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Moscow Newsletter – June 2020

David Lasfargue , Vladimir Comte , Maria Yadykina

FEDERAL LAWS INTRODUCING NEW ANTI-PANDEMIC MEASURES

Federal Law “On Amending Certain Legislative Acts of the Russian Federation in Order to Undertake Urgent Measures Aimed at Ensuring Sustainable Economic Development and Prevention of the Consequences of the Coronavirus Spread” No. 166-FZ and Federal Law “On Amending the Second Part of the Tax Code” No. 172-FZ, both dated 8 June 2020, introduce a series of amendments aimed at combatting the COVID-19-related consequences.

The acts provide for the following amendments:

  • Reduction of real estate lease payments and repudiation of a lease contract

SMEs from the list of affected industries[1] will be given a right to demand a reduction for up to a year of payment under lease agreements for buildings (facilities, non-residential premises or parts of them). The law applies to real estate directly related to the activities performed by organizations, that are considered as affected. For these rules to apply the lease agreements for such facilities must be concluded before the region has entered a high-alert or emergency situation. As a reminder, the high-alert regime was first introduced in Moscow on 5 March 2020.

If the parties do not agree to reduce the lease payment or otherwise change the fixed-term contract provisions, the tenant can withdraw from the contract not later than on 1 October 2020. This possibility of withdrawal will apply if the parties do not reach an agreement within 14 business days from the date of the tenant’s request to the landlord to reduce the lease payment.

Damages in the form of lost profits and losses upon termination of the lease contract, as well as other amounts related solely to its early termination, will not be charged to the tenant. However, in this scenario the landlord will not be obligated to return the security payment.

  • Extending the lease term for public real estate

This year, the landlords of state or municipal real estate will not be able to refuse a bona fide tenant to extend the lease for up to one year. The rule applies to contracts concluded at an auction before the region has entered a high-alert or emergency situation.

When extending the contract, the parties can agree on new lease terms that would not worsen the position of the tenant. Additional agreements will be concluded without bidding and evaluating the market value of rental properties.

It is also planned to provide for separate provisions on extending the lease of a public land plot. Until 1 March 2021, the tenant will be able to request an extension of the term of the contract.

The period for which it can be extended will be determined by the tenant, with one restriction: the term must not exceed the duration of the contract concluded by the parties before its extension and in any case must not be longer than three years. Thus, if the contract has been concluded for more than 3 years, then it can be extended for a maximum of 3 years.

  • Tax exemptions for SMEs and associations without lucrative purpose

SMEs from the list of affected industries and socially oriented associations without lucrative purpose will be exempt from paying taxes and insurance premiums accrued in the second quarter of 2020.

  • The payment time limit will be increased for administrative fines

In 2020, small and medium-sized enterprises (SMEs)[2] will be given more time to pay most administrative fines. The maximum period for paying the fine will be extended to 180 days (as opposed to current 60 days) from the date when the decision to impose a fine became effective.

This relief can also be used by company managers and other employees who have committed offenses in connection with the performance of organizational and administrative functions.

Some of the fines are not affected, in particular:

  • traffic violations;
  • violations of the rules for the sale of ethyl alcohol, alcoholic and alcohol-containing products;
  • failure to comply with the rules of conduct in case of an emergency or threat of its occurrence;
  • failure to pay an administrative fine within the time limit set by the Administrative Code of the Russian Federation.

The abovementioned federal laws became effective on 8 June 2020.

We are actively following the legal developments related to the COVID-19 pandemic and are fully prepared to advise our clients. Please follow our Legal alerts to stay informed about the newest anti-pandemic measures.

 

[1] The list as of today includes the following industries: passenger transportation, tourism, hospitality, culture, art and leisure businesses, sports and recreation activities, including health resort organizations, catering services, additional education for children and adults, daycare services for children, organization of conferences and exhibitions, retail of non-food products, mass media and production of printed products.

[2] As a reminder, SMEs under the Russian law include the companies in which at least 51% of the charter capital should be held by individuals or other SMEs. The share of other companies, not being SMEs, should not exceed 49% and the share held by the state, region or non-profit organizations shall not exceed 25 per cent. The share of a foreign entity as a rule should not exceed 49%.

Besides,

  • Microenterprises cannot employ more than 15 persons, while their revenue cannot exceed 120 million roubles.
  • Small enterprises cannot employ more than 100 persons, and their revenue cannot exceed 800 million roubles.
  • Medium-sized enterprises cannot employ more than 250 persons, while their revenue cannot exceed 2 billion roubles.

However, if the foreign entity’s share in the company exceeds 49%, but the shareholder meets the criteria set for medium-sized enterprises as provided above and is not incorporated in an offshore, such company can be qualified as an SME subject to a certain procedure.

LAW AUTHORIZING RUSSIAN COURTS TO CONSIDER DISPUTES INVOLVING PERSONS AFFECTED BY SANCTIONS SIGNED BY THE PRESIDENT

On 8 June 2020, the President signed Federal Law No. 171-FZ “On Amendments to the Russian Code of Arbitration Procedure for protecting the nationals and entities due to the restrictive measures adopted by the foreign state, national union and (or) state (interstate) agency of a foreign country or national union”. The introduced amendments refer to the cases involving:

  • participation of a person affected by restrictive measures (Targeted Person);
  • restrictive measures serving as grounds for a dispute.

According to these amendments, the Russian state arbitration courts (state courts in Russia authorized to consider economic disputes) will have exclusive competence to consider cases above, provided that:

  • the parties do not have a jurisdiction or an arbitration agreement referring their potential dispute to a different forum;
  • the parties do have a jurisdiction or an arbitration agreement, however a Targeted Person due to the nature of the restrictive measures cannot participate in the litigation or arbitration referred to in this agreement;
  • there is an international treaty providing otherwise.

Additionally, the law authorizes a Targeted Person to oppose consideration of such a case in a foreign court or arbitration seated outside of Russia by filing a petition with a Russian state arbitration court requesting a ban for initiation or continuation of such cases in a foreign court or international arbitration tribunal seated outside of Russia. Moreover, such Targeted Person can request that a penalty be inflicted on a person banned from participation in the proceedings outside of Russia as provided above in the amount not exceeding the amount of the claim.

At the same time, a foreign judgment or an award for such cases will be recognized and enforced by the Russian state courts, provided that:

  • a Targeted Person filed a claim to such foreign court or international arbitration tribunal seated outside of Russia itself; or
  • a Targeted Person did not oppose consideration of the case by such foreign court or international arbitration tribunal seated outside of Russia.

The previous wording of the draft law allowed Targeted Persons to unilaterally amend arbitration and prorogation clauses in the contracts signed before the sanctions were introduced against the Russian counterpart. However, these provisions were deleted after having been criticized for contradicting the international law and thus becoming de facto unenforceable.

The federal law will become effective on 19 June 2020.

THE GOVERNMENT TO ISSUE CLARIFICATIONS OF LABOR ISSUES AMID COVID-19 CRISIS

The Government is expected to adopt the Draft Government Resolution “On the Legal Aspects of Regulation of Labor Relations in 2020”, which was prepared by the Ministry of Labor and Social Relations. This Draft Resolution is intended to simplify the employee-employer interaction during the COVID-19 pandemic.

The draft resolution establishes that during the period of suspension of the company’s activities due to quarantine restrictions, employees cannot be dismissed at the initiative of the employer. Termination of employment relations with an employee in this scenario will be carried out on the initiative of the employee or by agreement of the parties.

The draft resolution provides that in case of a reduction in the number or staff, when the two-month notification period of employees expires during the quarantine, the dismissal occurs only on the next working day after the restrictive measures have been lifted.

The notification period for a transfer to remote work or part-time work will be diminished from two months to two weeks. This will only be possible if the transfer is due to COVID-19 restrictive measures. At the same time, it is proposed to grant the employer the right to transfer an employee without his consent to another work for the same employer for a period of up to three months that is not stipulated by the employment contract.

Since most restrictive measures have been lifted the Government is now expected to adopt an amended version of the draft resolution. The Ministry of Labor and Social Relations has already modified the Draft Resolution excluding most of the above-mentioned provisions. The Draft Resolution is now considered in the Russian Tripartite Commission for regulating social and labor relations (it involves representatives of the government, employers, and trade unions).

The Draft Resolution, if adopted, will apply to labor relations until 31 December 2020.

We are actively following any legal developments of the draft resolution and are fully prepared to advise our clients.

LAW ON PROTECTION AND PROMOTION OF INVESTMENTS ADOPTED

Federal Law “On Protection and Promotion of Investments in the Russian Federation” No. 69-FZ dated 1 April 2020 will allow companies implementing investment projects to ensure predictability and stability of regulation. For these purposes, an agreement on protection and promotion of investments (Agreement) will have to be signed with the government.

The condition for concluding the Agreement is that the new investment project will be implemented under this Agreement in one of the sectors of Russian economy excepting the following sectors:

  • gambling;
  • wholesale and retail trade;
  • construction (modernization, reconstruction) of administrative, business centers, shopping complexes, and residential buildings.

The minimum amount for such investments will be RUB 250 million for projects in the field of healthcare, education, culture, physical education and sports; RUB 500 million— in the field of digital economy, ecology, agriculture; RUB 1.5 billion— in the field of manufacturing; and at least RUB 5 billion— in other areas of the economy.

A legal entity implementing the project will be able to send an application to the authorized bodies for the conclusion of the Agreement as a Private Project Initiative.

The documents will be submitted through the personal account in the State Information System “Capital Investments” (which is expected to go live starting from 2 April 2021). The applicant will be informed about the decision via the same personal account.

It will also be possible to conclude the Agreement as a Public Project Initiative. It means that the government bodies will announce their planned investment projects, in respect of which it is possible to conclude an Agreement. This information will be published on the website of the State Information System “Capital Investment”. The winner will be the company that offers the best conditions for implementing the investment project.

Companies implementing the investment project will be subject to a stabilization clause. It means acts and decisions of the authorities that worsen the conditions for conducting activities related to the implementation of the project, in comparison to those applied at the time of the conclusion of the Agreement will not apply. These include, in particular, the acts (decisions):

  • increasing export customs duty rates;
  • changing tax rules;
  • introducing additional obligations and reducing the scope of rights of land owners and tenants;
  • changing the procedure for determining the rent for a public land plot;
  • changing procedures related to urban development.

These acts and decisions will not be applied for a period, specified in the Agreement. The rule on non-application of acts and decisions will operate if the requirements for the amount of investment are met.

The state will have the right to provide companies implementing investment projects with support measures to reimburse certain costs at the expense of budget funds.

This special regime will apply to Agreements concluded before 1 January 2030.

Although almost all the provisions of the law came into force on 1 April 2020 it is not yet possible to conclude such Agreements, as a number of necessary implementing regulations are yet to be adopted.

FOREIGN ENTITIES WILL BE ABLE TO RECEIVE LICENSES IN RUSSIA

The Russian Ministry of Economic Development has prepared a Draft Law “On Amending the Federal Law On Licensing of Certain Types of Activities” providing that a foreign legal entity may receive a license to carry out activities in Russia. This should be provided for in the licensing regulations for specific activities.

To obtain the license a foreign legal entity will need to submit an application, providing information about its name, branch name and address, record number in the state register on the accreditation of the branch.

The termination of accreditation of a branch of a foreign legal entity will be considered as grounds for termination of the license period.

Public discussion of the draft law ends on 10 June 2020.

MITIGATION OF THE RESPONSIBILITY FOR THE BREACH OF CURRENCY LEGISLATION

Federal Law “On Amending Articles 15.25 and 23.1 of the Code of Administrative Offences” No. 72-FZ dated 1 April 2020 aimed at amending the clauses on responsibility for violation of currency legislation of the Russian Federation on repatriating currency committed on a large scale became effective on 12 April 2020.

According to these amendments it became possible to issue a warning or impose a fine for failure to fulfill the obligation to repatriate money. As a reminder, previously the fine was the only option under the Administrative Code.

For more information please refer to our March Newsletter.

NEW FINES FOR DISCRIMINATION

A new offence was introduced into the Administrative Code of the Russian Federation in March. This is a refusal to provide goods, perform work, provide services, or provide access to those services due to the age of the consumer, their health condition or disability.

The fine for officials will be RUB 30,000 to 50,000, and for companies — RUB 300,000 to 500,000.

If a consumer has been rejected several times, the organization will be fined for each case. If several users have been rejected at once, the amount of the fine will be multiplied by their number, and for repeated violations — by the number of refusals.

OVERVIEW OF THE COURTS' PRACTICE

Overview No. 1 & No. 2 of the Supreme Court concerning the application of legislation during the pandemic dated 21 April 2020 and 30 April 2020, respectively.

  • As a rule, in case the last day of the term (e.g., for execution of the obligation or filing a claim) falls on a non-working day, this last day of the term will be moved to the nearest working day. This rule will not apply for the non-working days declared by the President in his orders aimed at preventing the spread of COVID-19. Thus, in case the last day for execution of an obligation falls on a non-working day declared by the President, the obligation will have to be executed on this non-working day at the latest, unless the force majeure has been established (please see below).
  • The establishment of force majeure circumstances due to the spread of COVID-19 does not terminate the obligation if its performance is possible after those circumstances have disappeared. However, in this case, the debtor is not responsible for the delay in performance of the obligation and the losses caused by it, and the creditor can withdraw from the contract if it has lost interest in its performance.
  • Restrictive measures introduced by the state due to the spread of COVID-19 may be recognized as grounds for suspending the action limitation period if they prevented the filing of a claim.
  • It is possible to change or terminate contracts due to the epidemiological situation, restrictive measures, or the regime of self-isolation, if those have been recognized by the court as a significant change in circumstances. At the same time, changing the contract due to a significant change in circumstances at the request of one of the parties is possible only in exceptional cases, when its termination is contrary to the public interest or will cause damage to the parties that significantly exceeds the costs necessary for the performance of the contract on the terms changed by the court.

Resolutions of the Magistrate’s court of the Tagansky district of Moscow No 05-0167/374/2020 and No 05-0168/374/2020 dated 13 February 2020 (on fining Twitter and Facebook)

As mentioned in our previous Newsletter, the Magistrate’s court of Tagansky district fined Twitter and Facebook for RUB 4 million each for failure to localize personal data of Russian users. Both companies failed to pay the fine within 60 days from the date of the entry into force of the court’s decision.

Enforcement documents on collecting the fine were handed over to the bailiffs in the end of May.