Category: Ukraine

Ilyashev & Partners has successfully challenged the arrest of 50.3% of the shares of Ferrexpo Poltava Mining, owned by Ferrexpo AG Switzerland.

PrJSC Poltava Mining is the largest Ukrainian exporter of iron ore pellets to Europe. According to Ilyashev & Partners, “the Ferrexpo Group specializes in iron ore extraction by open-pit mining, as well as the production of iron ore pellets used in steel production. Ferrexpo’s resource base is one of the largest iron ore deposits in the world. The main production capabilities of the company are located in Ukraine: Ferrexpo AG owns 99.11% of the shares of Poltava Mining, 100% of Yeristovo Mining, and 99.9% of Belanovo Mining. Ferrexpo shares are listed on the main stock market of the London Stock Exchange. In the UK the company is included in the FTSE 250 Index.”

According to Ilyashev & Partners, on November 30, 2020, the Investigating Judge of the Pecherskyi District Court of Kyiv, granted the motion filed on behalf of Ferrexpo AG – the owner of the arrested property – and “lifted the arrest imposed in the criminal proceedings upon the participation interest in the amount of 50.3% of the authorized capital of PrJSC Poltava Mining.” According to the firm, “the court decision entered into force and is not subject to appeal.”

Aequo co-founding Partner Mariya Nizhnik has returned to the firm to head its Antitrust and Competition practice following four years at the Antimonopoly Committee of Ukraine.  

In 2015 Nizhnik was appointed as the First Deputy Chair of the Antimonopoly Committee of Ukraine. According to Aequo, “in her role at the AMCU Mariya focused on improving the efficiency of competition regulations and enforcement mechanisms to make the Ukrainian market more competitive. Mariya drove all the major reforms in this sector between 2015-2019, including the introduction of a state aid system in Ukraine, developing standards of proof in antitrust investigations, and assessments in merger control proceedings. [She] was a member of Interdepartmental Commission on International Trade of Ukraine.” 

Aequo describes Nizhnik as a “well-renowned expert in the area of Antitrust and Competition law, with extensive experience at leading Ukrainian law firms advising national and international clients on competition and international trade matters.” According to the firm, “she has primarily focused on antitrust investigations (abuse of dominance and cartel cases, in particular on anticompetitive distribution arrangements, price-fixing, market allocations, exclusionary behavior), and other competition matters, including merger control and state aid.”

Nizhnik is a graduate of the Donetsk National University and holds an LL.M. from the University of Pittsburgh School of Law. Before founding Aequo in 2014, she spent nine years with Vasil Kisil & Partners.

“I’m thrilled to re-join the partnership at Aequo, a firm with strong leadership and innovation culture,” said Nizhnik. “I am looking forward to working alongside talented professionals on ambitious projects.”

“We are delighted to welcome Mariya once again as our partner,” commented Aequo Managing Partner Denis Lysenko. “She is an outstanding antitrust and competition expert with an excellent track record in the market. I strongly believe that her depth of experience will provide invaluable insights to Aequo’s clients and further strengthen Aequo’s antitrust and competition team.”

DLA Piper Legal Director Natalia Kirichenko has made named Head of Intellectual Property and Technology in the firm’s Kyiv office.

According to DLA Piper, Kirichenko’s primary areas of focus for the past 15 years have been Intellectual Property, Data Protection and Privacy, Telecommunications, and Information Technologies. Before joining DLA Piper in 2010, Kirichenko spent five years as an in-house lawyer with several companies in Ukraine. She received her doctorate from the Uzhhorod National University in 2016.

According to DLA Piper, “Natalia will lead the Intellectual Property and Technology team in Ukraine, which provides the full range of IP law services for leading international businesses in the country as well as international Ukrainian companies abroad.” 

“Natalia started working as an associate in the firm and thanks to her exceptional talent and business acumen, has become an undoubted leader,” said Margarita Karpenko, Managing Partner of DLA Piper’s Kyiv office. “I look forward to Natalia driving further development of the practice.”

Esquires has successfully reversed the seizure of immovable property on behalf of Entertainment Center of Sport, a hotel and entertainment complex with a total area of more than 3.500 square meters located in the suburbs of Kyiv.

According to Esquires, the firm was able to prove that “restrictions on property rights can have exceptional cases and pursue only a legitimate aim. Otherwise, any restrictions will lead to interference in the right of peaceable possession of their property.” According to the firm, “the court agreed with [this] position and [held that the] longest possible duration [of a seizure] is limited to the time of the pre-trial investigation and/or trial before rendering the decision [that ends] the criminal proceedings. The validity of the seizure [after] the closure of criminal proceedings violates the rights of the owner.”

As a result, the seizure of said property was lifted.

Esquires’ team included Partner Opanas Karlin and Senior Associate Andrey Kravchuk.

Ilyashev & Partners, representing the interests of OBIO LLC, has persuaded Ukraine’s Interdepartmental Commission on International Trade to initiate an anti-dumping investigation on the import of heat-insulating materials to Ukraine from the Republic of Belarus and the Russian Federation.

According to Ilyashev & Partners, “depending on the outcome of the anti-dumping investigation, the imports of heat-insulating materials to Ukraine from the Republic of Belarus and the Russian Federation may be subject to the imposition of an anti-dumping duty. The investigation shall last for more than 12 months.”

The Ilyashev & Partners International Trade Practice team is led by Partner Olena Omelchenko.

On January 16, 2020, the Ukrainian Parliament passed a law launching anti-BEPS tax reform in Ukraine, among other legislative changes (the “2020 Tax Law”). The business community expressed opposition to most of its provisions.

Despite the controversy, the President signed the 2020 Tax Law in May. To sweeten the pill for business, the Government, after consulting with the business community, prepared a draft law amending the 2020 Tax Law, which was passed by the Parliament on July 14, 2020 (the “July 14th Law”) – in a version which did not include the majority of the business community’s proposals. The July 14th Law is currently awaiting the President’s signature. Some provisions of the 2020 Tax Law are already effective, while others – including the following – will become effective on January 1, 2021:

Implementation of the Business-Purpose Concept

Effective May 23, 2020, the tax authorities may deny the deductibility of the taxpayer’s expenses resulting from a transaction with any foreign counterparty where the cited business purpose is considered insufficient or unjustified.

A lack of business purpose may be claimed if the key aim or one of the key aims of the transaction (or its result) is to minimize the tax burden, or if, in comparable conditions, the taxpayer would not purchase or sell works, services, or other assets from or to non-affiliated parties. Although the tax office will bear the burden of proof in such cases, the business community claims that the implementation of the concept would increase the discretion of tax authorities and eventually the business-purpose test will be applied to all transactions with foreign companies, especially to those regarding non-material assets or services.

The July 14th Law has adjusted the business-purpose concept, which would now apply to operations with companies registered in low-tax jurisdictions, and to transactions involving royalty payments with any foreign company.

Principle Purpose Test

As of May 23, 2020, no exemption or lowering of Ukrainian taxes allowed under the double-tax avoidance agreement will be granted for payments of income from Ukrainian residents to foreign recipients if obtaining this tax benefit was the main purpose of the transaction. The Principle Purpose Test is incorporated into domestic legislation to fulfil the requirement of the MLI Convention effective for Ukraine from December 1, 2019.

Thin Capitalization Rules

As of January 1, 2021, new thin capitalization rules apply to all taxpayers whose debts to any non-resident (not only to an affiliated non-resident) exceed more than 3.5 times the company’s equity, except for financial institutions and companies engaged exclusively in leasing activities, acting as debtors.

The new thin capitalization rules will decrease the limit of interest expenses that can be deducted in the reporting period from 50% to 30% and the basis for its calculation. Instead of the 50% EBITDA that is applicable now, the new 30% limit will be calculated from the corporate income tax base plus the amount of financial expenses under accounting rules and tax depreciation. The new limit will apply to transactions with all counterparties (including residents). Interest that has been capitalized as part of the value of non-current assets shall be included to interest expenses proportionately to the depreciation of such assets for the respective reporting period. The business community proposed that these rules be limited to transactions with affiliated non-resident companies only. However, this proposal was denied in the July 14th Tax Law.

Constructive Dividends

Under the 2020 Tax Law, any payment for goods or services by a Ukrainian company to an affiliated foreign entity exceeding the arms-length price may be treated as a de facto distribution of dividends and subject to the standard 15% withholding tax or the lower withholding tax rate under the double-tax avoidance agreement. Constructive dividends can also include share buyouts, reductions of share capital, and similar transactions with a Ukrainian company. The business community urged that these provisions be eliminated, but this request was not supported by the Parliament. As the July 14th Law makes no important changes in favor of businesses operating in Ukraine, businesses need to verify their operations and reshape their tax planning strategies to conform with the new taxation rules. 

This list of changes is not exhaustive, and the 2020 Tax Law contains a lot of other provisions that should be carefully considered by Ukrainian taxpayers, especially those which are part of global business structures.

By Anna Pogrebna, Partner, and Sergiy Datsiv, Associate, CMS Reich-Rohrwig Hainz Kyiv

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Sayenko Kharenko has successfully represented the interests of the Auchan Group in what the firm calls a “high-profile case” involving the illegal alienation of … land plots belonging to it worth USD 10 million in the Odessa region of Ukraine.

According to Sayenko Kharenko, the firm applied to Ukraine’s Temporary Special Commission for the Protection of Investors’ Rights for relief. According to the firm, “during the consideration of the appeal, several TSC meetings were held, which resulted in a decision in support of the position of Sayenko Kharenko’s client.”

According to Sayenko Kharenko Counsel Zlata Simonenko,“the decision taken by the TSC is an example of parliament providing crucial support to business in Ukraine. And when it comes to protecting the rights of a foreign investor and, as a consequence, increasing the investment attractiveness of the country, it is impossible to overestimate this support.” Simonenko went on to thank the People’s Deputy of Ukraine and the head of the TSC, Halyna Yanchenko, “for her help and active position in considering our appeal.” According to Simonenko, “it is too early to celebrate the victory, but I am sure that we are on the way to a successful resolution of the sensational case.”

In addition to counsel Simonenko, Sayenko Kharenko’s team included Partner Sergiy Smirnov.

The Kyiv office of Dentons has advised Innovatus Capital Partners on a USD 10 million pre-export secured facility to an unidentified group of companies dealing with producing and trading of grains, oilseeds and byproducts of oilseeds, and other farming services. 

According to Dentons, “Innovatus Capital Partners is an independent adviser and portfolio management firm with approximately USD 1.6 billion in assets under management. The firm has a dedicated team of life sciences investment professionals with deep experience in healthcare, including life sciences. Innovatus and its principals have significant experience providing debt financing to medical device, diagnostics, and biotechnology companies that address unmet medical needs, improve patient outcomes, and reduce overall healthcare expenditures.”

Dentons’ team included Partner Natalia Selyakova, Counsel Nadiya Shylienkova, and Associate Artem Lukyanov.

Dentons was unable to provide further information on the deal.

Ilyashev & Partners has successfully protected the interests of Karpatnaftochim LLC in a safeguard investigation regarding the import of polymeric materials to Ukraine.

According to Ilyashev & Partners, “on November 20, 2020, based on the results of the safeguard investigation, the Interdepartmental Commission on International Trade decided to apply definitive safeguard measures on imports to Ukraine of suspension polyvinyl chloride and white polyethylene granules, which can be classified by UCG FEA (Ukrainian Classification of Goods of Foreign Economic Activity) codes 3901 20 90 00 and 3904 10 00 00, regardless of country of origin and export.”

The decision to initiate a safeguard investigation was made by the Interdepartmental Commission on International Trade on February 21, 2020 after reviewing the complaint prepared on behalf of Karpatnaftochim by Ilyashev & Partners. According to the firm, “the investigation lasted nine months, during which the Interdepartmental Commission on International Trade imposed a provisional safeguard measure for the first time in ten years.”

The International Trade Team of Ilyashev & Partners is led by Partner Olena Omelchenko.

Asters has successfully defended PrivatBank CB JSC in a dispute involving the Bukovel Ski Resort heard by the Commercial Court of Cassation of the Supreme Court of Ukraine.

According to Asters, “the dispute, valued at UAH 7.5 billion, revolved around the resort’s claim over the legality of the creditor’s charging of extra fees in addition to the interest on the loan and recovering such fees at the expense of mortgaged property.”

The Supreme Court ruled in favor of PrivatBank.

This marks the second case Asters advised PrivatBank on this year, following its successful representation of the bank in a defamation dispute in May 2020 (as reported by CEE Legal Matters on June 11, 2020).

The Asters team included Partner Andriy Pozhidayev and Senior Associate Oleksiy Ananiychuk.