for the 2023 tax peri­od.However, this rule will not ap­ply if the ca­das­tral value de­creases in 2023, or if the in­crease in the ca­das­tral value is due to a change in the char­ac­ter­ist­ics of a prop­erty. There­fore, the ef­fect of in­fla­tion on the tax base is elim­in­ated.Trans­port taxThe Law has ab­ol­ished the mul­ti­pli­ers 1.1 and 2 where trans­port tax is cal­cu­lated for 2022 for vehicles worth between RUB 3m (EUR 32,472**) and RUB 10m (EUR 108,240).There­fore, the mul­ti­pli­ers will only ap­ply to vehicles worth over RUB 10m (EUR 108,240).Tax ad­min­is­tra­tion­Ac­cord­ing to the Law, there will be no fines for fail­ure to provide doc­u­ments con­firm­ing the amount of CFC profits, or for provid­ing doc­u­ments con­tain­ing false in­form­a­tion for the 2020 and 2021 fin­an­cial years (i.e. the 2021 and 2022 tax peri­ods).Note that fines for fail­ure to provide such doc­u­ments un­der the gen­er­al pro­ced­ure or at the tax au­thor­it­ies’ re­quest amount to RUB 500,000 (EUR 5,412) and RUB 1m (EUR 10,824), re­spect­ively. It is likely that the can­cel­la­tion of fines for the 2021-2022 tax peri­ods is at­trib­ut­able to the po­ten­tial dif­fi­culties that con­trolling per­sons may face in ob­tain­ing fin­an­cial state­ments due to the re­stric­tions im­posed.* In Rus­si­an** As of 5 April 2022
New tax in­cent­ives: anti-crisis tax pack­age for busi­nesses
On 26 March 2022, Rus­sia’s Pres­id­ent signed Fed­er­al Law 67-FZ* (the “Law”) in­tro­du­cing an anti-crisis pack­age of tax sup­port meas­ures for busi­nesses.Be­low is our over­view of the main changes for cor­por­ate tax­pay­ers. The tax changes that are rel­ev­ant for in­di­vidu­als will be over­viewed in a sep­ar­ate pub­lic­a­tion.Cor­por­ate profits taxAp­plic­a­tion of trans­fer pri­cing rulesAc­cord­ing to the new Law, the rev­en­ue threshold for re­cog­nising cross-bor­der trans­ac­tions between re­lated parties as con­trolled trans­ac­tions for trans­fer pri­cing (the “TP”) pur­poses has been in­creased from RUB 60m to RUB 120m (EUR 649,529 to EUR 1.3m)** per cal­en­dar year.For the busi­ness com­munity, this has been a long-an­ti­cip­ated meas­ure to re­duce the ad­min­is­trat­ive bur­den of doc­u­ment­ing small in­tra-group trans­ac­tions. However, in the cur­rent mar­ket situ­ation it is most likely meant to neut­ral­ise to some ex­tent the de­pre­ci­ation of the rouble ex­change rate in cross-bor­der flows.Moreover, do­mest­ic trans­ac­tions will not be sub­ject to TP con­trol dur­ing the peri­od of 2022-2024, where at least one party to a do­mest­ic trans­ac­tion en­joys in­vest­ment tax re­lief un­der Art­icle 286.1 of the Rus­si­an Tax Code.Fi­nally, the Law ex­tends the ap­plic­a­tion peri­od un­til 31 Decem­ber 2023 for ex­ten­ded “safe har­bour” ranges for arm’s length in­terest rates on inter-group loans es­tab­lished dur­ing the COV­ID-19 pan­dem­ic.In ad­di­tion, the lower range for rouble cross-bor­der loans has also been set at 0%. Pre­vi­ously, this meas­ure ap­plied only to do­mest­ic rouble debt ob­lig­a­tions.By click­ing here you will find the com­par­ab­il­ity ana­lys­is of the arm’s length ranges un­der the gen­er­al rules and un­der the Law.Cla­ri­fied rules for cal­cu­lat­ing thin cap­it­al­isa­tionThe Law provides for a tem­por­ary freeze of for­eign ex­change rates when cal­cu­lat­ing ex­cess­ive in­terest for con­trolled debts de­term­ined in ac­cord­ance with Art­icle 269(2) of the Rus­si­an Tax Code for the peri­od from 1 Janu­ary 2022 to 31 Decem­ber 2023.Ac­cord­ing to the Law, the amount of con­trolled debt de­nom­in­ated in for­eign cur­rency is de­term­ined at the of­fi­cial rate set by the Cent­ral Bank of the Rus­si­an Fed­er­a­tion (the “CBR”) as of the last re­port­ing date of the rel­ev­ant re­port­ing tax peri­od, but not ex­ceed­ing the of­fi­cial rate set by the CBR as of 1 Feb­ru­ary 2022.At the same time, the amount of equity as of the last day of each re­port­ing tax peri­od will be de­term­ined without re­gard to the FOREX dif­fer­ences that arose dur­ing the peri­od from 1 Feb­ru­ary 2022 to the last day of the re­port­ing tax peri­od, on which the cap­it­al­isa­tion ra­tio is de­term­ined.Sim­il­ar rules were ap­plied in 2020 and 2021 dur­ing the COV­ID-19 pan­dem­ic, when the rate was fixed as of 28 Feb­ru­ary 2020.Ex­ten­ded list of non-tax­able for­giv­en debt­sThe tax­able in­come of Rus­si­an tax­pay­ers will tem­por­ar­ily ex­clude in­come from debt for­give­ness un­der the loan agree­ments made be­fore 1 March 2022 with a for­eign en­tity and/or for­eign cit­izen that in 2022 ad­opts the de­cision to for­give the debt.The tax­able in­come will also ex­clude debts for­giv­en by a new for­eign lender (leg­al en­tity or in­di­vidu­al), ac­quired by that lender as a res­ult of a debt as­sign­ment be­fore 1 March 2022.The Law does not set any ad­di­tion­al cri­ter­ia for such an ex­emp­tion (e.g. the min­im­um per­cent­age of dir­ect or in­dir­ect share­hold­ing owned by the for­eign lender in the Rus­si­an debt­or). Thus, the­or­et­ic­ally this rule may ap­ply both to in­tra-group loan ob­lig­a­tions and ob­lig­a­tions to third parties.New in­cent­ives for IT-com­pan­iesUn­der the Law, IT com­pan­ies will en­joy a 0% cor­por­ate profits tax rate dur­ing the peri­od between 2022 and 2024, in­stead of 3%. In­ter­est­ingly, the Law does not in­tro­duce any new eli­gib­il­ity cri­ter­ia for this in­cent­ive, thus the gen­er­al con­di­tions set out in Art­icle 284(1.15) of the Rus­si­an Tax Code will con­tin­ue to ap­ply to IT-com­pan­ies.This meas­ure has been in­tro­duced in pur­su­ance of Rus­si­an Pres­id­ent De­cree No. 83 dated 2 March 2022, on which we pre­vi­ously re­por­ted.FOREX dif­fer­encesThe pro­ced­ure for re­cog­nising FOREX dif­fer­ences has been changed: for­eign ex­change dif­fer­ences re­cog­nised in profit (in 2022-2024) or loss (in 2023-2024) shall be re­cog­nised on ter­min­a­tion (i.e. dis­charge) of claims (i.e. ob­lig­a­tions) de­nom­in­ated in for­eign cur­rency.Thus, un­real­ised for­eign ex­change gains and losses are ex­cluded from tax re­port­ing, which sig­ni­fic­antly re­duces the im­pact of es­tim­ated val­ues on the amount of tax. The asym­metry in the time peri­ods is not co­in­cid­ent­al: these changes al­low the re­cog­ni­tion of all for­eign ex­change losses arising in 2022 while lim­it­ing the amount of for­eign ex­change gains start­ing from 2022.Monthly pay­ment­sThe Law en­titles tax­pay­ers to switch to monthly ad­vance pay­ments based on ac­tu­al profits dur­ing 2022, start­ing from a re­port­ing peri­od of three months.Note that the nor­mal pro­ced­ure is to make such a switch from the be­gin­ning of a tax peri­od (i.e. year). A sim­il­ar meas­ure was taken in 2020 due to the pan­dem­ic and is aimed at re­du­cing po­ten­tial tax over­pay­ments.VATA zero rate of VAT has been set on cer­tain tour­ism ser­vicesA 0% VAT rate ap­plies to (i) ser­vices re­lated to the pro­vi­sion of a tour­ism in­dustry fa­cil­ity for lease or use if it is put in­to op­er­a­tion after 1 Janu­ary 2022 and in­cluded in the re­gister of tour­ism in­dustry fa­cil­it­ies for a peri­od of up to five years; and (ii) ser­vices in­volving the pro­vi­sion of tem­por­ary ac­com­mod­a­tion in ho­tels or oth­er ac­com­mod­a­tion fa­cil­it­ies un­til 30 June 2027.The list of tax­pay­ers that may ap­ply for ac­cel­er­ated VAT re­fund has been ex­pan­dedAll tax­pay­ers who are not un­der re­or­gan­isa­tion or li­quid­a­tion or sub­ject to any bank­ruptcy pro­ceed­ings at the time of ap­ply­ing for a VAT re­fund will be eli­gible for an ac­cel­er­ated VAT re­fund up to the amount of taxes they paid for the pre­ced­ing year.VAT may be re­fun­ded in ex­cess of the taxes paid for the pre­ced­ing year sub­ject to the pro­vi­sion of a bank guar­an­tee or surety­ship.The meas­ure is aimed at en­sur­ing that tax­pay­ers can quickly re­plen­ish their work­ing cap­it­al with the amount of the VAT re­fund. The Fed­er­al Tax Ser­vice es­tim­ates that the tax re­fund will take, on av­er­age, eight days from the date when the ap­plic­a­tion is filed.It is im­port­ant to note that un­der the gen­er­al pro­ced­ure taxes will be re­fun­ded only upon com­ple­tion of a desk tax audit and in prac­tice such a re­fund takes at least two to three months, while the ac­cel­er­ated re­fund pro­ced­ure (i.e. re­fund upon ap­plic­a­tion) was pre­vi­ously avail­able only to lim­ited tax­pay­ers who met cer­tain re­quire­ments.Oth­er taxe­sProp­erty tax and land tax­Ca­das­tral value as of 1 Janu­ary 2022 will be used to cal­cu­late cor­por­ate prop­erty tax and land tax for the 2023 tax peri­od.However, this rule will not ap­ply if the ca­das­tral value de­creases in 2023, or if the in­crease in the ca­das­tral value is due to a change in the char­ac­ter­ist­ics of a prop­erty. There­fore, the ef­fect of in­fla­tion on the tax base is elim­in­ated.Trans­port taxThe Law has ab­ol­ished the mul­ti­pli­ers 1.1 and 2 where trans­port tax is cal­cu­lated for 2022 for vehicles worth between RUB 3m (EUR 32,476) and RUB 10m (EUR 108,254).There­fore, the mul­ti­pli­ers will only ap­ply to vehicles worth over RUB 10m (EUR 108,254).Tax ad­min­is­tra­tion­Ac­cord­ing to the Law, there will be no fines for fail­ure to provide doc­u­ments con­firm­ing the amount of CFC profits, or for provid­ing doc­u­ments con­tain­ing false in­form­a­tion for the 2020 and 2021 fin­an­cial years (i.e. the 2021 and 2022 tax peri­ods).Note that the fines for fail­ure to provide such doc­u­ments un­der the gen­er­al pro­ced­ure or at the tax au­thor­it­ies’ re­quest amount to RUB 500,000 (EUR 5,412) and RUB 1m (EUR 10,825), re­spect­ively. It is likely that the can­cel­la­tion of fines for the 2021-2022 tax peri­ods is at­trib­ut­able to the po­ten­tial dif­fi­culties that con­trolling per­sons may face in ob­tain­ing fin­an­cial state­ments due to the re­stric­tions im­posed.Also, there will be no fines for tax un­der­pay­ment as a res­ult of ap­ply­ing prices de­vi­at­ing from the arm’s-length ones in the con­trolled trans­ac­tions where in­come and/or ex­penses are re­cog­nised for the peri­od between 1 Janu­ary 2022 and 31 Decem­ber 2023, re­gard­less of the date of a rel­ev­ant con­tract.Ac­cord­ing to gen­er­al rules, such a fine will amount to 40% of the un­paid tax, but not less than RUB 30,000 (EUR 324).Fi­nally, for the peri­od between 9 March 2022 and 31 Decem­ber 2023, late pay­ment in­terest will not be doubled where com­pan­ies delay pay­ment of tax for over 30 cal­en­dar days. This meas­ure is ob­vi­ously aimed at neut­ral­ising a sig­ni­fic­ant rise in the rate of late pay­ment in­terest in this peri­od pro rata to the in­crease in the CBR key rate in 2022.* In Rus­si­an** As of 1 April 2022