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What has made the past year. Reform of the civil law

The past year was marked by numerous innovations of the Civil Code of Russia, which were stepwise introduction by four federal laws. This reform was expectable and has been widely discussed for several previous years, since publication in 2009 Concept of development of civil law. General principles of regulation of civil relations were changed, so they will undoubtedly have implications for our legal reality, though perhaps not obvious now, but significant for future.

1. Federal Law of 30.12.2012 № 302 -FZ enshrined in the Civil Code fundamental concept of civil law, which were not previously contained in the text: principle of good faith. Explanatory memorandum to the bill № 47538-6, which was originally envisaged change of entire body by a single piece of legislation, stated that principle of good faith is consistent with the concept of modern doctrine of civil law and has been introduced into of most of countries with developed legal systems long time ago. Clause 4 of article 1 of the Civil Code, as amended by law № 302 -FZ defines that nobody has the right to benefit from its illegal or dishonest behavior. This principle has previously been widely accepted in case law.

2. Legislative definition of abuse of law has been supplemented by another type like circumvention of law. Circumvention of law entails denial of judicial protection of rights of person other or other consequences provided by law (legislation currently does not contain these “other” consequences, but perhaps they will be developed in future). Although the Civil Code had not called directly circumvention of law as abuse of right case law of courts had such qualification widespread. Unfortunately, the Law № 302-FZ does not disclose concept of circumvention of law therefore the courts will have to outline range of offenses that constitute circumvention of law. Currently a number of such offenses include:

  • requirement to acknowledge ownership right for non-residential premises, which is in fact residential with an aim to circumvent procedure of transfer into non-residential premises;
  • condition of loan contract, which covers “compound interest”;
  • acknowledge of ownership right over unauthorized construction in the case of non-receipt (failure to take measures for receipt) by developer of permit for construction;
  • Requirement to change conditions of land plot lease contract in part of its purpose or permitted use to circumvent rules on provision of land plot for construction;
  • works for state or municipal use without conclusion of respective contract with subsequent filing claim to actual customer for recovery of unjust enrichment in the amount of works / services rendered.

3. A new chapter 9.1 of the Civil Code, which regulates legal facts like resolutions of meetings. As it was stated in the Explanatory memorandum to the bill on amendments to the Civil Code, distinction of the meeting resolutions from usual transaction with multiplicity participation is that resolution of meeting extends to persons who voted against it or did not participate in its adoption. In addition to general conditions of invalidity and voidability of transactions additional requirements have been established for resolutions of meeting, if not strictly observed its legal consequences may be canceled. The grounds for invalidity resolution of meeting by law are the following circumstances:

  • resolution was made on matter not included in the agenda, except for a case when meeting was attended by all members of the corresponding civil legal community;
  • resolution was made in absence of necessary quorum (at least 50 % of the total number of participants);
  • resolution was made on matter not within the competence of meeting;
  • resolution contradicts to principles of public order or morality.

Among grounds for finding resolution of meeting invalid by judicial act there are:

  • material breach of procedure for convocation, preparation and holding, which affect expression of will of meeting participants;
  • lack of powers with a person speaking on behalf of participant;
  • violation of equality of rights of meeting participants during its holding;
  • fundamental violation of rules for making minutes of meeting.

Disputing of resolutions of meetings has also received special regulation. Not any meeting participant may file a claim for finding it invalid: only the one who voted against making resolution or did not participate in voting. Thus protection covers interests of those persons, who fall under conditions of this particular transaction subject to their will. Participant of meeting, who voted for making resolution or the one who abstained from voting , is entitled to dispute in court resolution of meeting in cases where his will at voting was violated. Limitation period is six months from the date when person knew or should have known about violation of his rights; however preclusive period for such a claim is set by two-year period from the date when information about resolution of meeting become available for participants of civil law relations.

4. List of grounds for finding a citizen incapable by court decision has been extended. There are two new grounds:

  • addiction to gambling due to which the citizen puts family in a difficult financial situation;
  • mental disorder due to which the citizen can understand significance of his actions or control them only with the help of others.

The second ground is of the greatest interest. Like any citizen limited in legal capacity, a person limited in legal capacity on this ground has a right to make deals with consent of trustee. In addition, trustees of such persons are entrusted with duty to provide assistance in exercise rights and duties of wards, as well as to protect them from abuse by third parties. If the grounds, upon which a citizen who is not able due to mental disorder understand significance of his actions without help of others was limited in legal capacity, changed the trustee is obliged to petition the court to change limitation of legal capacity of the ward. Initially, the draft amendments to the Civil Code did not contain provisions relating to the institution of legal capacity, which, however, appeared there after decision of the Constitutional court on finding some provisions of the Civil Code unconstitutional. The main consideration under which the court was guided in this decision is that the legislation ignored possibility of various degrees of impact of mental illness on legal capacity of citizen. Citizen in respect of whom refusal to find legally incapable was made, but who nevertheless is partially limited in ability to understand significance of his actions or control them, remains de jure full participant of legal relations that may have negative consequences both for him and for his counterparties. Conversely, the same desire to prevent such situations often pushes courts to find citizens incapacitated whose mental disorder does not reach the degree of severity, at which they are not able to be accountable for their actions. Thus a possibility to independently exercise civil rights for them is completely excluded.

The Constitutional Court stated the following: “Federal legislators should - in accordance with the Constitution of the Russian Federation and in view of the present Judgment - before January 1, 2013 make necessary changes into the acting civil law regulation for fullest protection rights and interests of citizens suffering from mental disorders”.

5. Mandatory requirement that validity of power of attorney shall not exceed three years was abolished. Also another rule was fixed in the Civil Code before September 1 last year, according to which power of attorney issued by legal entity, shall bear a stamp. Now there is no such mandatory requirement, however, this innovation was not incorporated into procedural law, and for power of attorney, for example, to represent in court such stamp is still needed. Participants of civil turnover are free in determining form of their will expression in appointment of representative to execute transaction. If earlier it must have inevitably been a document, called “Power of Attorney” and its sole function had to appoint a representative, then now authorization may be contained in other documents aimed at effecting transaction: in contract, including between the representatives and the represented, between the representative and third party as well as in resolution of meeting . Institution of substitution has undergone a serious change. Now it is impossible to substitute powers that are closely linked to personality the principal, namely: to receive salary and other payments related to labor relations, to receive remuneration of authors and inventors, pensions, allowances and scholarships or to receive correspondence. Legislation established two previously unwritten but acting rules. First, it has been stipulated that a representative who transferred his powers to another person by way of substitution shall retain its powers, unless otherwise specified by law or contract. Also transfer of powers by person who received them by way of substitution to another person is also prohibited (subsequent substitution).

6. The July amendments to the tools of the Civil Code the concept of a single property complex has been introduced. By definition of lawmaker this complex is a collection of buildings, structures and other things united by a common purpose, which are inextricably linked physically or technologically, including linear facilities (railways, power lines, pipelines, etc.) or located on a plot of land. For civil turnover it is of paramount importance that rules about indivisible things apply to a single property complex. This solves a long-standing problems of relating linear objects to immovable property as well as other objects that are uniform from the technological point of view, but do not belong to traditional buildings and structures and, moreover, are composed not only by immovable property by its nature but also movable (e.g. heating, sanitation systems, power lines, communication, etc.).

Changes to the Tax Code

If in the civil law one can be observed dynamics directed to release civil turnover from burdening it legal entanglement then relations business business and the state have been exposed to the reverse process.

Since July 30, 2013 the powers of tax authorities to recover arrears, accruing for more than three months have been extended. Now the principal company can be charged with arrears, which is outstanding for a daughter company if revenues generate on its bank accounts for the goods sold, works and services rendered by the latter. Conversely, a daughter company may be charged with arrears of the principal company. In addition, the principal company may be charged with arrears, which is outstanding for the daughter company if from the date when the daughter company learnt about field tax audit or beginning of desk tax audit, there was a transfer of money or other property of the principal company, and if such transfer resulted in impossibility of recovering the said arrears. This rule is also applicable in reverse: at recovery of arrears from the daughter company for the debts of the principal company. Moreover, if the tax authority becomes aware that proceeds of debtor is on the accounts of several companies or its assets are transferred to several companies, recovery of arrears will be made from the relevant companies in proportion to revenue received for the sold goods, rendered works, services or share of assets transferred. Transfer of income to the related companies through a chain of related transactions, including, if involves chain of companies that are not affiliated to the debtor, is also considered as a ground for recovery of arrears from final beneficiaries. In addition to interdependence acknowledged by tax authorities, court is granted an unlimited right to determine other types and forms of interdependence in which recovery of arrears can be extended to individual in the group other than debtor. Value of property is determined as residual value of property as reflected in accounting of companies at the time when it knew or should have known about field tax audit or beginning of desk tax audit.

Since July 1, 2014 “bringing banking secrecy as a sacrifice” to tax authorities is coming. From this date credit institutions will be obliged to inform tax authorities about opening or closing accounts, deposits, change ща account details, deposits not only of companies, individual entrepreneurs, but also individuals. Regulation of Banking Law corresponds to a norm of the Tax Code, enshrining such a duty of credit institutions. This information will be reported electronically within three days from the date of opening or closing account or deposit.

In addition to an obligation to report such information without any request from tax authorities another obligation to provide information on cash balances on accounts, deposits of individuals, who are not individual entrepreneurs has been introduced based on request of tax authorities during tax audits of such persons or reclamation of documents from them within tax audit. Consent of senior tax authority to such request is the only obstacle that the law put on the way of tax authorities to banking secrecy.

Since January 1, 2014 declaration on value added tax is submitted only in electronic form. For other taxes only declarations in electronic form are submitted by taxpayers, average number of employees of which in previous calendar year was more than 100 people, as well as newly established (including through restructuring) taxpayers with similar number. A year later another obligation was added to this duty - to technically provide receiving of documents from tax authorities, which they use in their work with taxpayers. To acknowledge receipt of documents issued by tax authority is necessary by sending at it address special receipt in electronic form no later than 6 days from the date of receipt of document. Special attention of legislator was paid to receipt oт admission of request to provide documents, request to provide clarification and notification to visit tax authority. Failure to fulfil obligation on sending such receipts from January 1, 2015 may be a grounds for suspension of transactions of taxpayer on its bank accounts and transfer of monetary funds, if tax authority so resolves.

Federal Law of 06.12.2011 № 402 -FZ “On Accounting” provides independence of entities in choosing forms for documenting facts of economic life (only a list of mandatory details of primary accounting documents is installed). In this regard, it is announced on possibility of combining information previously mandatory for application forms for transfer of tangible assets (TORG -12 , M-15 , OC-1, trade section of bill of lading) with redundant for most items details with information of invoices. As it follows from the Letter of Federal Tax Service of Russia of 21.10.2013 № MMV-20-3/96@, Federal Tax Service of Russia has developed a recommended form of universal transfer document (UPD) based on the form of invoice. UPD form with proper filling allows reflecting in document all the necessary indicators not only provided by legislation in the field of accounting, but also set for invoice as a document serving as a basis for making deduction of value added tax. Besides, this form can be used to calculate income tax and settlements with budget on value added tax. The letter lists transactions for which UPD form can be used, recommendations to fill in as well as details established by the legislation as mandatory.