Changes Abound

On 15 September 2015 the Parliament adopted the Act of Ukraine On Amending Certain Acts of Ukraine Regarding Fixing a Date of the Beginning of Temporary Occupation, No.685-VIII. The Act sets 20 February 2014 as the date of temporary occupation of the territory of the Autonomous Republic of Crimea (the ARC). Previously, this date was fixed on 27 March 2014 as the date of adoption of the UN General Assembly Resolution, No.68/262. How does revising the date of occupation affect businesses?

Vyacheslav  Kraglevych,  partner, FCLEX Law Firm

By 15 September 2015 there had been identified two dates of occupation of the ARC, namely, 27 March 2014 and 27 April 2014. It has already been proven in practice and described by scientists that any rule of law must be formulated clearly and unambiguously so as to avoid dual application; the principle, however, was not observed in this specific legal relationship.

Not until September 2015, that is, after the adoption of the Act of Ukraine No.685-VIII, were all the legal debates about the date of occupation of the ARC dropped, because it was clearly fixed as 20 March 2014 at the legislative level. All participants of civil relations in Ukraine could refer to the clear date of the commencement of force majeure, according to which participants of civil relations in Ukraine in their relations connected with the ARC could not perform their obligations properly.

In addition, the date is that starting point where after juridical acts regarding assets on the territory of Crimea have reasonably been questioned, as there is a high probability that the latter were committed without compliance with the general principles of civil law, such as the inadmissibility of arbitrary deprivation of property rights, freedom of contract, etc.

Furthermore, the legislative enshrinement of the date of occupation provides certain persons suffering from the occupation with that starting point of which the period of charging compensation from the guilty party runs. This is an important element in protecting the rights of citizens and legal entities that suffered damage in connection with occupation. Therefore, adoption of Act No.685-VIII was a necessary decision by the legislator.

 

How does the On E-Commerce Act of Ukraine of 3 September 2015, No.675-VIII affect development of e-commerce and the main e-business players?

Mykyta  Polatayko,  IT group coordinator, Sayenko Kharenko

According to many online businesspersons, enactment of the On E-Commerce Act is a positive signal for foreign investors per se. It should demonstrate that Ukraine is nurturing e-commerce and doing its best to please the online business. However, would it be more appreciable than numerous armed searches that IT-companies have being facing for the last few months?

Most provisions in the On E-Commerce Act establish well-known definitions and manners. For example, once again the Act stated that an Internet shop buyer has all the rights of a consumer. Then, the mailing out of commercial electronic messages is illegal, unless the addressee has an option to unsubscribe. On the other hand, the Act does not provide any liability for non-compliance with such requirement.

Remote contracting without electronic digital signatures is the main innovation introduced by the Act. Earlier on, it was popular to reject the receipt of ordered goods that were not paid for, but now any online shop is entitled to claim against such activities of the client. However, it is not commercially reasonable to take the client to court in such a case. In addition, the question whether courts will enforce such forward-looking provisions remains open. They may find plenty of formal reasons not to do so.

Another innovation is online consent to processing personal data when getting registered on an Internet shop. Anyway, officials have declared verbally that registration on websites is one of the acceptable ways to obtain such consent.

Currently, nobody can say for sure whether the Act will drastically change the situation on the Ukrainian e-commerce market.

 

On 6 October 2015 the Act of Ukraine On Changes to Some Legislative Acts of Ukraine Regarding Strengthening Transparency in the Sphere of Relations of Property aimed at Prevention of Corruption of 14 July 2015, No.597-VIII came into effect. All the data from the Unified state register of transport vehicles, the State register of proprietary rights on real estate objects and their encumbrances and the State land cadastre has received the legal status of public information, in accordance with the Act. Do you perceive any risks of abuse of this information?

Vitaliy Tertytsia,  associate, LCF Law Group

The Act of Ukraine On Changes to Some Legislative Acts of Ukraine Regarding Strengthening Transparency in the Sphere of Relations of Property aimed at Prevention of Corruption of 14 July 2015, No.597-VIII has introduced the following amendments to Ukrainian Acts:

— Information regarding the owners of transport vehicles from the Unified state register of transport vehicles has become publicly accessible and the possibility has been introduced to search information in the register under the criteria of owner;

— The possibility was introduced to search information in the State register of proprietary rights on real estate objects under the criteria of owner;

— Information on the public cadastral map of Ukraine was supplemented with information regarding owners of land plots and with certain other information on land plots.

Provisions of the Act can be regarded as an important step forward. Firstly, the Act has improved transparency in the property relationship. Secondly, it has provided civil society with an important tool of control over valuable assets of public officials and their relatives.

The Act has decided the issue of authenticity of information on assets, owned by a certain company or individual, since after the Act comes into effect the authenticity of information from the registers is presumed.

Talking of potential misuse of such information, first of all we should give answer to the question: how could this information be misused? As of now the data from the state register have become public and their authenticity is presumed. Therefore, distribution of such information cannot be regarded as its misuse.

If we consider a situation when this data may be used by some lawbreaker in his/her purposes, it is notable that such information could have been obtained earlier as well — but unofficially. The non-publicity of state registers could help in this case only against “law-abiding lawbreakers”, whom it would be hardly likely to find.

 

The OECD recently released the final package of measures for a coordinated international approach to reform the international tax system under the OECD/G20 BEPS Project. What impact will this have on Ukrainian transfer pricing sphere?

Viktoria  Stavchuk,  associate, Baker & McKenzie

The impact of the BEPS Action Plan for Ukraine is going to be significant, — if not immediately, then eventually. The BEPS Project revealed the most current and urgent measures enhancing international transfer pricing (TP) control. Such measured target commonly and widely-used techniques of profit shifting, such as IP holding structures, “cash boxes”, intra-group financing, etc. All the OECD member states and G20 countries undertook to implement BEPS Action Plan into national legislation; the respective amendments are being introduced to OECD Guidelines on Transfer Pricing.

Of course, the BEPS Action Plan does not legally bind Ukraine. However, Ukraine’s State Tax Administration has repeatedly declared its orientation on international standards in the sphere of TP, namely OECD Guidelines. We should not expect Ukraine to stand aside of developments proposed by the BEPS Project. On the contrary, Ukrainian business should be prepared to adhere to such new principles.  

For Ukrainian companies that are members of multinational groups the impact brought by the BEPS Project is imminent. Not only will their global TP policies have to change, but under the new reporting procedure multinational groups will be required to disclose more detailed and extensive information to tax administrations in various jurisdictions. Such information will be available to Ukrainian tax authorities through a number of data exchange instruments.

We should also remember that the BEPS Project is not only about TP. In fact, TP legislation alone is not sufficient for combating tax avoidance and it should be supplemented with complex measures proposed by the BEPS Action Plan, namely Controlled Foreign Companies regime, thin capitalization limitations, general anti-avoidance rule, etc.

 

Recently Andrii Zhurzhii, MP, the First Deputy Chairperson of the Parliamentary Committee on Taxation and Customs Policy, has presented a concept of tax reform. Please, share your opinion on legal initiatives of the concept.

Yaroslav  Romanchuk, managing partner,  ILC EUCON

The mentioned Draft, or rather two Draft Acts, as to changes to the Tax and Budget Codes were prepared by the expert group headed by the MP Andrii Zhurzhii, and fully comply with requirements of effective legislation. The key aspects of the concept suggested is reforming of the controlling authorities, decrease in burden on payroll and reform of other taxes aimed at establishing favorable conditions for economic development, investment attraction and generating employment.

The concept has been developed by lawyers, analysts, scientists and other experts. Larysa Vrublevska, auditor and partner at ILC EUCON and I were invited to this expert group. Our best practices served as background for the concept of consistent reform of the Fiscal State Service and improvements in tax administration. That is because elimination of elements of corruption and facilitation of procedures does not enable receipt of a positive effect. In particular, the concept provides for liquidation of the State Fiscal Service and establishment of tax and customs chambers at the Ministry of Finance; optimization of real tax bodies through elimination of duplication of functions. Abolition of the tax police is suggested. Another proposal is establishing financial guards powered by investigative authorities of the State Fiscal Service, departments of the Ministry of Internal Affairs and State Security of Ukraine.

As for reducing the payroll burden, abolishing single social and military duties and compensating budgetary losses due to raising the income tax rate to 41% (effective tax rate of payroll) are suggested. The next step in the reform will be gradual reduction of this rate to 30%, and then to 20%. Therefore, tax charges are not made by differentiating rates (more that 80 rates in total) on the payroll, and should simplify administration even in the first year of the implementation of the Act.

It is proposed that Corporate Profit Tax be substituted by the equity profit tax with simultaneous abolition of advance payments. These measures are to raise cash flow funds in companies. Reinvested profit could be assigned for modernizing production and creating new jobs.

Despite pivotal measures envisaged in the draft, I believe that they could be a push for economic development.

 

How do you evaluate a recent initiative by the National Commission for State Regulation of Financial Services Markets of Ukraine regarding development of the Draft Act On Amending Certain Acts of Ukraine Regarding Peculiarities of Realization of State Oversight (Control) over Activity of Economic Entities on the Financial Services Market?

Bohdan Dmukhovskyy,  associate, AEQUO

The Draft Act aims to align controlling authorities of the Financial Services Commission with principles set out in the On Basic Principles of State Oversight (Control) over Commercial Activities Act of Ukraine. Generally, the proposed Draft Act is a positive development that more clearly defines the grounds for holding irregular inspections by the Financial Services Commission and shortens deadlines for the Commission’s decision on sanctions resulting from such inspections (if any). 

It shall be noted, however, that the Draft is not perfect in legal drafting technique and would need further improvement at the stages of parliamentary hearings on the matter. Also, by implementing the Draft Act the Financial Services Commission seeks to have a carve-out from the general rule that activities of the supervised entities may be ceased only by a court ruling. It seems that such carve-out should not be necessary for the financial services markets regulated by the Commission. Specifically, the scope of the Commission’s supervisory powers does not include securities, derivatives and the banking sector. That is, the sectors where the regulator must have immediate powers to cease illegal activities of a transgressor. Hence, proper deliberation of a case by a court would deter the Commission from abuse of its powers and would rather not have a negative impact on the regulated financial services markets.

The Ministry of Economic Development and Trade of Ukraine recently took the initiative regarding strengthening the liability in the IP field. A proper Draft Act will be published for public consideration soon. Outline of the main novels suggested by the Draft.

Taras Utiralov,  attorney at law,  Ilyashev & Partners

The new Draft Act On Amending Certain Legislative Acts Regarding Strengthening the Liability in the Sphere of Intellectual Property is apparently aimed at exactly amplification of liability, but unfortunately not at enhancing the protection of IP rights in Ukraine in general. The Draft Act is to increase fines and other sanctions for violating IP rights and, in particular to stiffen punishment for trademarks violation up to depriving freedom in certain cases. It is also supposed to strengthen certain procedural rights belonging to IP rights owners when it comes to protection of their rights.

This Draft Act may be required to fulfill our international obligations, but in my view it is not enough (or it can even be absolutely useless) to improve the situation with intellectual property rights in Ukraine.

The problem is that to make such improvement certain other actions (and not legal reinforcement of liability) are required. Namely, it is important to improve the situation with actual application of sanctions to those who violate IP rights. A punishment should be inevitable, and not necessarily very strict. To achieve that, improvement of the entire law-enforcement system is required. As to legislative measures as such, it would be advisable to develop and implement efficient non-judicial ways for protection of IP rights, especially on the Internet. Some foreign countries have strong experience in this area, and we should study and adopt the best parts of it.