Crux (#3 March 2020)

Legal Digest

During the past month the UJBL editorial team has monitored draft laws, amendments and other legislative initiatives that appeared to be highly significant in the juridical field. To name a few, the land market law that is currently occupying Parliaments time, the adopted Draft Law No. 1210 On Deoffshorization and Improving the Administration of Taxation, and several acts of the National Bank of Ukraine. We asked lawyers to provide their expert opinions on these and other important issues below.

What is included in government Draft law No. 0010 On Joining the Agreement on the Development of Multimodal Transport TRACECA? What are its main provisions?

Sergey Nedelko, Attorney at Law, Ilyashev & Partners

On 21 November 2019 a group of Members of Parliament registered Draft Law No.0010 On Joining the Agreement on the Development of Multimodal Transport TRACECA. On 14 February 2020 the Parliamentary Transport Committee recommended adoption of the Draft in its final edition and ratification of the Agreement.

The Agreement was signed on 16 June 2009 in Cholpon-Ata (Kyrgyz Republic). TRACECA (Transport Corridor Europe-Caucasus-Asia) is an international transport program involving the European Union and 12 member States of the Eastern European, Caucasian and Central Asian region. The aim of TRACECA is to develop a transport corridor from Europe to Central Asia through the Black Sea, Caucasus and Caspian Sea bypassing Russia and reviving the Great Silk Road.

The Agreements provisions create the environment for improving the carriage in the TRACECA region, as well as for simplifying the procedures for performing multimodal transportation (MT), assuming use of several modes of transport. The document regulates relations between transport organizations, MT operators, shippers, consignees, other individuals and legal entities, acting on behalf of the cargo owner whilst the performance of multimodal freight transportation defines the rights, duties and responsibilities of each party.

One of the main novels of the Agreement is establishing a single (unified) MT document either negotiable or non-negotiable form, which shall prove the MT contract has been duly signed by the parties and the MT operator has accepted the goods for carriage. This can be a consignment note of MT, MT waybill and other legally accepted form, whose content is established by the Agreement (nature and conditions of goods, freight amount, name of consignee and consignor, place of charging and discharging, terms of delivery, etc.). For example, now the freight-forwarding companies widely use so-called house bill of lading, assuming carriage by sea and some land transport mode, which is deemed to be a kind of MT documents. The parties will, via the TRACECA, elaborate and approve the unified form.

The Agreement should increase the competitive advantage of the Ukrainian transport system, promote the development of transit potential and increase the export of Ukraines transport services, which fully correspond to Ukraines National Transport Strategy for the period till 2030.

What are the main amendments provided by Draft Law No. 1210? What changes can business expect once it has become law?

Nataliia Musiienko, Senior Associate, KPMG Law Ukraine

On 3 December 2019 the Ukrainian Parliament finally adopted Draft Law No.1210 On Deoffshorization and Improving the Administration of Taxation. This is one of the most discussed laws and was adopted within the auspices of fulfillment by Ukraine of EU international obligations.

Without any doubt, the most important changes are implementing CFC rules, improving transfer pricing rules and introducing the Principal Purpose Test.

A significant part of the proposed changes is related to administration of taxation. In particular, creation of the Board of Appeal for the purpose of pre-trial consideration of taxpayers claims is contemplated. As of today there is a single-level system of pre-trial appeal (i.e. claims made by taxpayers against tax notification-decisions are considered by the State Tax Service). After the provisions of Law No.1210 have come into force, there will a two-tier system as the Board of Appeal will consider claims in certain cases, as specified by Law No.1210.

The document also introduces changes to permanent establishment status, legitimization of quarterly adjustment of scheduling the tax audits, new interpretation of guilt of individuals and increases the terms for conducting tax audits.

The rapidly drafted text of Law No.1210 stipulates many technical errors that may remain in the final version (the final text isnt available yet). However, the provisions of Law No.1210 are progressive overall, and some of them will meet possible difficulties in implementation (in view of administration and control). It is obvious that new categories of tax disputes are unavoidable due to introduction of new points of intersection between private and public interests. Considering such significant changes, business is weighing up all the pros and cons of the new law in view of time and human resources required in the new model of tax administration.

On 16 January 2020 the Ukrainian Parliament adopted Draft Gambling Law No. 2285- in the first reading. What are the main provisions of the Draft?

Pavlo Byelousov, Partner, AEQUO

New rules for gambling industry have always been on the agenda for the Ukrainian government since the total gambling ban glibly introduced by the Verkhovna Rada of Ukraine in June 2009. Funnily enough, the 2009 Gambling Ban Law provides the gambling ban was introduced until the adoption of new law permiting the conducting of the gambling business in special gambling zones. For this purpose, the 2009 Gambling Ban Law has obliged the Cabinet of Ministers of Ukraine to draft and to introduce for consideration of the Verkhovna Rada a new gambling law, but this task took more than a decade.

In December 2019, Parliament failed to adopt the Governments Draft Law On Gambling Business. However, on 16 January 2020, Parliament adopted Draft Law No. 2285- On state Regulation of Activities Concerning the Organization and Conducting of Gambling in the first reading. It is expected that Draft Gambling Law No. 2285- will be considered in the second reading during the next session in Spring 2020.

The key highlights of the Draft as adopted in the first hearing are as follows:

Casinos (including online), slot machine halls, betting (including online), online poker and state lotteries are again allowed in Ukraine.

A special commission is to be established to regulate gambling activities, issue licenses and certify gambling equipment as well as to set an online gambling monitoring system to ensure compliance with the law.

A limit is to be set on number of licenses to be issued per each type of gambling activity and gambling equipment.

New gambling licenses duration 5 years.

Restriction of gambling advertisement.

Ban to grant a license to gambling operators which have a Russian Federations resident as their ultimate beneficiary owner.

In contrast to the December 2019 Draft as proposed by the Government, Draft Gambling Law No. 2285- has tighten certain restrictions by allowing gambling spots in 5-star hotels only and by raising the players and gambling facility employees age from 18 to 21.

Draft Gambling Law No. 2285- sets forth the following annual license fees for each type of gambling activity and equipment:

casino ca. USD 11 million for a casino in a 5-star hotel with more than 200 rooms and ca. USD 23 millionfor a casino in a 5-star hotel with less than 200 rooms (for casinos located in Kyiv) and half as much respectively for casinos located in other settlements;

slot machine hall ca. USD 145,000;

betting activity ca. USD 24.3 million;

organization of online casino ca. USD 2.4 million;

organization of online poker ca. USD 485,000;

organization of lotteries to be determined by auction, where the starting price is set by the special commission at no less than ca. USD 14.7 million);

betting spot ca. USD 15,000;

gambling table ca. USD 34,000 for a gambling table and ca. USD68,000for a gambling table with a roulette ring;

slot machine ca. USD 1,166.

On 31 January the National Bank of Ukraine aligned the disclosure of banking secrets with the current legislature by its Decision No.13. How would you evaluate such amendments and what might be the consequences for banks, individuals and entities?

Sergiy Grebenyuk, Partner, Asters

If simplified, the amendments of the National Bank of Ukraine widened the powers of law-enforcement bodies to access information held by banks without a court order.

The above amendments reflected recent legislative changes adopted by Parliament on 31 October 2019 having harmonized legislation and relevant by-laws of the NBU.

The most important change is that law-enforcement bodies are now empowered to request disclosure of bank secrecy not only in respect of legal entities and entrepreneurs (as has been the case), but also in respect of physical persons. Furthermore in addition to information about bank transactions, certain authorities now can obtain information about accounts, deposits, deals, and bank transactions irrespective of whether a legal entity or physical person has an account in the bank. The list is exhaustive, and if the authorities want to receive more information they must apply for a court order.

The banks now are in a tricky situation; between a rock and a hard place. They are under obligation to follow lawful requests made by the above-mentioned authorities. On the one hand, failure to do so will result in administrative sanctions. On the other, if the bank discloses banking secrets in response to an unlawful or incomplete request, this may also result in sanctions.

We consider that the harmonization of laws and by-laws of the NBU is a positive sign in general. Furthermore, these changes should save time and resources for law-enforcement agencies, enabling them to focus on investigating and establishing the truth. Before the amendments were adopted, it had been necessary to prepare a reasoned motion, to submit it to judge, attend the hearing, convince the judge and then enforce the decision.

However, taking into account local realities, the widening of powers of law-enforcement to access banking secrets may have some negative consequences:

without judicial control and necessity to provide an explanation as to why the information is required, the authorities may ask for information just to start so-called fishing expeditions (a non-specific search for information, especially incriminating information);

the law doesnt provide for an option for the client of the bank to learn about this fact and initiate defense (before the amendments, it had been possible, to some extent, to find the relevant decisions adopted by courts in the court register);

from the practical point of view, it is very complicated to bring to account those agencies at fault for collecting surplus information that contains banking secrecy.

On 6 February Parliament began to consider the so-called land market law, Draft Law No. 2178-10. What amendments are crucial, how do they change the current draft, and what are the prospects for it to be adopted in full in the near future?

Alexandra Fedotova, Partner, Attorney, ADER HABER

On 6 February 2020 Verkhovna Rada of Ukraine started consideration of the Draft Law of Ukraine On Amending some Legislative Acts of Ukraine Regarding the Circulation of Agricultural Land, No.2178-10.

Over 4,000 amendments were submitted to the Draft Law. As of the morning of 20 February 2020 around 500 amendments had been considered. All of them werent adopted.

The following should be noted with regard to the meaning of the amendments.

Many amendments are similar in content (some are even identical). Some of them are of a purely declarative nature, such as prioritizing lease over sale.

There are amendments offering to grant the right to acquire ownership to agricultural land through mortgage via all types of financial institutions, and not only to banks.

There are proposals that are directed to limit the right to own agricultural land one more time without any proper justification, such as to prohibit transferring into lease agricultural land whose designated purpose is individual farming.

Some amendments propose to prohibit the changing of the designated purpose for some period of time or even without limitation, or to introduce payment for selling land plots acquired through privatization within a certain period of time.

There are proposals (i) to alienate or transfer into usage municipal or state land plots only after the agricultural passport has been drawn up; (ii) to envisage the strategic fund of agricultural land in every region in the size of 20% of respective land; (iii) to maximize the minimum term of lease of agricultural land to 14 years.

The Verkhovna Rada of Ukraine is working only on the Draft Law as of now. Based on such an approach our estimation is that the Draft Law will be adopted and the submission of such numbers of amendments was only a technical decision to delay adoption of the Draft Law, but not to change its sense. The current moratorium on the sale of agricultural land is expected to be lifted in early October 2020.

The NBU and the National Commission for State Regulation of Financial Services Market signed the Memorandum of cooperation for implementation of the Split law. What exactly is included in the Memorandum, and how reasonable might such cooperation be?

Oleksander Plotnikov, Partner, Arzinger

As is well-known, the Split law will come into effect on 1 July 2020. It provides for liquidation of the National Commission for State Regulation of Financial Services Market and transfer of regulatory and supervisory functions, particularly to the National Bank of Ukraine. Specifically, the NBU will regulate and supervise insurance, leasing and factoring companies, pawnshops, the Ukrainian Bureau of Credit History, etc.

For the purpose of carrying out certain provisions of the Split law, on 7 February 2020, the NBU and the National Commission executed the Memorandum on Coordination and Cooperation which, amongst other things, envisages:

1) creation of an interagency working group;

2) access for the NBU to the National Commissions database;

3) transfer of documents and other related information by the National Commission to the NBU;

4) an obligation by the National Commission to pass information on market participants on the NBUs request; and

5) exchanging of experience.

The signing of the memorandum is a positive sign towards fruitful cooperation between state authorities, which will facilitate more coordinated, efficient and smoother transfer of powers from the National Commission to the NBU.

At the same time, its very important to ensure that along with transfer of powers, the NBU will obtain sufficient expertise necessary for it to fulfill its duties in relation to new financial services. The NBU has been working on making preparations for future changes and gaining required competence. As a result, the NBU has created two new departments and adjusted the structure of several existing departments in order to cover the non-banking financial sector and issued a white paper on regulating the objectives for the non-banking financial sector. By 1 July 2020 new departments will be working on proposals regarding necessary legislative changes and improvement of processes.

The efforts of both authorities give us hope that the Split will become a good example of efficient cooperation between state authorities for the benefit of market players.

Draft Law No. 2258 was adopted in its first reading on 4 February. How might this Draft influence IP regulation, and what results should be expected if the Draft comes into force?

Anastasia Kazankina, Attorney-at-Law, Doubinsky & Osharova

I must note that in overall terms, Draft Law No. 2258 regarding stepping up IPR protection, protection of trademark and industrial design rights and combating patent trolling, contains many useful and progressive provisions. My favorite is one that provides for legal protection for unregistered designs. This article is the result of the implementation of provisions in the EU-Ukraine Association Agreement, and is a great instrument that must and will be used for the countrys fashion industry. At a time when trends come and go in a flash, standard registration of a design can be unnecessary and cost ineffective.

The second great thing is the possibility to obtain compensation for infringement of a third persons right as a result of registration of a design that does not respond to the criteria of legal protection. This provision is long-awaited and has great potential. First, it redresses injustice when the copyright owner can easily obtain compensation without even proving the intention of the violator at that time when the owner of the design had no opportunity to prove any losses. Court practice even has cases when a person tried to protect his copyright to a design just to get some appropriate compensation.

Combining this option with the possibility of opposing registration through the Chamber of Appeals of the Ministry for Development of Economy, Trade and Agriculture of Ukraine, we can say that measures for combatting patent trolling have finally been provided for.

On 10 February the National Bank of Ukraine published its Draft decision on cashless settlements. What is included in the Draft, how relevant is it, and how would you comment on its main provisions?

Tetiana Mykhailenko, Senior Associate, AVELLUM

On 10 February 2020, the National Bank of Ukraine published Draft Amendments to the Instruction on Cashless Settlements in Ukraine in the National Currency. The Draft Amendments are aimed at optimizing the procedure for transferring salaries to the bank accounts of employees that have been opened in different banks. Previously, on 5 August 2019, the NBU introduced the International Bank Account Number (IBAN) inUkraine. As per the Draft Amendments, employers will be able to form a salary statement for all employees indicating their bank account numbers in IBAN format and their identification codes/numbers instead of forming separate payment orders for all employees and indicating the full range of payment details. Once the employers servicing bank receives the money from the employer, it will transfer salaries to the employees based on the salary statement from the employer and the banks own payment documents.

Although Ukrainian legislation allows employees to choose their servicing banks, in practice employers often do not cooperate and refuse to accept the employees requests to get their salaries in a bank different from the one that the employer regularly works with due to additional paperwork needed from employers. It is for this reason that most companies use so-called salary projects, whereby the employer signs an agreement with the bank and all employees receive salaries on their accounts at such a bank. The NBU expects that, once adopted, the Draft Amendments will enable individuals to receive salaries/remuneration on the bank accounts of their choice. This should, in turn, stimulate positive competition between Ukrainian banks, broaden the range of banking services and enhance customer service.

In addition, the Draft Amendments propose technical amendments aimed at harmonizing the Instruction with recent legislative amendments, in particular the Bankruptcy Code of Ukraine and amendments to the Law of Ukraine On Preventing and Counteracting Legalisation (Laundering) of the Proceeds of Crime, Terrorism Financing, and Financing of Proliferation of Weapons of Mass Destruction. If adopted, the Draft Amendments will take effect from 28 April 2020.

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