Baltic Shipyard JSC, which is part of the United Shipbuilding Corporation, recently won a dispute with the Main Interregional Directorate of the Russian Federal Bailiff Service. This was a consequence of another case—Baltic Shipyard recovering €5.1 million from its Finnish counterparty, Wärtsilä Solutions OY, for the failure to supply marine equipment. As previously reported by Delovoy Peterburg, the foreign company was supposed to supply diesel standby generators, stern tube seals, and stern tubes to the Saint Petersburg shipyard. This equipment was intended for Project 22220 icebreakers Yakutia and Chukotka. But due to the sanctions imposed on Russia after the special military operation had started, the Finns refused to supply marine equipment to Baltic Shipyard.

Since the sanctions have restricted Russian businesses’ access to international arbitration tribunals (that usually handle disputes related to such contracts), the Russian government has introduced a new legal regulation to protect Russian entrepreneurs by enabling domestic companies to file claims against foreign companies with Russian state commercial courts.

In May 2023, the State Commercial Court of Saint Petersburg and the Leningrad Region recovered €5.1 million from Wärtsilä Solutions OY. This decision went all the way through all the courts that upheld it (in particular, in March of this year, the Russian Supreme Court refused to submit the cassation appeal filed by the Finnish company to the judicial board).

After receiving an enforcement order, Baltic Shipyard filed with the Main Interregional Directorate of the Russian Federal Bailiff Service an application seeking to initiate enforcement proceedings and, accordingly, to recover €5.1 million from its Finnish counterparty. However, the bailiffs refused to deal with this case, referring to the improper execution of the enforcement order.

Then Baltic Shipyard appealed the decision of the Main Interregional Directorate of the Russian Federal Bailiff Service in the State Commercial Court of Saint Petersburg and the Leningrad Region, which not only recognized the bailiffs’ inaction as illegal, but also obligated them to correct the violations committed.

As it turned out, the bailiffs returned the enforcement order, because Wärtsilä Solutions OY did not specify the details typical of Russian legal entities (Taxpayer Identification Number (INN), Primary State Registration Number (OGRN), etc.). The state commercial court pointed out that the foreign company had its identification number and location inserted in the enforcement order.

It is not easy to enforce a decision in Russia, either, for example, to foreclose on any asset of a foreign counterparty, and sometimes it is impossible. First of all, you may run into difficulties when searching for assets if your foreign agent owned something in Russia unofficially or if the ownership structure was indirect. Another question is that before leaving, foreign companies had sold their assets. And even if a Russian merchant won a dispute against his foreign counterparty, there are simply no assets that could be used to repay the debt.

“In particular, EU sanctions have imposed a ban on transactions with legal entities that have applied to a Russian court in connection with a transaction or contract, the performance of which was directly or indirectly affected by EU sanctions. These measures were taken in response to a significant number of disputes initiated by Russian businesses with the application of the rules on the exclusive jurisdiction of Russian state commercial courts (the legal regulation introduced after the start of the special military operation. — the editor’s note). If, using these rules, a Russian company files a claim with a Russian court against a foreign counterparty, then, in fact, it itself will become subject to EU sanctions. This approach taken by the EU gives rise to significant risks for Russian entrepreneurs: if a Russian legal entity has assets in the EU, then they can be arrested or frozen due to a legal dispute with a foreign counterparty in Russian state commercial courts,” commented Julia Talagaeva, Senior Associate, Forte Tax & Law.

For more information, click here (in Russian).

Whether directly or indirectly, but the tax reform will inevitably affect everything that is happening in the company:cash flows, financial performance, budgeting, personal tax burden, owners’ income, and even the HR component of the business and human capital.CFOs are now busy analyzing, planning, and looking for optimal solutions to minimize the blow that the tax reform will inflict on the business.

How taxpayers under the simplified tax system can avoid risks of incurring VAT.

Firstly, it is necessary to analyze the existing contracts made with contractors that are under the simplified tax system as regards determining the contract price and whether there is a clause on its revision if there are any changes in the tax status of the parties or applicable tax laws. If the contract provides for a fixed price that does not cover taxes, and there is no tax clause referred to above, then in order to keep the same price, you will have to agree on a new price with your contractor, effective from the beginning of the next year. If you fail to reach an agreement, then, starting from 2025, the contractor will increase the price by 20, or 5, or 7 percent unilaterally. The judicial practice in such cases is on the seller’s side (Ruling No. 305-ЭС23-26210 of the Russian Supreme Court dated April 4, 2024 in Case No. А40-236292/2022).

It is advisable to immediately start including tax clauses in contracts with contractors under the simplified tax system regarding the inclusion of VAT in the price of the contract, regarding the invariability of the price when the contractor becomes a VAT payer at any rate. You may provide for the contractor’s obligation to notify in advance of any change in the tax status and revise prices in this case, and for the customer’s right to unilaterally withdraw from the contract, if no agreement on the price is reached.

Secondly, it is necessary to conduct a more thorough background check of contractors under the simplified tax system that will or may become a VAT payer from the beginning of the year. After all, now such contractors will be become payers of input VAT, the deduction of which may be denied, if Russian tax authorities doubt the counterparty’s good faith, and the customer will not be able to confirm the exercise of due diligence when choosing a counterparty,” said Natalia Vorobyeva, Senior Associate, Forte Tax & Law.

CFOs fear that the tax amnesty will be followed by a period of active fight against business splitting, and they are careful in assessing even minimal risks. The key questions are whether the business structure falls under the concept of splitting and how much the company risks remaining under the simplified tax system. To decide whether to take advantage of the tax amnesty, you need certainty in assessing the risk of further charges.

When assessing the amount of risks, you should not leave out fines and legal costs. It is necessary to assess the amount of possible additional tax assessments, fines, and court costs and, on the basis of this calculation, to consider the possibility of switching, from the beginning of 2025, to a structure that excludes the risk of splitting. The company can partially take advantage of the tax amnesty, if it transitions to the general taxation system at least some of the elements of the business structure that are most likely to cause questions on the part of Russian tax authorities,” recommended Natalia Vorobyeva.

To read this article, click here (in Russian).

On July 30, 2024, the Russian State Duma passed, in its third and final reading, a draft law that alters, among other things, the procedure for documenting the change of the CEO of a company (for LLCs) and sets out rules for holding a general meeting remotely (Draft Law No. 103501-8). It is expected that the procedure for appointing a CEO will change as soon as September 1 this year, and the rules for holding a general meeting remotely (with several exceptions) will take effect March 1, 2025.

On July 23, 2024, the Russian State Duma passed, in its third reading, Draft Law No. 444871-8 that makes it possible to transfer certain matters that fall within the competence of the general meeting of shareholders of a non-public JSC and of members of an LLC to the board of directors or the management board.

The pravo.ru portal has conducted a study on corporate law, evaluating the projects run by Russian law firms in terms of the value and number of projects.

For this study, regional law firms submitted 273 projects worth a total of over RUB 1 trillion. Four companies from Saint Petersburg have made it to the top five. These are Kachkin & Partners, Nordic Star Law Offices, Forte Tax & Law, and Legal to Business.

According to the study, since January 2022, Forte Tax & Law has provided support for 31 corporate law projects worth about RUB 40 billion, with the average project value being RUB 1,290 billion. Transactions account for 84% of the number of our projects.

To read the study, click here.

Article by Anton Kabakov for RBC Pro

The RBC Pro portal has published an article by Anton Kabakov, Partner at Forte Tax & Law, overviewing the latest practice of obtaining authorizations from the Russian Government Commission for the purchase and sale of foreign companies in Russia.

Since the fall of 2022, Russia has been imposing serious restrictions on transactions with respect to shares (interests) in Russian companies where one of the parties is a foreign person from a so-called ‘unfriendly’ country.As you may know, such transactions require authorization from the Russian Government Commission on Control over Foreign Investments.However, it is not common knowledge that authorization from the Russian Government Commission or the Central Bank of Russia may be required even when the object of a transaction is a foreign company.

To read the article on the RBC Pro portal (a subscription fee applies), click here (in Russian).

If you have any questions about obtaining authorizations from the Russian Government Commission, please send an email to Anton Kabakov.

On May 20, 2024, Decree No. 430 of the Russian President was published that has imposed restrictions on transactions involving the acquisition of exclusive rights to the results of intellectual activity or means of individualization. This Decree does not apply to the granting of rights to use intellectual property under license or other similar agreements that do not provide for the alienation of exclusive rights.

On May 17, 2024, the Russian Ministry of Finance published on the website a new extract from the minutes of a meeting of the subcommittee of the Russian Government Commission.

On May 23, 2024, the President of Russia signed Decree No. 442, establishing the procedure for compensating damages caused by decisions of US governmental bodies and courts to seize foreign assets of the Russian Federation and the Central Bank of Russia.

On April 26, 2024, the Russian Ministry of Justice registered Order No. 35н of the Russian Ministry of Finance dated March 28, 2024, which approved a Special List of States and Territories that provide Preferential Tax Treatment and/or do not require the Disclosure and Provision of Information when Financial Transactions are Conducted (Offshore Zones).