9 e-points

Dear colleagues, partners, friends!

We at Evris value your time, so we have developed a unified monthly online newsletter 9 E-points.

9 E-points is monthly e-digest from Evris:

  • 9 legislative novels which business community should be aware of, to react in proper time
  • 9 business and legal events worth attending, to get new ideas
  • 9 points of interest from Evris lawyers who do their job in a talented and passionate way

NBU White Paper

The matter of amendments

The NBU has prepared and presented for public discussion a draft White Paper “Future of Non-Banking Financial Sector Regulation”.

Draft Law No. 2413a “On Amendments to Certain Legislative Acts of Ukraine Concerning the Consolidation of Functions of State Regulation of Financial Services Markets” (Draft Law), which has already been supported by the Verkhovna Rada Committee on Financial Policy and Banking and recommended for adoption in the second reading

Whom it will affect

Non-banking financial institutions

Consequences

A new model of NFI (non-banking financial institutions) regulation must aim at achieving the market efficiency and transparency, as well as ensuring that non-banking financial services provided to Ukrainian consumers meet the highest European standards to the maximum extent.

The regulation model provides for two primary goals:

  • Search for new growth points for each segment of the non-banking financial market;
  • Maximum protection of financial services consumers.

How to prepare / mechanism of the amendments introduction

Should the Draft Law be approved by the Verkhovna Rada:

  • The NBU will be responsible for a significant part of non-banking financial market;
  • a 12-month transition period is stipulated (current regulation and the National Commission for State Regulation of Financial Services Markets will fully operate).

Currency Forwards and Futures Agreements

The matter of amendments

The NBU has approved the mechanism for reserving currency forward and futures contracts. The following Resolutions of the NBU Board dated 16/10/2018 have become effective on 19/10/2018: 

No. 107 “On Approving the Regulation on the procedure for forming and storing by banks of Ukraine and branches of foreign banks in Ukraine of reserves under forward and futures contracts with or without the provision of a basic asset, the variable of which is exchange rate or bullion price” and 

No. 108 “On Approving the Amendments to Regulation on the procedure for forming and storing mandatory reserves by banks of Ukraine and branches of foreign banks in Ukraine”.

Whom it will affect

Banks

Consequences

The new mechanism will facilitate avoiding risks of currency imbalances, which may emerge as a result of entering into currency forward and futures contracts by market participants, as well as will allow to simultaneously monitor banks’ compliance with mandatory reserve standards and provision for reserves under such contracts.

How to prepare / mechanism of the amendments introduction

The NBU Board will decide on whether to apply the mechanism or not. The specified reserve requirements will not apply to forward and futures contract until the Board adopts a separate decision.

BEPS-style Tax Rush

The matter of amendments

The Ministry of Finance has published a draft law prepared jointly with the State Fiscal Service (SFS) and the National Bank of Ukraine (NBU), which is likely to amend the Tax Code in order to implement the Action Plan on Base Erosion and Profit Shifting (BEPS)

Whom it will affect

Business entities cooperating with non-residents and individuals owning foreign companies

Consequences

Should this draft law become a law, in addition to changes in the transfer pricing and identification of a beneficial owner, will be introduced a completely new procedure, which will allow to tax incomes of resident individuals accumulated abroad on accounts of legal entities controlled by them.

First changes will affect transfer pricing.

A three-level documentation structure for international groups of companies will be introduced, which will include transfer pricing documentation (Local File), global documentation (Master File), and country-by-country report, which will apparently allow to control transactions within international groups of companies. In this case, companies will be obliged to inform regulatory authorities about being a part of international groups.

Furthermore, the substance over form principle will be introduced. From now on, for TP purposes a transaction shall be considered in terms of actual conduct of parties to a transaction.

The list of entities, the transactions of which may be recognized as controlled, will be expanded. Once the law is adopted, transactions of IV group single taxpayers with non-residents will not remain unnoticed. Moreover, quoted prices and comparable uncontrolled price method (CUP method) must be used for the analysis of commodities transactions.

How to prepare / mechanism of the amendments introduction

It is planned to introduce the concept of “constructive” dividends, that is, hidden profit distribution to be regarded as difference between the price in controlled transactions and the price corresponding to arm’s length principle, and is to be defined as hidden profit distribution to a non-resident.

Changes concerning beneficial owners are related to introducing the signs of an actual owner of income, that have already been used by regulatory authorities, into the legislation. Thus, persons who have proper authority to use and dispose of their income, will not transfer the major part of such income in the future, and will perform significant functions and bear the risks related to obtaining and using income, and will have sufficient resources therefor, will be beneficial owners.

Should it be discovered that recipient of income does not meet such criteria, the payment must be subject to a double taxation agreement with a country of real ultimate beneficial owner, if any.

The main feature of the draft law is introduction of an institute of controlled foreign corporations (CFC).

CFCs will be foreign companies controlled by an individual resident of Ukraine. Income of such companies will be subject to tax to the extent not paid as dividends, at a rate of 18 or 9 percent.

However, should a company not be located in tax haven (subject to a double taxation agreement) or should it be a public company with exchange traded shares or should it be a charitable organization, income of such companies in Ukraine will not be subject to tax.

Individuals will be obliged to notify tax authorities of owning CFCs on their own. For failure to perform such an obligation, regulatory authorities will have the right to impose a penalty of 500 minimum salaries, which will, without any doubt, affect the willingness to provide relevant notifications in due time.

Anti-piracy campaign or violating citizen’s rights?

The matter of amendments

The Law of Ukraine “On Amendments to Article 5 of the Law of Ukraine” On the Distribution of Copies of Audiovisual, Phonograms, Videograms, Computer Programs, Databases ” was adopted by the Verkhovna Rada of Ukraine on September 9, 2018. It came into force on October 4, 2018.

Whom it will affect

Ministry of Economic Development and Trade of Ukraine, organizations of collective management of rights, authors, performers, producers of phonograms (videograms), computer programs, databases, rights holders, subjects of entrepreneurial activity

Constructing Wind Power Plants correctly

The matter of amendments

On 4 October 2018, Law of Ukraine “On Amending Some Laws of Ukraine on Investment Attractiveness of Construction of Facilities in the Renewable Energy Sector” The law simplifies the procedure of commencement of construction and commissioning of the WPP, and as a consequence the construction itself is accelerated, thus contributing to the development of the renewable energy sector, in particular the construction of facilities which generate power from wind energy.

Whom it will affect

The businesses that are interested in constructing powerful wind power plants (which have two and more turbines or the height of which amounts to 50 meters and more).

Consequences

The law provides that hereafter all wind power plants (WPPs) which have two and more turbines or the height of which amounts to 50 meters and more can be classified as low consequence (responsibility) buildings and facilities (СС1) subject to receipt of positive conclusion of authorised body pursuant to the Law of Ukraine “On Environmental Impact Assessment”.   

The law also stipulates that such WPPs (which have two and more turbines or the height of which amounts to 50 meters and more) is subject to state examination of construction projects as only related to the acknowledgement of environmental impact assessment results, except in cases where they are constructed:

  • in the territories with difficult engineering-geological and technogenic conditions;
  • involving budget funds, funds of state and municipal enterprises, institutions and organisations as well as loans provided under state guarantees, if their estimated cost exceeds 300,000 UAH;

How to prepare / mechanism of the amendments introduction

The law has already come into force. For those who it relates to it is necessary to:

  • receive the positive conclusion of environmental impact assessment;
  • ensure carrying out the examination of construction projects as related to the acknowledgement of environmental impact assessment results.

What if bankruptcy is the benefit

The matter of amendments

Institute for bankruptcy of individuals has been introduced by the Code of Ukraine on Bankruptcy Procedures, which became effective on October 18, 2018. It will become effective 6 months after this Code is published. The Law has not been signed by the President yet.

Whom it will affect

Debtors and creditors, banks, tax inspectors, accountants, receivers, law firms, electronic trading platforms.

Consequences

It is expected to facilitate reducing tension in the society, promote the resolution of issues related to individuals’ debts, give rise to restoring citizens’ economic activity. In fact, it simultaneously provides for an option to write off debts of individuals and an option to clear creditors’ balance of bad debts.

How to prepare / mechanism of the amendments introduction

To familiarize oneself with the content of the law. To perform one’s financial obligations in good faith in order to have a debt writing off option, should any difficult life circumstances occur.

Buying bankrupt’s property at e-auction? Easy!

The matter of amendments

Property of bankrupt companies may now be sold only at electronic auctions. it was introduced by the Code of Ukraine on Bankruptcy Procedures, which became effective on October 18, 2018. It will become effective 6 months after this Code is published.

Whom it will affect

Investors, entrepreneurs, buyers, electronic trading platforms, receivers

Consequences

It will facilitate reducing corruption risks and raising the transparency level in the sphere of selling the property of insolvent persons.

How to prepare / mechanism of the amendments introduction

Electronic platforms must bring their activity in line with requirements of the adopted law and perform automatization in accordance with the procedure established by the Cabinet of Ministers of Ukraine.

What is the minimum debt required to declare bankruptcy?

The matter of amendments

Requirements to minimum debt amount for initiating a bankruptcy procedure, as well as to the term of non-performance of obligations by a debtor have been lifted. it was introduced by the Code of Ukraine on Bankruptcy Procedures, which became effective on October 18, 2018. It will become effective 6 months after this Code is published. The Law has not been signed by the President yet.

Whom it will affect

Creditors, debtors

Consequences

Now, a creditor will not have to refer to a bailiff for initiating a bankruptcy procedure. It will facilitate simplification of bankruptcy procedure initiation and reducing its terms.

How to prepare / mechanism of the amendments introduction

Debtor must perform his/her financial obligations in good faith, creditors must familiarize themselves with the content of the law

How to cross the state border correctly

The matter of amendments

criminal liability has been introduced for illegal crossing of the state border of Ukraine in the interests of the aggressor state, which is contrary to the national interests of Ukraine. It has been introduced by Law 2599-VIII dated October 18, 2018. The law will come into force on the following the day of its publication

Whom it will affect

Border guards, foreigners, citizens of the Russian Federation (including a significant part of residents of Crimea) and persons whose business is connected with that country

Consequences

The article is worded in such a way that not only foreigners, but also citizens of Ukraine may be subjects of the crime. In particular, the later can be held criminally liable in the event of crossing the state border beyond border crossing points or without documents or with documents containing false data. The wording “in the interests of the aggressor state” is so uncertain that it may apply to anything, including a business in the Russian Federation or business relations with citizens of the Russian Federation.

The consequences of adoption of this norm are difficult to predict. It is quite possible that the relevant provisions will be “dead”. The Criminal Code of Ukraine contained the relevant article, but it had not been applied until 2004.

How to prepare / mechanism of the amendments introduction

Carefully check documents when preparing to cross the state border of Ukraine.