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What the Last Year Produced: Review of Law Amendments in 2015

This review addresses the most significant law amendments, which define legal issues that would be vital in Russia in 2016.

Capital Amnesty Continues

2015 passed under the sign of capital amnesty initiated by the President of the Russian Federation and implemented by the legislator. According to data published in mass media at the end of last year, voluntary declaration by citizens of assets abroad turned out to be less in demand than its initiators expected. Apparently, that is why the state has granted additional opportunity to exchange information for forgiveness: the deadline for voluntary declaration of foreign assets was extended until June 30, 2016. Terms for the declaration of capitals have remained the same.

The applicant and nominee holder, of whom information is set forth in the declaration, are released of criminal liability for a number of economic crimes, such as tax evasion by individuals and legal entities, non-performance of obligations of a tax agent and avoidance of fulfillment of obligations on repatriation of monetary funds. Release of liability for tax violations is granted provided these violations are related to acquisition, use or disposal of property and (or) controlled foreign companies, information whereof is set forth in the declaration. The applicant and nominee owner specified in the declaration are not subject to administrative liability for carrying out entrepreneurial activity without state registration or without special permit (license). Release of liability for currency violations is guaranteed in respect of monetary funds credited to the declared accounts (deposits) in foreign banks as of January 1, 2015.

As before, declaration may be submitted to the tax authority only once. Thus, in 2016 only those who did not do this last year, can use the gifts of amnesty. Detailed analysis of law on capital amnesty was published in edition 3/2015 of our journal.

Statements on Movements of Monetary Funds

Long pause regarding when the innovation binding individuals to submit statements on movements of monetary funds on accounts (deposits) in foreign banks would be enforced has ended. Amendments to the currency control law have been enforced since January 1, 2015. In order for the mechanism to work, the Government of the Russian Federation had to define procedures for the submission and form of statements. It was made in Order of the Government of the Russian Federation No. 1365 dd. 12.12.2015. The main rules to follow at submission of statements in new 2016 are set forth below.

Deadline for the submission of statements is June 1, 2016. Statement is filed for the period from January 1 until December 31 of the report year inclusively. Currency residents are released of obligation to file statements on accounts closed in 2015. If several individuals being residents open account (deposit) in a foreign bank, the statement is filed by each such resident.

It is specified that the tax authority is entitled to request from individual being a resident supporting documents and information related to conduct of currency transactions on accounts and deposits, information whereof is subject to disclosure. Individual is entitled to submit supporting documents proactively together with the statement. If the tax authority reveals errors and/or missing information in the statement, the resident will be notified on this; he/she will have to submit revised (adjusted) statement.

Information regarding movement of monetary funds and directly disclosed in the statement includes the following:

  • account balance as of the beginning of the report period;
  • total amounts of funds credited to the account during the report period;
  • total amount of funds debited from the account during the report period;
  • account balance as of the end of the report period.

If resident has several accounts (deposits) abroad, information on all accounts is specified in one statement at once. Statement is filed to the tax authority in hard copy directly by individual being a resident or his/her representative or is delivered by registered mail with return receipt.

Regulations on administrative liability for noncompliance with procedures and deadlines for the submission by individuals being residents of statements on movements of monetary funds on accounts in foreign banks come into force since January 1, 2016. The size of the administrative fine for the delay of statement submission depends on the duration of violation and varies from 300 to 3 000 Rubles. Recurrent violation by individual of procedures for the submission of statement results in imposition of administrative fine in the amount of up to 20 000 Rubles.

Reform of Civil Legislation

The second half of 2015 was marked with enacted massive amendments introduced to the first part of the Civil Code of the Russian Federation. Here is only partial list of innovations approved by Federal Law No. 42-FZ dd. 08.03.2015:

  • new types of agreements: option agreement, option for the execution of the agreement, subscriber’s agreement;
  • possibility to stipulate in the agreement payment for unilateral agreement repudiation;
  • possibility to stipulate in the agreement obligation of one party to reimburse the other party certain material losses not related to breach of obligation;
  • possibility for creditors of one party on similar obligations execute agreement on the procedures for the settlement of claims against the debtor;
  • new way of securing obligations: business organizations may grant independent guarantees;
  • submission of inaccurate information on circumstances essential for the execution of the agreement may incur obligation to reimburse losses or to pay to other party penalty specified in the agreement.

New provisions of the Civil Code enacted on June 1, 2015, were analyzed in detail in edition 2/2015 of our journal.

Prohibition on Agency Labor

The legislator prepared us for this event for one year and a half: since January 1, 2016 prohibition on agency labor, also referred to as outstaffing, comes into force. Services for personnel lease became the prerogative of private employment agencies, which passed accreditation .Such agency should comply with a number of imperative law requirements regarding labor activity of an employee. For example, the labor contract executed by the employment agency with an employee assigned for temporary employment with the receiving party, should directly define labor functions, which the employee performs to the benefit, under control and supervision of individual or legal entity, which or who is not the employer under such labor contract.

Now it will be allowed to use services of personnel lease only in limited cases, namely:

  • for the purposes of personal service for providing assistance in housekeeping (for individual, who is not a sole proprietor);
  • for the purposes of temporary fulfillment of obligations of absent employees, who reserve their place of work (for sole proprietor or legal entity);
  • for the purposes of carrying out work related to a priori temporary (up to 9 months) extension of production or volume of services rendered (for sole proprietor or legal entity). If the number of employees engaged in such case exceeds 10% of average number of employees, decision on the execution of personnel lease contract with the employment agency should be made taken into the account opinion of the elected body of the primary trade union organization.

Subsequently, it is prohibited to use services of private employment agencies, even duly accredited, on a constant basis.

Individuals and legal entities, which or who are clients of employment agencies (as defined in the Labor Code of the Russian Federation, the receiving party), bear subsidiary liability on employer’s obligations arising under labor relations with employees. Subsidiary liability is also stipulated on employer’s financial obligations to an employee.

Besides private employment agencies, legal entities, including foreign legal entities, are allowed to render services for personnel lease to the following categories of clients:

  • legal entities affiliated in respect of the assigning party;
  • joint-stock companies, if the assigning party is the party of the share agreement on the execution of rights confirmed by shares of such joint-stock company;
  • legal entity, which is a party of the share agreement with the assigning party.

Organizations and sole proprietors using outstaffing services were given one year and a half, which passed from the date amendments introducing prohibition on agency labor were published until enactment of prohibition, for the revision of approach to staffing. Since January 1, 2016 relations between employees and employers will be built following new rules.

Bankruptcy of Citizens

Application of legislative provisions on bankruptcy has started since October 1, 2015. Arbitration courts instead of general jurisdiction courts, as it was initially planned, will recognize indebted citizens as bankrupts. Rules for recognizing citizens as bankrupts apply also to sole proprietors, but with a number of special aspects. For example, for the purposes of settling the claims of creditors property of the indebted sole proprietor is subject to sale following the same procedures as the property of legal entities.

A citizen, judgment creditor and authorized body (for example, the Federal Tax Service) are entitled to refer to court with application on adjudication of the citizen in bankruptcy. Such application is accepted by the court, if claims against the debtor constitute not less than 500 000 Rubles, and they are not settled within 3 months from the due date of their fulfillment. A citizen is recognized insolvent provided at least one of the following circumstances takes place:

  • citizen suspended settlement with creditors, it means suspended fulfillment of mature financial obligations;
  • more than 10% of the aggregate amount of the citizen’s mature financial obligations are not fulfilled by him/her within more than 1 month from the day, when such obligations and (or) liability is due;
  • the size of the citizen’s indebtedness exceeds the cost of his/her property, which includes rights of claim;
  • there is an order on the termination of enforcement proceedings due to the fact that the citizen has no more property to levy execution upon.

In cases on the bankruptcy of a citizen participation of a financial receiver, who is subject to court approval, is mandatory.

The arbitration court puts claims of the citizen’s creditors on the creditors’ register following the same rules as at the bankruptcy of legal entities. Creditors may lay claims within 2 months since the date of publication of communication on the acknowledgement of the application on recognizing the citizen a bankrupt reasonable.

At consideration of case on bankruptcy of a citizen the following procedures may apply: debt restructuring, sale of property and amicable settlement. The time period for the implementation of the citizen’s debt restructuring plan cannot exceed 3 years.

The court makes judgment on the acknowledgement of the citizen a bankrupt, if:

  • the citizen, judgment creditor and (or) authorized body did not submit the citizen’s debt restructuring plan within the time period specified in the law;
  • meeting of creditors did not approve the citizen’s debt restructuring plan;
  • the court cancelled the citizen’s debt restructuring plan;
  • proceedings on case on bankruptcy of a citizen are renewed if it is revealed that the citizen concealed property or unlawfully transferred it to third parties; or if the citizen breaches terms of amicable settlement.

If the court makes judgment on recognizing the citizen a bankrupt, the court makes judgment on the introduction of procedures for the sale of the citizen’s property. Property, which the execution cannot be levied upon in accordance with the civil procedural law, is excluded from bankruptcy assets. Citizen’s property is subject to sale by tender.

Within 5 years from the date the citizen is recognized a bankrupt, he/she is not entitled to undertake any obligations under credit contracts and (or) loan agreements without specifying the fact of his/her bankruptcy.

As for now, cases of implementation of procedures for the bankruptcy of citizens are few. It appears that the new legal institution will be able to provide significant benefit to citizens on the edge of insolvency. Now such citizens have opportunity to settle debt matters with each creditor within single procedure. Whether bankruptcy of a citizen is beneficial for other party of the proceedings, creditors, depends solely on the financial position of a certain debtor: his/her property assets, family status and total number of claims on the register. One way or another, procedure for bankruptcy of citizens will still need to prove its efficiency.