RUSSIA

LEGAL DIGEST FEBRUARY 2010

Banking and Finance

Changes to the Russian legislation regulating lender/borrower relations 2

Commercial Resolution of the Constitutional Court allowing arbitrazh courts to reopen adjudicated cases on the basis of a subsequent change in the legal position of the Supreme Arbitrazh Court 3

Corporate The term “Russian Federation” and “Russia” in trade names of legal entities 4 Joint-Stock Companies: liability for registrar’s actions 4

Tax Draft Federal Law on transfer pricing 5 Draft Federal Law on specifying the requirements for invoices 5

Draft Federal Law on introducing the list of activities, performed during state registration of medicines, subject to state duty and on establishing state duty rates for these activities 5

Order of the Russian Ministry of Finance on adopting a new form of tax return on personal income tax (“PIT”) 5

Order of the Russian Ministry of Finance on adopting a new form of tax return in respect of corporate profits tax 6

2 | Legal Digest | February 2010

BANKING AND FINANCE

Federal Law No 11-FZ "On amending article 29 of the Federal Law of the Russian Federation “On banks and banking activities”.

The law was adopted by the State Duma of the Russian Federation on 27 January 2010 and will come into force on 20 March 2010.

The law introduces changes into the Russian legislation regulating lender/borrower relations and is mainly designed to protect the interests of borrowers, namely: interest rates under loans and/or the

procedure for their determination, interest rates for deposits and commission fees for operations shall be established by a credit organization in agreement with borrowers, unless otherwise provided by federal law;

a credit organisation may not unilaterally alter interest rates under loans and/or the procedure for their determination, interest rates for deposits, commission fees or effective terms of such agreements with their clients (self-employed entrepreneurs or legal entities), unless otherwise provided by federal law or by agreement with a client; and

under a loan agreement with a borrower (individual), a credit organisation may not unilaterally reduce the effective term of that agreement or raise the interest amount and/or alter the procedure for determination of interest, or increase or establish a commission fee for operations, unless otherwise provided by federal law.

According to the authors of the law these recent amendments became necessary for the following reasons: when entering into legal relations, a

borrower relies on those terms and conditions of the loan agreement,

agreed with a credit organisation at the time of entering into the loan agreement, and which determines the proper performance of its obligations; and

the recent volatility period on the financial markets has given rise to a negative practice where credit organisations unilaterally alter the material terms of their loan agreements, including loan tenor reduction, acceleration or change of interest rates sometimes reaching one hundred or more per cent.

The law, therefore, aims to maintain a balance between lenders and borrowers, and to provide additional protection and rights for a borrower, being an unprotected party in such relations. / GRANT WILLIAMS PARTNER GRANT.WILLIAMS@CMSLEGAL.RU

3 | Legal Digest | February 2010

COMMERCIAL Resolution of the Constitutional Court No. N 1-p dated 21 January 2010

“On verification of Articles 170.4, 311(1) and 312.1 of the Arbitrazh Procedural Code of the Russian Federation in respect of compliance with the Constitution of the Russian Federation in relation to complaints of ZAO “Proizvodstvennoe obedinenie “Bereg”, OAO “Karbolit”, “Zavod “Mikroprovod” and “Nauchno-proizvodstvennoe predpriyatie “Respirator”

The Constitutional Court of Russia has issued a decision allowing arbitrazh courts to reopen adjudicated cases on the basis of a subsequent change in

the legal position of the Supreme Arbitrazh Court.

On 21 January 2010 the Constitutional Court of the Russian Federation (the “CC”) confirmed that the provisions of Articles 170.4, 311(1) and 312.1 of the Arbitrazh Procedural Code of the Russian Federation (which regulate the retrial of cases due to ‘newly discovered circumstances’ – i.e. circumstances of which the court was not aware at the time the case was decided) comply with the Constitution of the Russian Federation. This means that first-instance courts may reopen a case if the Supreme Arbitrazh Court (the “SAC”) has subsequently adopted a different legal position in a case with similar factual circumstances. The CC ruled that the right to decide whether to re-try a case

due to a newly adopted legal position by the SAC belongs solely to the court which originally issued the decision.

The above ruling of the CC supports SAC’s objective to develop a unified court practice based on SAC’s jurisprudence.

/ LEONID ZUBAREV PARTNER LEONID.ZUBAREV@CMSLEGAL.RU

4 | Legal Digest | February 2010

CORPORATE

The term “Russian Federation” and “Russia” in trade names of legal entities

The use of the term Russian Federation or Russia or any derivative words in a legal entity’s trade name requires a permit. Pursuant to Part Four of the Civil Code, the Government has now approved the procedure for such usage.

A permit is to be issued by the Russian Ministry of Justice upon application of the relevant legal entity’s founder/shareholder. For this purpose, a legal entity needs to meet at least one of the following criteria:

to have branches and/or representative offices in more than half of the federal regions in the Russian Federation, or

to be classed as one of the largest taxpayers (as such term is defined in the Order of the Federal Tax Service No. MM-3-06/308@ of 16 May 2007), or

to be listed in the register of business entities as having a market share in a certain product greater than 35% or dominate a market in such a product, or

to be a business entity in which the Russian Federation holds an ownership interest greater than 25% of its share capital.

The above rules came into force on 16 February 2010.

[Resolution of the Russian Government No. 52 dated 3 February 2010 “On Approving the Rules for Including the Official Name "Russian Federation" or "Russia" or Derivative Words in a Legal Entity’s Trade Name”]

Joint-Stock Companies: liability for registrar’s actions

The Constitutional Court of the Russian Federation has recently analysed a number of cases related to unlawfully debiting shares from shareholders’ personal accounts. The court has confirmed that the Russian Constitution does not prevent a joint-stock company from being held liable for loss caused to a shareholder by a registrar’s actions in connection with maintaining and keeping the company’s share register. In its decision, the court referred to public policy objectives such as attracting private investment, and the stability of civil law transactions. In addition, the court pointed out that maintaining a register is inseparably connected with conducting entrepreneurial activities and in this respect a joint-stock company is therefore subject to the general rules of liability for defaulting on one’s own obligations.

[Resolution of the Constitutional Court of the Russian Federation No. 2-P dated 28 January 2010]

/ DAVID CRANFIELD PARTNER DAVID.CRANFIELD@CMSLEGAL.RU

5 | Legal Digest | February 2010

TAX

Draft Federal Law No. 305289-5 on transfer pricing

On 23 December 2009 the Russian Government adopted an Order No. 2058 on introducing to the Russian State Duma the draft Federal Law “On amending part one and two of the Russian Tax Code and on recognising void certain provisions of the Federal Law “On amending and completing part one of the Russian Tax Code” in connection with the improvement of principles of determination of prices for tax purposes” No. 305289-5.

The draft law introduces into part one of the Russian Tax Code a new Chapter on the rules of transfer pricing and provides for the following amendments:

revision of the list of transactions subject to control by the tax authorities;

extension of the list of interdependent persons;

introduction of new methods for determining whether prices applied in a transaction are in compliance with market prices;

introduction of a mandatory procedure of notification to the tax authorities of controlled transactions in cases where the amount of income and expenses resulting from such transactions concluded during one year exceeds a certain amount (during the period from 2011 to 2015 this amount will change from RUR 100,000,000 to RUR 20,000,000);

introduction of an opportunity for the largest taxpayers to conclude price agreements with the Russian Federal tax service; and

introduction of liability for the violation of principles of price determination, in particular, a fine for non-payment of taxes which will amount to 40% of the unpaid taxes but will be not less than RUR 30,000.

On 19 February 2010 the draft law was adopted in the first reading by the Russian State Duma.

[Draft Federal Law No. 305289-5 “On amending part one and two of the Russian Tax Code and on recognizing void certain provisions of the Federal law “On amending and completing part one of the Russian Tax Code” in connection with the improvement of principles of determination of prices for tax purposes”]

Draft Federal Law No. 296027-5 on specifying the requirements for invoices

On 8 December 2009 a draft Federal Law which specifies the requirements for invoices was introduced to the Russian State Duma. The draft law introduces the notion of a “gross violation of the procedure of issuing invoices” into the Russian Tax Code. Under the amendments, an invoice will not be able to serve as a ground for the deduction of taxes invoiced by the seller to the buyer or for a refund in cases where:

the invoice does not contain mandatory essential elements provided for by the legislation;

the invoice was not signed by the general manager of the company or by any other authorized person;

the invoice was signed by an unauthorized person; or

the invoice contains knowingly false information which was evident to the buyer at the moment of its receipt (this is information from the Unified State Register of legal persons).

The draft law has been included in an approximate agenda to be considered by the Russian State Duma in May 2010.

[Draft Federal Law No. 296027-5 “On amending article 169 of part 2 of the Russian Tax Code”]

Draft Federal Law No. 304959-5 on introducing the list of activities, performed during state registration of medicines, subject to state duty and on establishing state duty rates for these activities

On 26 December 2009 a draft Federal Law “On amending part two of the Russian Tax Code” containing the list of activities performed by state authorities during state registration of medicines, which are subject to state duty, was introduced to the Russian State Duma.

The draft law establishes state duty for carrying out expert review of the quality of medicine intended for people and animals, for confirmation of state registration of medicine as well as for carrying out expert reviews for various other purposes, for instance, for the purpose of introducing changes to the technological process of production of medicines for people.

Also, under the draft law, the state duty for state registration of medicines for people will rise from RUR 4,000 to RUR 670,000.

On 29 January 2010 the draft law was adopted in the first reading by the Russian State Duma.

[Draft Federal Law No. 305959-5 “On amending part two of the Russian Tax Code”]

Order of the Russian Ministry of Finance on adopting a new form of tax return on personal income tax (“PIT”)

According to the Order, PIT tax returns for 2009, to be submitted on 30 April 2010 at the latest, shall be presented to the tax authorities in a new form.

A separate sheet will be used in a tax return for calculation and reflection of income which is not subject to taxation. Income received in the form of a gain or

6 | Legal Digest | February 2010

prizes as a result of competitions, games and other events organised for goods advertising purposes shall also be reflected in a separate PIT tax return sheet.

The list of securities operations has been amended and the procedure for reflecting standard and social PIT deductions has been supplemented.

[The Order of the Russian Ministry of Finance No. 145n “On adopting a new form of tax return on personal income tax (form 3-NDFL) and the procedure of its completion” dated 29 December 2009]

Order of the Russian Ministry of Finance on adopting a new form of tax return in respect of corporate profits tax

Under the Order, tax returns in respect of corporate profits tax for 2009, to be submitted on 28 March 2010 at the latest, shall be made in a new form.

The form of the tax return reflects amortization rules more fully and provides for separate lines for new types of income. The rules for reflecting the calculation of dividends in the tax return and the codes (relating to the taxpayer’s place of location/registration with the tax authorities) for submitting the tax return to the tax authorities have also been specified.

[The Order of the Russian Ministry of Finance No. 135n “On amending the Order of the Russian Ministry of Finance No. 54n “On adopting a form of tax return in respect of corporate profits tax and the procedure of its completion” dated 5 May 2008” dated 16 December 2009]

/ STANISLAV TOURBANOV PARTNER STANISLAV.TOURBANOV@ CMSLEGAL.RU

7 | Legal Digest | February 2010

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