Category: Ukraine

Arzinger has advised the IFC on its loan to OTP Leasing in Ukraine.

According to Arzinger, “the loan will be used to scale up sustainable energy investments, particularly for small and medium enterprises. The long-term financing will enable businesses to acquire energy-efficient machinery and upgrade their facilities with modern equipment to support a lower carbon footprint.” According to the firm, “the loan includes USD 20 million from IFC’s, USD 20 million from Climate Investment Funds, and a syndicated loan of USD 10 million.”

Arzinger’s team was led by Partner Oleksander Plotnikov.

Arzinger did not reply to an inquiry about the deal.

The majority of the latest tax changes in Ukraine are based on the best tax experience throughout the world, especially on the BEPS Plan which Ukraine undertakes to implement. The Tax reform prescribes novelties to transfer pricing rules; new rules for preventing from double tax treaties abuse; new rules for preventing from avoidance of the status of permanent establishment and taxation of permanent establishments; etc.

It is still not clear how certain provision will work on practice and when such provisions will take effect. However, it is already clear that certain practices that the business used to take advantage of will not work anymore. Based on our experience the following areas of business activities will be definitely subject to close attention of the tax authorities.

Business relations with non-residents

1. It is highly recommended to make an internal audit of all economic transitions with non-residents, especially those related to payment for the services or for the goods if such activities are not subject to Transfer Pricing Rules.

From May 2020 all business transaction with non-residents shall have a “sound economic reason” otherwise Ukrainian company’s expenses will not be deductible for the tax purposes.

It is worth noting that if the main purpose of the transaction is optimizing tax burden or reduce the tax obligation than such transaction will not meet the “sound economic reason” principle. In this regard we advise to prepare the grounding proving existence of the economic reasons of the transaction in advance. Also it is advisable to review or even paraphrase the wordings of the agreements or change the price to avoid possible disputes with the tax office in the future.

2. Review the license, lease, loan or any other contracts with non-resident where the Ukrainian company pays passive income to non-resident (royalty, interests, dividends).

Tax reform changes the notion of the “beneficial owner” of the income as well as introduce the “principal purpose test” (PPT) of the business transaction with non- resident. PPT will apply only if the company would like to refer to Double Tax Treaty (DTT) with the foreign country and reduce the withholding tax rate (WHT). PPT is very similar to the “sound economic reason” principle and means that the reduced WHT will be denied if the main purpose of the transaction if avoid tax payment.

Also in order to apply to reduced WHT the non-resident recipient of the income shall be the beneficial owner of such income. It means that non-resident shall enjoy the full authority to dispose of the income, determine its future distribution and such authority shall not be limited by any contractual or non-contractual obligations. The following criteria will help to prove the beneficial status of the non-resident: a company has sufficient resources and personnel, it is not an intermediary, which transfers the obtained income to third parties, the non-resident bears significant risks, and it has no rights to use such income at its own discretion.

The good news is that Ukrainian company has the right to use the “look through” approach if it definitely knows that the non-resident contractor passes the receive income to another non-resident company. Such approach allows Ukrainian company to apply DDT with the real beneficial owner of the business that may also allow reducing WHT.

3. Analyze the business activity for risks of appearance of non-resident’ permanent establishment in Ukraine.

The new definition of the “non-resident permanent establishment” will substantially change the previous approach that is specifically relevant for the pharmaceutical, agro and IT industries. If Ukrainian subsidiary helps its parent non-resident company to promote its products in Ukraine and for example acts as a legal department of the parent company (review and approve the contracts with the Ukrainian customers) such activity may be treated as a permanent establishment of non-resident in Ukraine.

Another example is private entrepreneur IT specialist who develops software for non-resident with its further sale to Ukrainian customers. Such activity may also be treated as a permanent establishment.

However, it shall be noted that Tax Code of Ukraine does not prohibit the general commercial relations of Ukrainian companies with non-residents. Such activity is not necessarily leads to the permanent establishment of non-resident in Ukraine. In majority of cases, minor restructuring of the business model or paraphrasing of the contract with non-resident will help to avoid tax risks in the future.

For those pharmaceutical companies that have representative offices or permanent establishments in Ukraine, special attention shall be paid on the new rules of the profit calculation. As of May 2020 the profit of PE shall be calculated according to arm’s length principle and be taxed according to the general rules of the Tax Code.

4. Proper preparation for the tax audit

New rules of the Tax code expand the rights of the tax inspectors, provides for new grounds of the tax audit and what is most important introduce the notion of “guilt” and “willful intent” to commit tax offence.

In certain cases it may be better for tax payer to reveal the tax violation by itself that will allow reducing the tax fine by 50% in comparison with the situation where such violation will be identified during the tax audit.

To prevent abusing by the tax inspectors of its rights during and tax audit and imposition of the fines we recommend preparing for the tax audit in advance and engaging the professional lawyer to the process at the stage of the inspection.

The aforementioned recommendation are the minimum practices that we may recommend business to implement in the course of preparation to the new tax rules. Tax reform introduce changes to many other aspects of the business activity that shall be taken into account depending of the type of business and industry.

By Iryna Kalnytska, Partner, GOLAW

Ukraine’s Esquires law firm has helped Skytrans LLC enforce a goods transportation agreement worth USD 85,000 it had with an unidentified customer.

According to Esquires, “the customer did not pay all the invoices, which resulted in debt in an amount of USD 85,000. A claim was filed against the customer to collect the debt under the agreement. The effective execution of the court decision ensured the seizure of the debtor’s funds.”

Esquires’ team was led by Partner Viktoria Kovalchuk.

The conflict in the east of the country that began in 2014 is not the only thing plaguing Ukraine. After the fall of the pro-Russian regime in the wake of the Euromaidan revolution, the independent National Anti-Corruption Bureau of Ukraine was established to tackle the issue of corruption in the country.

Nonetheless, Serhiy Piontkovsky, Partner at Baker McKenzie in Kyiv, reports that, “there was recently a big setback in our fight against corruption. About a month ago the Constitutional Court of Ukraine decided that the appointment of the Chairman of the National Anti-Corruption Bureau was unconstitutional. The chairman was appointed by decree of the previous president, Petro Poroshenko. Since there is no explicit provision in our constitution granting the president such a prerogative, the court concluded that the president had acted without authority in this matter.” According to Piontkovsky, “this decision represents a huge blow to the anti-corruption authorities in Ukraine.” 

The instability of the Anti-Corruption Bureau was also noticed by the International Monetary Fund, as, according to Piontkovsky, “one of the major elements of Ukraine’s agreement with the fund is the reform of our anti-corruption sector.” Thus, he says, “because of the Constitutional Court’s decision, the whole arrangement with the IMF is at stake. It is unclear at this moment if the fund will continue to provide financing for our country.” 

In other areas, Ukraine’s political system seems to be functioning well, and, Piontkovsky says, “in a month or so, we will have municipal elections throughout Ukraine.” Unsurprisingly, he says, “the political campaign is well underway.” 

On the topic of legislation, Piontkovsky says that, “there are several important updates worth mentioning. First of all, anti-BEPS measures will be added to the Tax Code of Ukraine. In the future, every Ukrainian individual or legal entity which owns a Controlled Foreign Company will be required to declare its income. Should the annual turnover of said company exceed EUR 2 million, the owner in Ukraine will have to pay 18% Personal Income Tax and 1.5% military tax, even when no dividends were paid out.” According to him, “in order to facilitate this process, Ukraine has committed to join the Common Reporting Standard for Automatic Exchange of Information by the end of the year.” 

“Another new part of our tax system under development is the Tax Amnesty Law, which is still in a draft version,” Piontkovsky says. “If the law gets passed, individuals doing business in the grey economy would be pardoned for tax offenses and would henceforth have to pay between 2.5-10% Personal Income Tax.” He’s aware this may not succeed, of course. “Historically speaking,” he says, “out of all countries which passed tax amnesty laws, only a few have been successful. There was some debate over the prudence of implementing such a law in our country, but people mostly perceive it as a positive thing.” 

“Second, important changes were made concerning the regulation of farmland ownership,” he continues. “The parliament recently lifted the ban on sale of agricultural land after more than twenty years. From July 2021, companies and individuals from Ukraine will be able to start acquiring land, but only up to 10,000 hectares.” He counts himself among the supporters of the new rule. “I believe this is a very good thing, since it will help develop agriculture business and attract domestic investments in the sector.” Even under this new rule, he says, “foreigners will still be banned from buying land in Ukraine.” 

Recent legislative changes are aimed at bringing money into and keeping more in Ukraine, and Piontkovsky points, as interesting example, to the new Law on Gambling Business. “Back in 2009,” he says, “the Ukrainian government banned all gambling in Ukraine, which simply went underground. The new law is designed to legalize and strictly regulate the industry.” As a result, he says, “casinos will only be allowed in 5-star hotels, and gambling licenses – which will cost USD 10 million for a 5-year period – will be quite expensive.” Nonetheless, he says, “despite the restrictions, a number of foreign companies, including the Shangri-La Group, are eager to invest in the sector.” 

Despite the COVID-19 crisis, there are still some major deals in the pipeline. “The main two types of deals right now are concessions and privatizations,” Piontkovsky says. “The most important concession deals pertain to two port terminals – one in Mykolaiv and the other on the Black Sea. In addition, the state is in the process of privatizing several state-owned hotels and chemical and mining companies, as well as distilleries.”

lyashev & Partners has successfully defended the interests of Municipal Enterprise International Airport Kyiv and Master-Avia LLC, which is engaged in the development and maintenance of the airport, in a dispute involving allegations that they had acted together to improperly restrict competition in the airport’s ground handling market.

According to Ilyashev & Partners, “the dispute … arose in connection with the conclusion back in 2014 of the Master Agreement for the provision of ground handling services to the aircraft between Master-Avia LLC and ME IA Kyiv, allegedly on the basis of which one of the handling companies, which previously operated at the airport, was denied a contract extension.”

According to the firm, “in November 2018, the Antimonopoly Committee of Ukraine issued Decision No. 635-р in case No. 136-26.13/20-17 on violation by Master-Avia LLC and ME IA Kyiv of the legislation on protection of economic competition and imposition of fines.”

Ilyashev & Partners successfully appealed the AMCU’s decision — and Ukraine’s Supreme Court upheld that appeal. According to the firm, “by upholding the decisions in favor of the claimants issued earlier by the court of first instance and the court of appeal, the Supreme Court confirmed the legality of actions undertaken by Master-Avia LLC and ME IA Kyiv and revoked the AMCU’s decision to impose fines.”

Finally, Ilyashev & Partners noted that “in 2010, ME IA Kyiv leased the entire property complex to Master-Avia LLC, except for the runway and social infrastructure facilities. The merger was [designed to] restructure the ME to make a profit and develop the company. Within the framework of the investment project, Master-Avia LLC has invested about USD 93 million in the construction of three terminals: international terminal A, terminal D for domestic flights and terminal B for business aviation, as well as passenger and ground services.”

“Since these companies – following the merger allowed by the AMCU – became control-related companies, the Supreme Court agreed with the findings of the Economic Court of Kyiv and the Northern Economic Court of Appeal that the agreements concluded between them cannot be considered anti-competitive concerted actions,” commented Ilyashev & Partners Partner Oleksandr Fefelov. “In addition, the Supreme Court confirmed that the text of the Master Agreement for the provision of ground handling services at the IA Kyiv contains no provisions aimed at restricting competition in the market of ground handling services at the airport.

 

In the summer of 2020, Ukraine’s renewable energy market underwent another string of changes, this time mainly because of the “green” tariff reduction. After more than six months of negotiations, “green” energy investors and the government managed to reach some consensus on how to protect the market against the default of the State Enterprise Guaranteed Buyer (hereinafter – Guaranteed Buyer) which was initially reflected in the memorandum on the so-called “green” tariff restructuring and later found its own legislative settlement.

The need for such change was caused mainly by the Guaranteed Buyer’s increasing indebtedness to renewable energy producers. According to the Guaranteed Buyer’s official website, as of August 20, 2020, the state-owned enterprise had approximately 70 percent indebtedness to renewable energy producers outstanding from January 1, 2020.

The provisions of the memorandum were not acceptable to some market players. Since the Law “On Amendments to the Laws of Ukraine to Improve Support to Electricity Generation from Alternative Energy Sources” (hereinafter – the Law) that was adopted in pursuance of the memorandum included conditions even less favorable for investors, many investors immediately started considering options to seek compensation from the government for the losses as the result of legislative changes. The main changes introduced by the Law included the following. 

01 – “Green” tariff reduction

The “green” tariff rate was reduced for operating solar and wind power installations by introducing reduction coefficient. These changes mostly affected solar energy producers. The reduction would be 15 percent for solar power plants (hereinafter – SPPs) commissioned between 01/07/2015 and 31/12/2019 with capacity of 1 MW and more, or 7.5 percent for plants with capacity of less than 1 MW. 

For SPPs with capacity of 1 to 75 MW, the “green” tariff reduction would be 2.5 percent for plants commissioned between 01/01/2020 and 31/10/2020, 30 percent for plants commissioned between 01/11/2020 and 31.03.2021, and 60 percent for plants commissioned after 01/04/2021.

For SPPs with capacity of more than 75 MW, the “green” tariff reduction would be 2.5 percent for plants commissioned between 01/01/2020 and 31/10/2020, and 60 percent for plants commissioned after 01/11/2020.

For wind power plants (hereinafter – WPPs), the “green” tariff reduction would be less substantial constituting 7.5 percent for plants with a wind turbine of capacity of 2,000 kW and more commissioned between 01/07/2015 and 31/12/2019, and 2.5 percent for plants commissioned after 01/01/2020.

02 – Changes to auction procedures on distribution of state support quotas

Whereas previously the law clearly stated that auctions on distribution of state support quotas should be held twice per year, not later than April 1 and October 1 of the current year, from now on, they will be scheduled by the Cabinet of Ministers annually not later than  December 1. The Cabinet of Ministers will also set the annual assistance quotas for renewable energy producers which at this time are quite difficult to predict but will clearly not be enough for all.

03 – Liability for imbalances

Another essential change is introduction of liability for imbalances between actual and projected electricity generation for renewable energy producers. Starting from January 1, 2021, the liability for imbalances will be 50 percent, and starting 2022 the liability will be 100 percent. Power plants with capacity less than 1 MW will remain liable for imbalances at the existing rates, meaning that starting from January 1, 2021, the liability rate would increase 10 percent annually and reach 100 percent by 2030. 

Another critical issue that remains unresolved is payment of the Guaranteed Buyer’s indebtedness to renewable energy producers that continues to increase. 

04 – What next?

Both investors and the government are aware of the high likelihood of court and arbitration actions against Ukraine. 

There is already a number of lawsuits in local courts initiated by renewable energy producers against the Guaranteed Buyer on debt recovery.

For instance, in the case 910/9882/19, a solar power plant filed a lawsuit against the Guaranteed Buyer with the Kyiv Commercial Court seeking to recover a debt, impose late payment charges, and charge a 3 percent annual interest for delayed payments under the PPA.

Once the action was brought, the Guaranteed Buyer paid off the debt to the energy producer in full but claimed that there were no legitimate grounds for charging a 3 percent annual interest and late payment penalty as it was not at the fault for the late payment.

The court dismissed the argument and stated that the Guaranteed Buyer was under an obligation to pay “green” tariff rate of the projected cost of electricity to the claimant in due time, including penalty for improper performance of contractual obligations. The lack of funds and improper performance of contractual obligations by third parties may not exempt the defendant from performing contractual obligations to the other party pursuant to the existing legislation. 

The court of appeals further upheld the decision. Ultimately, the Guaranteed Buyer was charged a 3 percent annual interest and late payment penalty.

Certain investor groups have also been consulting domestic and foreign advisors about whether their cases are strong enough for international investment arbitrations.

The international experience of violations of government guarantees to renewable energy investors suggests that the latter have good chances of proving to court the breaches of their legitimate expectations of regulatory stability at the time when the investments were made. 

Ukraine, like member states of the European Union, is party to the European Energy Charter (hereinafter – the Charter). The Charter provides for promotion of fair and equal treatment of investors, stable, equitable, favorable and transparent conditions for investors, and the concept of reasonable expectations which, combined, are crucial in resolving such arbitration disputes.

Notably, Ukraine is by no means the first country in Europe that adopted a similar approach of making changes to its renewable energy policy. Even though the direction of changes in some countries such as Spain and Italy was different to what we are witnessing in Ukraine, the general concept was very similar as Ukraine followed virtually the same path by reducing the “green” tariff rate and encouraging new market players to opt for a different type of government assistance in the form of “green” auctions. In 2007, Spain introduced a number of regulatory measures to encourage investments into renewable energy. However, the renewable energy investment boom of 2007-2008, a tariff deficit and the impact of the financial crisis forced Spain to adopt a series of measures abolishing all incentives for renewable energy producers, starting in 2010. Consequently, close to forty arbitration claims were brought against Spain. The majority of claims involved key issues such as violation of the fair and equal treatment standards and breach of legitimate expectations of investors. 

In this instance, the arbitration courts took different positions and singled out the following issues that ended up being crucial in proving the positions of the investors and the government.

05 – Legitimate expectations of the investors

In the case of Charanne v. Spain, the investors claimed that the regulatory framework established by Spain before the crisis of 2008 encouraged them to invest in Spain and gave rise to legitimate expectations that the conditions for investors would not change. The arbitration court held, however, that the measures taken by Spain could not have given rise to legitimate expectations as the relevant documents were not sufficiently specific. The decision suggests that nothing except a stabilization clause or a specific commitment to the investors that the regulatory framework will remain unchanged can give rise to legitimate expectations. 

In the case of Novenergia v. Spain, the arbitration court argued the opposite and resolved that legitimate expectations do not necessarily have to rely on any specific measures such as contractual stabilization clauses. It is the actions of the state that inherently create such expectations. Therefore, the arbitration court ruled that the investor had every right to legitimately expect the policy that was in force as of 2007 to remain in effect based on the statements made by Spain’s Congress of Deputies members as well as Spain’s marketing documents which the arbitration court called a “bait”.

06 –  Balancing investor protection with the sovereign right of the state to regulate and amend its legislation 

The arbitration courts pointed out that whenever the state amends the provisions governing the “green” energy sector, it has to properly balance the interests of investors who invest significant resources and the interests of the state that has the right to regulate and amend its legislation depending on the circumstances, provided that this right is exercised in a proportionate, reasonable, and non-discreet manner and serves the public interest (The PV Investors v. Spain, PCA Case No. 2012-14).

07 – Investor expectations must be subject to evaluation when making an investment 

The arbitration courts stress that the investor’s subjective beliefs that the investor had when making an investment are not sufficient and that the “legitimacy” of the expectations must be evaluated against the statements made by the government to encourage investment (Charanne B.V. and Construction Investments S.a.r.l. v. Spain). Because of this, producers that made their investments earlier would have a better chance of proving their legitimate expectations of stability of the legal framework compared to those that invested later, when certain changes became evidently imminent.

Currently, we see that certain groups of renewable energy investors have potential to sue the government for debt recovery and damages. However, we have to understand that arbitration may not suit everyone. First of all, the arbitration process entails significant costs, takes a long time and requires patience. Therefore the ratio of costs and time spent to the possible outcome of the arbitration court’s ruling makes it hardly feasible for some investors. Secondly, those investors and developers who so far have made only some investments (e.g. leased land or developed the projects) but have not yet started construction of the power plants have a significantly lower chance of recovery of lost profits through arbitration courts.

On the other hand, the issue of taking action to recover the debts from the Guaranteed Buyer is a “headache” for directors of renewable energy producers considering that pursuant to the Code on Bankruptcy Procedures, in the event of lack of appropriate action by the director, that led to the power plant’s bankruptcy, the director shall bear subsidiary liability to the creditors.

Associations and individual investors are currently in active negotiations with the government about the ways and deadlines for repayment of the Guaranteed Buyer’s existing debt. However, given that the problem is unlikely to be resolved shortly, the investors ought to be already designing their strategies to protect their interests in court.

By Taras Lytovchenko, Counsel, GOLAW

Oleg Samus, the former Managing Director at Graterra LLC, has joined Sayenko Kharenko as a partner in the firm’s Government Relations practice.

According to Sayenko Kharenko, “Oleg has a wealth of experience working with governmental authorities in Ukraine and a range of other countries. Via his roles at multinational companies and in the consulting sector, Oleg has participated in multi-million dollar agriculture and infrastructure deals along with major international arbitration cases.”

“Oleg has a successful record of attracting investors,” the firm reports. “He has defended companies against raider attacks, participated in the development of anti-corruption procedures, and was also responsible for the implementation of numerous large industrial projects. In addition, as a ministerial advisor, Oleg previously led the development of a national strategy for the development of Ukrainian agriculture and rural areas.”

Samus holds an LL.M. from the Taras Shevchenko National University of Kyiv. Prior to joining Sayenko Kharenko, he spent five years as the Head of Legal at Kyiv-Atlantic Ukraine, nine years as the Director of Legal & Public Affairs at Bunge, and four years as the Managing Director of Graterra LLC.

“Sayenko Kharenko has long been recognized as one of the leading law firms in Ukraine,” Samus commented. “I am glad to be joining this experienced team. Impeccable legal expertise together with effective PR and GR strategies will allow clients to protect their interests in the dialogue between business and government and actively participate in the development of legal rules, as well as complying with them.”

“We always follow global trends and act proactively to provide our clients with the most business-oriented and relevant services,” commented Sayenko Kharenko Partner Michael Kharenko. “While striving to remain apolitical, we believe that properly structured interaction with government agencies and active participation in dialogue with the authorities are vital elements in the development of individual businesses and entire industries. With this in mind, we have decided to significantly strengthen our GR team by adding Oleg.”

In August 2020 the new laws introducing amendments to trademark and patent legislation (the “New Laws”) came into force. These changes concern patent and trademark owners, and producers of pharmaceuticals in particular.

Therefore, it is important to have full knowledge of mechanisms aimed at improving the prosecution and enforcement of patent and trademark rights.

Key amendments introduced by the New Laws

1. New deadlines for opposition to a trademark application

Prior to August 2020, an opposition could be filed during the whole period of trademark registration (approximately 20 – 22 months). Under the New Laws, an opposition could only be filed no later than within the first three months after the publication of the information on the trademark application in the Bulletin.

Please note that the date of filing an application and the date of publication of the information in the Bulletin are two completely different dates. The publication in the Bulletin is made in approximately three months after the application has been filed.

The opposition is considered by the Ukrainian Intellectual Property Institute (“Ukrpatent’) during the substantive examination of the application and, as a result, the respective decision is made at the end of the examination term. If the opposition is not satisfied, the opposing party may appeal this decision to the Appeals Chambers of the Ministry for Development of Economy, Trade and Agriculture of Ukraine (the “Appeals Chamber”). Since there are no post-grant opposition proceedings regarding trademarks in Ukraine, the appeal mechanism considerably expedites the challenge of the trademark registration as well as reduces its cost in contrast with filing the respective claim with the court.

If the appeal is not sustained either, the trademark is considered as registered, yet the opposing party retains the right to invalidate the trademark registration through the court. If the opposition is not submitted in time and, as a result, the trademark is registered in Ukraine in due course, the opposing party may also have recourse to the court.

Therefore, it is important to monitor the publications of trademark applications in the Bulletin. To that effect, one may seek assistance of a trademark attorney or use trademark monitoring services.

2. New limitations of exclusive rights of trademark owners

The New Laws introduced limitations of exclusive rights, in particular the right to use the trademark. Thus, it is legal to use someone else’s trademark in trade to indicate the intended use of goods and services, such as additional equipment or spare parts. Free use of someone else’s trademark with respect to the description of qualities of certain goods and services is also permitted in trade. Such use is authorised in comparative advertising to emphasise the differences between goods and services in an objective manner. However, the use of trademarks should be based on fair business practices.

For instance, if the goods and services of a company are connected with a certain trademark, the company may use it in the course of trade but in such a manner that the customer would not perceive the company as the owner of this trademark. Therefore, entities may use other trademarks in business and trade on the grounds of fair competition.

3. The period of non-use of a trademark without the risk of its cancellation is extended

Prior to the amendments, the non-use of a trademark within a period of three years was a ground for early cancellation of a trademark. Under the New Laws, the period is prolonged to five years subject to the Ukraine-European Union Association Agreement.

Thus, if a trademark is not used for five consecutive years, any person may file a claim on cancellation of the trademark registration with the court.

Please note that if a trademark’s use is commenced or renewed prior to filing the appropriate claim, the cancellation becomes impossible. However, this provision no longer applies if the preparation for such renewal or commencement of use started within three months prior to filing of the claim or after the trademark owner found out about the possibility to file such a claim.

4. New trademark invalidation ground in relation to the trademarks registered by agents without an authorisation.

The New Laws introduced a new ground for invalidation of trademark certificates. Owners of trademarks registered abroad may pursue legal action against their agents or representatives who have registered the same trademarks in Ukraine in bad faith. Apart from invalidation of the trademark certificate, the respective owner may request the court to transfer him the rights to the trademark registered in Ukraine. This is quite a new and helpful option.

5. The line between objects of inventions and utility models became clearer

Prior to the amendments, the objects of inventions and utility models were nearly identical. Under the New Laws, an invention can be either a product (a device, substance, strain, culture of cells, plants and animals, etc.) or a process (method). A new application of a known product or process was excluded from this list.

A utility model is either a process (method) or a device (one of the kinds of a product). However, there is still an issue of separating a device from other products as the legislation does not provide for the definition of a device.

6. Partial implementation of the Bolar provision in Ukraine

Another amendment is a new provision known in the pharmaceutical legislation of other countries as the Bolar provision. Thus, (1) the importation of goods manufactured using an invention (utility model) into the customs territory of Ukraine for research and/or (2) the use of an invention (utility model) in research for preparation and submission of information for a medicinal product registration, are not recognised as patent rights infringements.

Hence, it allows the procedures necessary for the development and preparation to the registration of generic pharmaceuticals before the patent expires and minimises the period between the beginning of the development of a generic and its market entry.

Notwithstanding the fact that the new legislation granted the right to use an invention for research and preparation for registration of generic pharmaceuticals, the application for registration of a generic and further registration itself infringes the rights of the patent owner.

Consequently, the Ukrainian interpretation of the Bolar provision does not provide the producers of generics with an opportunity to register the medicines and await the patent expiration of the original pharmaceuticals.

7. Post-grant opposition procedure now applies to inventions and utility models

Under the New Laws, any person may file an opposition to the Appeals Chamber concerning an invention (utility model) due to its non-conformity with patentability criteria.

An opposition may be filed within nine months from the date of publication of the state registration of an invention. As for a utility model, an opposition may be filed during the whole period of its validity.

The parties in this case are the claimant and the patent owner. The opposition is reviewed within four months after its submission subject to payment of the submission fee. This period may be prolonged by two months upon a request by any of the parties and subject to payment of the submission fee. The review of an opposition may also be suspended for not more than two months.

Therefore, the Appeals Chamber decides on the opposition concerning an invention or utility model within eight months at the latest. Please note that if the claim is satisfied, the patent rights are deemed cancelled starting from the day that follows state registration of the invention (utility model).

Considering financial resources and time, the post-grant opposition procedure is far more effective and efficient in contrast with court proceedings.

Ilyashev & Partners is defending Ukrainian trade and economic interests in a dispute between Ukraine and the EU relating to a temporary export ban on unprocessed timber.

According to the firm, “the case concerns the … interpretation of the provisions of the EU-Ukraine Association Agreement, in particular with respect to the right of each party to establish and regulate the levels of national environmental protection [and] sustainable forest management, as well as issues of the national policy of Ukraine in the field of forestry and environmental protection.

In specific, the dispute arose in connection with the introduction by Ukraine of a moratorium on the export of unprocessed (raw) timber. Since 2005, Ukraine has a permanent ban on the export of timber and lumber of valuable and rare species, including acacia, birch, cherry tree, pear tree, walnut, chestnut, yew, sweet cherry tree, planetree maple, and juniper. In 2015, a temporary ban was imposed for a period of ten years on the export of unprocessed timber of any species, with the exception of pine, for which the moratorium began on January 1, 2017.

The European Union is claiming that Ukraine’s failure to lifting the 2005 export ban on rare and valuable wood species and its introduction of a temporary export ban on unprocessed timber in 2015 contradict the provisions of Article 35 of the EU-Ukraine Association Agreement as to the prohibition of export and import restrictions on goods.

In January 2019, the EU requested consultations with Ukraine with regard to the temporary ban on the export of unprocessed timber. The consultations were not succesful, and in June 2019, the EU initiated arbitration and sent a request to establish an Arbitration Panel. The Arbitration Panel’s hearings took place on September 22-23, 2020.

According to Ilyashev & Partners, this is the first dispute arising within the EU-Ukraine Association Agreement framework, “and the second case in EU history … to be resolved by ad hoc arbitration provided for by the bilateral interstate trade agreement.”

Sayenko Kharenko has analyzed data protection regimes in the UK, Germany, California, Israel, and Turkey within the framework of a technical assistance project supported by Ukraine’s Ministry of Digital Transformation and the USAID Competitive Economy Program in Ukraine.

According to Sayenko Kharenko, “the USAID Competitive Economy Program in Ukraine promotes a strong, diverse, and open economy of Ukraine by enhancing the business environment for small and medium enterprises, improving competitiveness in promising industries, and enabling Ukrainian companies to benefit from international trade. The project is aimed at helping the Parliament of Ukraine (Verkhovna Rada) with revamping Ukrainian data protection legislation based on the best international practices.”

Sayenko Kharenko, with the assistance of several non-Ukrainian law firms, reports that it “carried out the full-scope assessment of the EU General Data Protection Regulation, as well as the data protection regimes of the UK, Germany, California, Turkey, and Israel. The Report provides the Parliament with the best examples of data protection rules worldwide and lays the ground for bringing Ukrainian legislation more in line with modern world requirements. The data protection rules in Ukraine will be significantly updated for the first time in a decade. The Report will also support the Parliament regarding the fulfillment of obligations under the EU-Ukraine Association Agreement, opening free data flows between EU and Ukraine, and bringing more confidence for global businesses to invest in the Ukrainian IT sector.”

Sayenko Kharenko’s team was led by Partner Nazar Chernyavsky and Counsel Ario Dehghani and included Associates Volodymyr Stetsenko and Yuliia Brusko.