Category: Russia

White & Case has advised VTB Bank on the USD 1.7 billion restructuring of Russian mining and metal company Mechel PAO and on various matters connected to the related sale of the Elga Coal Complex, one of Mechel’s main assets.

Mechel has signed agreements with its lenders, prolonging the debt maturity of its credit lines by seven years with an option for an additional three-year extension. After Mechel repays part of its debt with proceeds received from that sale, the overall restructured debt to Mechel’s two major state-controlled lenders – VTB Bank and Gazprombank – will be a total of RUB 237 billion.

The White & Case team was led by Moscow-based Partner Natalia Nikitina, working with Partner Ekaterina Logvinova, Counsels Pavel Boulatov and Adam Smith, and Associates Rimma Izmaylova, Maria Kulmukhametova, and Oleg Todua. The firm’s team also included, in Singapore, Partner Charles McConnell and Associate Berdine Geh, in Stockholm, Counsel Niklas Helmer and Associate Jacob Frank, and in Prague, Partner Tomas Jine.

White & Case did not reply to our inquiry on the matter.

DLA Piper has advised Russian private equity firm Baring Vostok on the acquisition of a minority stake in Synergetic, a Russian manufacturer of environmentally friendly detergents and cosmetics. Synergetic was advised by Baker McKenzie.

According to DLA Piper, “Baring Vostok’s funds have invested more than USD 500 million in 13 service and consumer goods companies since 1996. This transaction will help the company strengthen its position among manufacturers of safe and eco-friendly products for home, scale up the operations, and expand its business.”

The DLA Piper team in Moscow was led by Partner Leo Batalov and supported by Senior Associate Andrei Sheetkin and Associate Alexandra Braterskaya.

Baker McKenzie’s team was led by Partner Igor Makarov and included Senior Counsel Dmitry Yeremin and Associate Alexander Fedotov.

Lawyers in Baker McKenzie’s Moscow office were part of the firm’s multi-jurisdictional team advising arrangers and dealers Citi and J.P. Morgan and dealers Barclays, BofA Securities, and HSBC on the establishment of a USD 6.5 billion Global Medium Term Note program by VEON, a global provider of connectivity and Internet services.

Baker McKenzie also represented Citi as trustee.

The program, which was established on April 16, provides future issuance capacity across multiple currencies, which will be made by VEON at its discretion.

The Baker McKenzie team was led from London by Capital Markets Partners Rob Mathews, Roy Pearce, and Haden Henderson, working with Senior Associate Maxim Khrapov and Associates Samantha Greer, Andrew Brown, and Luke Hackett. Partner Simon Porter and Associate Stephanie Lim advised on the trustee aspects of the transaction, with support from teams from the firm’s offices in Amsterdam (including Partner Philippe Steffens and Associate Jot van Suijlen), in Moscow (Partner Dmitry Dembich and Associate Uliana Tokareva), and in the US (Partners Kai Kramer and Patricia McDonald and Counsel Michael Poland). 

 

Russian lawyer Fedor Teselkin is the only CEE representative of the 21 new partners at Freshfields Bruckhaus Deringer worldwide.

Teselkin joined Freshfields in 2002 after graduating from the Moscow State Institute for International Relations.

Teselkin specializes in corporate and commercial law, particularly with regard to PPP-based infrastructure projects, as well as project finance. He has over 15 years of experience in advising public entities, sponsors, and lenders on infrastructure transactions on CIS markets.

“Freshfields is delivering expert advice and support to our clients through these uncertain times and the promotions reflect the contribution each of our new partners has made to our clients and our firm,” said Senior Partner Edward Braham of the members of the global promotion round. “We continue to invest in the firm for the medium to long term and I am proud of the quality of our people.”

Under an Executive Order of the Russian President, special rules for foreign nationals to stay and work in Russia will apply from 15 March to 15 June 2020.

During that time, the following are suspended:

• the period during which foreign nationals can stay or reside in Russia, and the term for migration registration of foreign nationals, when these periods and terms expire between 15 March and 15 June 2020;

• the validity term of documents of foreign nationals issued by Russian authorities, which expire in the period from 15 March to 15 June 2020, including visas, work permits, migration cards, temporary and permanent residence permits;

• the period during which foreign nationals who have a Russian temporary or permanent residence permit are allowed to stay outside of Russia; and

• the deadline by which foreign nationals have to voluntarily leave Russia based on a decision on administrative expulsion or deportation.

In addition, from 15 March to 15 June 2020, employers can hire foreign nationals who are in Russia without the permits that would normally be required.

That being said, to hire a foreign national who has arrived in Russia on the basis of a visa, the employer must have authorisation to attract and use foreign employees. But the Executive Order does not specify whether this requirement applies to highly qualified foreign specialists, who can normally be employed without such authorisation under applicable law. We are awaiting official clarifications by the Russian Ministry of Internal Affairs on this issue.

Comments

The President’s Executive Order is aimed at regulating the status of foreign nationals who are in Russia and have difficulties with obtaining documents due to the restrictions imposed to combat the spread of COVID-19. However, the wording of the Executive Order raises many questions regarding the practical application of the measures it provides for.

In particular, it is unclear what will be the timeframe during which employers will have to obtain work permits for foreign nationals they will have hired without such permits. In addition, the Executive Order is silent on the procedure for extending the validity term of documents whose validity term has been suspended under it.

We hope that the Russian Ministry of Internal Affairs will issue the relevant clarifications in the near future and will report on them in due course.

By Valeriy Fedoreev, Christophe Huet, Partners, and Ekaterina Elekchyan, Senior Associate, CMS Russia

Federal Law No. 102-FZ dated 1 April 2020 (the “Law”) enacts a number of tax support measures applicable to Russian taxpayers, primarily those belonging to negatively affected sectors of the economy. The Law also delegates certain legislative powers relating to taxation to the Russian government.

Pursuant to the Law, the Russian government adopted a plan of sustainable economic development on 2 April to clarify and extend the tax support measures announced earlier by the Russian President.

Apart from that, the Law introduces a new taxation regime for individuals on interest received from bank deposits. This is also one of the tax measures announced by the Russian President to finance the various tax and social support measures recently introduced.

Tax measures aimed at supporting Russian businesses

Tax measures introduced by the Law

Extension of the authorities of state executive bodies

Until the end of the 2020 calendar year, the Russian government is authorised to issue legal acts in the area of tax covering in particular the following:

• the suspension, abolishment or deferral of tax control measures (including those relating to transfer pricing);
• the extension of tax reporting and payment deadlines; and
• the introduction of new grounds and procedures for additional tax relief measures.

These amendments allow the Russian government to react immediately to the rapidly changing tax environment in the country and swiftly introduce temporary tax measures.

Under the Law, if there is a conflict between Tax Code provisions and governmental acts adopted pursuant to the Law, the provisions set down in the governmental acts concerned will prevail until the end of 2020.

Similar powers are provided to regional state authorities for tax issues governed by regional legislation.

Introduction of reduced social contribution rates for SMEs

As of 1 April 2020, SMEs enjoy reduced social contributions rates in Russia. The cumulative social contributions rate applicable to SMEs will be 15% (instead of the normally applicable 30%), and will apply to all salaries exceeding the minimum monthly salary.

Non-working days equated to official public holidays for tax purposes

The Law clarifies that non-working days introduced in Russia must be treated in the same manner as official public holidays and weekends, which will result in shifting certain tax reporting and payment deadlines, as specified in our previous eAlert.

In turn, the Russian government, pursuant to new powers granted to it by the Law, further extended tax reporting and payment deadlines, as specified below in more detail.

Tax measures taken by the Russian government to ensure sustainable economic development

On 2 April 2020, the Russian government enacted Resolution No. 409 (the “Resolution”) introducing a package of additional tax measures to ensure sustainable economic development in Russia.

The Resolution is mainly aimed at supporting businesses negatively affected by the current economic situation and SMEs, although certain measures are applicable to all taxpayers.

Extension of tax reporting deadlines

All Russian taxpayers will enjoy the following deferral of tax reporting deadlines in Russia:

• The deadlines for filing tax reports in relation to most taxes due in the second quarter of 2020 are extended for a three-month period (with the exception of VAT and social contributions reporting).

  This would mean, for example, that the submission of the annual income tax return for corporate taxpayers is shifted from the end of March to end of June 2020.

• The deadline for filing VAT tax returns for the first quarter of 2020 will expire on 15 May 2020 instead of 27 April 2020. (This is also the case for social contributions calculations normally submitted by the end of April).

It should, however, be noted that similar extensions do not apply to tax payment deadlines (apart from specific cases listed below), meaning that in certain cases under the new rules a tax payment deadline could occur prior to a reporting one.

Suspension of tax audits

According to the Resolution, the initiation of new field tax audits and the continuation of ongoing field tax audits will be suspended until 1 June 2020. Similar measures apply to audits for transfer pricing and currency control purposes.

In addition to this, taxpayers could enjoy various deadline extensions for the submission of documents and information to tax authorities, if requested.

Penalties for the late submission of tax reporting or other information or documents to tax authorities will not apply during this period.

Tax payment deferrals granted to SMEs

SMEs belonging to negatively affected sectors in Russia will benefit from tax payment deferrals (except for VAT and taxes they withhold as a tax agent) for a period of three to six months (depending on the type of tax) for taxes and social contributions due in 2020.

Possibility to request additional tax support measures

The Resolution makes it possible for taxpayers (in particular those not qualifying as SMEs) belonging to negatively affected sectors of the Russian economy, and strategic, system-forming and city-forming organisations to request additional tax deferrals. The Resolution also specifies the rules for granting these additional tax deferrals.

The grounds for requesting these tax deferrals are primarily linked to the decrease of a taxpayer’s revenues in Russia.

Taxpayers must file applications for a tax deferral with regional tax authorities together with a schedule for the tax settlement by 1 December 2020.

The period of tax deferral (starting from three months) and additional requirements applicable in each case will then be negotiated between the taxpayer and the regional authorities in charge.

Clarifications from the Russian tax authorities

To further clarify the new rules introduced by the Resolution, the Russian Federal Tax Service published a detailed chart specifying how the tax reporting and payment deadlines are changed and a Q&A addressing the taxpayers’ most common questions.

In addition, the Federal Tax Service launched a specific online service designed to allow taxpayers to check what tax support measures are applicable to them based on their tax identification number.

Comments

The abovementioned measures are primarily aimed at supporting negatively affected businesses and SMEs suffering from a severe shortage of revenues resulting from the suspension or a material reduction of their activities, notably due to various limitations introduced to combat the spread of COVID-19 in Russia.

In addition, governmental authorities consider that other businesses are also likely to face issues in fulfilling their tax reporting obligations in due time, in particular because of the prolongation of non-working days in Russia and the technicalities of remote work. The respective deadlines have been prolonged to avoid requiring the taxpayers’ accounting services to return to their work places.

However, in absence of similar deferrals for tax payment (and not only reporting) deadlines, Russian taxpayers, other than eligible SMEs, may still face the technical necessity to determine their taxable base for certain taxes before the tax reporting deadlines, to ensure tax payments are made in due time.

In addition to this, the introduced measures may turn out to be insufficient to neutralise the negative impact of taxes that are disconnected from the company’s revenues (e.g. social contributions and property tax), or are calculated based on the previous year’s results.

As previously reported, Russian businesses have already appealed to Russian authorities for stronger support measures, and further negotiations about this are ongoing.

Taxation of interest income on personal bank deposits

New tax rules introduced

The Law introduces personal taxation of interest income from bank deposits in Russian banks in roubles or in foreign currency.

The same Law abolishes a previously applied tax exemption for interest income received by individuals from certain types of debt securities.

Tax calculation

The tax base under the new rules will be determined as the positive difference between the interest income actually received by a taxpayer and the product of the multiplication of RUB 1 million (i.e. the tax exempt minimum announced by the Russian President, which is approximately EUR 12,300) and the applicable key rate determined by the Bank of Russia (currently, the applicable key rate is 6%).

Interest income received in a foreign currency should be converted into roubles at the official exchange rate determined by the Bank of Russia on the date of the actual receipt of interest income.

The amount of tax due will be determined based on a 13% tax rate, irrespective of the tax residency status of the income recipient. Under the general rules, income received by non-residents in Russia is subject to an increased 30% tax rate, except for certain exemptions.

The Russian Ministry of Finance has already issued additional clarifications on the application of these new taxation rules, including an arithmetical example of the tax base determination, which are available at its official website.

Tax administration and payment

Banks paying interest due to individuals will not be acting as tax agents, meaning that the tax payment obligations are directly imposed on the individual taxpayers.

The tax due will be payable based on a tax notice circulated by the tax authorities no later than 1 December of the year following the year when the income was received by a taxpayer.

This being said, the first tax payments for the year 2021 will have to be made by 1 December 2022.

Exemptions

Income received from escrow accounts and rouble bank deposits with an annual interest rate not exceeding 1% will be exempt from taxation under the new rules.

Information exchange and additional obligations of Russian banks

Russian banks will be obliged to provide Russian tax authorities with information on the interest income paid to each individual in each respective calendar year. This information will have to be provided by 1 February of the year following the expired tax period in the prescribed form to be further determined by the Russian tax authorities.

By Dominique Tissot, Partner, and Maria Kabanova, Senior Associate, CMS Russia

In response to the proclamation of non-working days in Russia from 4 to 30 April, many employers subject to the President’s Executive Order* dated 2 April 2020 (the “Executive Order”) have asked if they can provide their employees with “leave” during this period.

In its updated clarifications*, the Russian Ministry of Labour confirmed it is possible to grant leave to employees during the period of non-working days. If an employee opts to go on leave during that time, the employer may allow it. One issue remains unclear. The Ministry of Labour’s clarifications do not specify the type of leave envisaged – paid or unpaid. The Ministry is expected to issue additional explanations on this matter in the coming days.

In our opinion, however, paid leave would be the most appropriate option for employees of companies which are subject to the Executive Order. Granting leave without pay would be contrary to paragraph 1 of the Executive Order under which, during the period of non-working days, the employee’s salary must be paid. It should be noted that to grant leave to employees by their request during the period of non-working days, employers must receive applications from them and then issue orders on granting leave. Employers must also provide payment for this leave at least three days before it commences.

*in Russian

By Valeriy Fedoreev, Christophe Huet, Partners, Ekaterina Elekchyan and Irina Skvortsova, Senior Associates, CMS Russia

As already mentioned in our previous news on this topic, due to COVID-19 the Russian State Duma adopted on 18 March 2020 Federal Law No. 50-FZ according to which Russian joint stock companies (JSC) can, based on the decision of the Board of Directors, conduct annual shareholders’ meetings in 2020 via absentee voting.

As a general rule, the annual general shareholders’ meeting can be held as a physical meeting (a collective presence of shareholders) only. So far the law does not provide exceptions for holding of the annual shareholders’ meeting of limited liability companies (LLC), thus the LLC’s shareholders’ meeting in 2020 shall be conducted by means of a collective presence of shareholders.

As a further legislative initiative, the Russian State Duma adopted on 1 April 2020 in the third reading a draft law on postponing the deadlines for holding of the annual general shareholders’ meeting of Russian JSCs and LLCs in 2020. The annual general shareholders’ meeting of both JCSs and LLCs shall be conducted until 30 September 2020. As a general rule, the deadline for holding of the annual general shareholders’ meeting of a Russian JSC expires on 30 June and for LLCs on 30 April of a respective calendar year. 

The draft law also provides that in case LLC’s or JSC’s net assets upon results of 2020 financial year are lower than the amount of its paid share capital, this fact will not entail statutory decrease of the share capital or the company’s liquidation. By default, if the value of the JSC’s/LLC’s net assets is less than its share capital within a certain period of time, the company shall adopt one of the following decisions: on reduction of the share capital of the JSC/LLC to an amount not exceeding its net asset value or the liquidation of the JSC/LLC.

By Stefan Wolfgang Weber, Associated Partner, and Olga Mokhonko, Counsel, Noerr

In the current situation, many Russian companies, especially those with foreign investment, have found they are unable to hold their annual meetings (“Annual Meetings”) in full compliance with applicable laws. This is due to both the recent tightening of formal requirements for corporate resolutions and new restrictions on movement, meetings and business operations in connection with the COVID-19 pandemic.

Absent vs. present

Until recently, key Russian laws on corporations (the Russian Civil Code and the laws on joint-stock companies or “JSCs” and limited liability companies or “LLCs”) required that the resolution of any matter mandatorily reserved for the Annual Meeting be passed by joint attendance only. However, on 18 March 2020 Federal Law No. 50-FZ came into force to lift this restriction for all JSCs with effect until the end of 2020.

At law, each Annual Meeting of a JSC must resolve the following matters:

• the election of members of the board of directors, if provided for by the company’s articles in its corporate governance structure;
• the election of the internal audit committee (revizionnaya komissiya), if provided for by the company’s articles in its corporate governance structure;
• the appointment of an auditor; and
• the approval of the JSC’s annual report and annual accounts.

Now JSCs are able to resolve the above matters at their 2020 Annual Meetings by an absentee vote.

“Last call” for Annual Meetings

Usually, Annual Meetings must be held no later than 30 June for JSCs and 30 April for LLCs. On 7 April 2020, Federal Law No. 115-FZ came into force to replace these deadlines for the current year 2020 with a single 30 September deadline.

Compliance will pay off

The Russian Code on Administrative Offences establishes an administrative fine of between RUB 500,000 and RUB 700,000 (EUR 5,830 to 8,165) on legal entities that fail to hold their Annual Meeting in accordance with applicable laws.

In addition, the company’s CEO and other executives may be fined between RUB 20,000 and RUB 30,000 (EUR 235 to EUR 350).

Free from net asset testing

Generally, the net assets of any JSC or LLC must be equal to or above the level of its charter capital as at the end of each of the last two financial years (or any three years since incorporation). If a company fails to meet this requirement, it must decrease its charter capital to the actual level of its net assets. Otherwise, the company may have to be wound up.

However, Federal Law No. 115-FZ exempts FY2020 from this net asset-testing requirement.

Next: extending the “remote working plan” or opening a new horizon?

Turbulent times have made it necessary for Russian authorities to take measures, including in the area of corporate law.

It is yet to be seen to what extent these measures will enable Russian companies to function properly and to carry on with the corporate procedures required to preserve and protect the interests of their investors.

However, two facts are clear. First, we can see a tangible spike of interest in finding new, but one-off or limited-in-time solutions to relevant issues. Second and more importantly, the current environment presents new opportunities for developing a whole new market of technologies (e.g. e-voting platforms that are already developing and have become even more relevant for general meetings of companies). Such a market could bring about a tectonic shift that is potentially key to synchronising with the relevant new trends in the global economy.

By Vladimir Zenin, Partner, and Elizaveta Rakova, Associate, CMS Russia

On 11 April, the Moscow Mayor and the Governor of the Moscow Region introduced a digital passes regime.

When are digital passes required?

Digital passes can be obtained starting from 13 April and become obligatory on 15 April 2020.

Passes are necessary for travelling in Moscow and the Moscow Region by either public or private transport. Private transport includes cars, bicycles, electric kick scooters, motorbikes, etc.

Taxi drivers will also check a rider’s pass before starting a trip. Earlier, car-sharing services were suspended in Moscow and the Moscow Region.

Who is exempt from the obligation to apply for a digital pass?

Digital passes are not required for:

• children under 14 years;

• moving in the city without using transport – leaving the house and walking in the district is allowed for limited purposes such as going to the nearest shop, walking a pet (within 100 m of the individual’s home), throwing out rubbish and seeking emergency medical help. Social distancing of not less than 1.5 m must be maintained; or

• people holding official IDs such as military, state and municipal officers, judges, advocates, notaries and their assistants, journalists and private security. People without official IDs travelling along with people holding official IDs must have digital passes.

What types of digital passes are there?

Three types of digital passes have been introduced: for work, for medical help, for other purposes (such as going to a shop by car, going to a country house or dacha, etc.).

Travel for work

Digital passes will be issued until 30 April 2020 without limitations on the number of trips and routes. When applying for a work pass, a person must submit his name, passport details, phone number, email address, licence plate number of private vehicle (if it is used for travel), transport card number, and the name and tax ID of the employer.

Travel for medical help

A digital pass will be issued for one day. Passes can be obtained without limitation during a calendar week. The same information mentioned above must be submitted, but instead of employer information, the name of the medical organisation and route (residential address and address of the medical organisation) must be specified.

Other travel

A digital pass will be issued for one day. A pass can be issued not more than twice a calendar week. The same details must be submitted, but instead of information about organisations, the purpose of travel and the route (residential address and destination address) should be listed.

How to apply for a digital pass?

Digital passes can be obtained as follows:

• on websites: for Moscow – nedoma.mos.ru*, for the Moscow Region – www.uslugi.mosreg.ru* and mobile app “STOP COVID-19”*;

• by phone: for Moscow – 8-495-777-77-77, for the Moscow Region – 8-800-550-50-30; or

• by SMS: for Moscow – 7377, for the Moscow Region – 0250.

Passes will be issued in the form of a XXXX-XXXX-XXXX-XXXX code and will include letters and numbers. A pass can be shown on paper or in electronic form (e.g. on a mobile phone) and must be shown along with a passport or other ID.

Passes will be checked with the use of a special application.

To whom should one apply for a digital pass when travelling to other regions?

Residents of Moscow travelling to the Moscow Region must obtain a pass from the Moscow authorities. No separate pass from the Moscow Region authorities is needed. Similarly, residents of the Moscow Region travelling to Moscow must obtain a pass from the Moscow Region authorities.

For travelling from Moscow and the Moscow Region to other regions, residents must obtain passes for Moscow or the Moscow Region (depending where the route starts) and passes for the other regions under the procedures established by the relevant regions.

Residents of other regions travelling to Moscow or the Moscow Region must obtain passes from the Moscow or the Moscow Region authorities.

Must expatriates residing in Moscow or the Moscow Region follow any other special procedures?

The regime of digital passes applies to all people residing in Moscow or the Moscow Region, no exceptions or special requirements are imposed for expatriates.

The same procedure as described above must be followed for obtaining a digital pass. And if someone is not registered on the official portals mos.ru or uslugi.mosreg.ru or does not have other accounts allowing to login on these portals (e.g. social networks), other means can be used, such as calling the hotline or sending an SMS.

When will a digital pass be terminated?

A pass will be terminated if:

• it is established that false information was provided;

• use of the pass violates the Executive Order of the Moscow Mayor and the Decree of the Governor of the Moscow Region on digital passes; or

• there has been a breach of requirements on the high-alert regime.

What are the sanctions for breach of the digital pass regime?

Besides administrative and criminal liability described in our previous eAlert, violating the regime for digital passes may lead as well to the administrative liability under Moscow and Moscow Region laws – a fine of RUB 5,000 (EUR 62) for violating the high-alert regime with the use of transport, and the possible retention of the transport means, which will be placed in special parking.

By Christophe Huet, Partner, and Irina Shurmina, Senior Associate, CMS Russia