In this summary we would like to bring to your attention news in the law and court practice, which may impact our activity in the coming year.

Main novelties and initiatives in civil and commercial arbitration court process

• One of the main events in 2014 was the combining of the Supreme Court and the Supreme Commercial Arbitration Court of the Russian Federation. It is still early to speak of any particular results of this unification, but it is obvious that big changes are up ahead.
• The next expected step is the full integration of commercial arbitration courts into the system of general jurisdiction courts in form of economics collegial bodies.
• Accordingly, work is already under way on a unified Civil Procedural Code which will take place of the current Civil Code and Commercial Arbitration Code of the Russian Federation.
• As an example of implementing the above concept, we should note the changes in a number of articles of the Commercial Arbitration Code of the Russian Federation, pursuant to which cases on contesting normative legal acts (except those examined in the intellectual property court) are to be examined only within the framework of the civil court process, and not the commercial arbitration court process.

Main novelties in criminal and administrative court process

• The procedure for instituting criminal action in regard to tax crimes has changed. Now an investigator is entitled to institute a criminal case based on materials of the authority in charge of preliminary investigation, and at the same time, there is no actual need for a report from the tax authority (Parts 7-9 Article 144 of the Criminal Procedural Code of the Russian Federation).
• The Federation Council has approved the amendments to the Criminal Procedural Code, according to which there is no statute of limitations for contesting court acts in the cassation and supervision instances in the course of criminal court proceedings. The one-year term that was in effect earlier now remains in effect only for instances where cases are re-examined on grounds that may aggravate the criminal’s status or in respect to a person against whom criminal charges have been dropped (the text of the federal law is available here).
• Starting from January 1, 2015, there will be several new offences under the Administrative Offences Code of the Russian Federation for which fines have been increased, such as fines for employers for violating labor law, including for the failure to document labor relations with employees (Article 5.27 of the Administrative Offences Code).
• The State Duma has adopted in the third reading a law stipulating that in exclusive cases the court can impose an administrative fine on legal entities below the lower threshold, though the fine cannot be less than 50% of the lower threshold (the text of the federal law is available here).
• The Constitutional Court of the Russian Federation has issued a decree that recognizes as non-constitutional the approach to determining the scope of punishment under Article 159.4 of the Criminal Code of the Russian Federation (fraud in the field of entrepreneurship). The court noted that a crime in a particularly major scope presumes imprisonment for a term up to 5 years, while fraud in a major scope under the general Article 159 of the Criminal Code entails up to 10 years of imprisonment (Decree No.32-P of the Constitutional Court of the Russian Federation dated December 11, 2014).
• The Constitutional Court of the Russian Federation obliged federal authorities to amend Parts 6 and 7 of Article 115 of the Criminal Procedural Code of the Russian Federation, which should allow the transfer for custody to the owner or holder of arrested property of not only “material” property, but also of electronic monetary funds (Decree No.31-P of the Constitutional Court of the Russian Federation dated December 10, 2014).

We should also note particularly a set of measures implemented and/or under development that are aimed at “deoffshorizing” Russian business.

First, starting from January 1, 2015, new provisions of Chapter 3.4 of the Tax Code of the Russian Federation take effect, establishing, among other things, the following:

• Taxpayers must inform about their participation in controlled foreign companies (CFCs); the control criteria are given in Part 3 Article 25.13 of the Tax Code.
•  A 20% tax is payable on the CFC’s profit, less the amount of tax paid on this profit under the laws of the relevant foreign country (Part 11 Article 309.1).
• Liability is established for not providing information on CFCs in the amount of 50,000 rubles (for failure to notify of participation) or 100,000 rubles (for failure to notify of a CFC); for tax periods starting from 2018, failure to pay profit tax entails a fine of 20% of the non-paid amounts (but no less than 100,000 rubles). We should note that non-payment of profit tax in 2015-2017 likewise does not entail any criminal liability, provided the damage is fully compensated.

Second, a bill has been introduced to the State Duma of the Russian Federation, proposing to add to the current text of Article 199 of the Criminal Code (tax evasion) certain qualifying traits that would increase liability, in particular, ones such as use of offshore schemes in committing a crime (the draft law is available  here). Punishment for a crime with the use of offshore schemes can be as much as 6 years of imprisonment – as for a crime of particularly large tax evasion.

Third, as a “mitigating” measure, the Russian Government must by July 15, 2015 prepare a draft law on amnesty for capital moved abroad without paying relevant taxes, provided the money is transferred back to Russia, which should presume releasing taxpayers from tax and criminal liability.

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Onikienko, St. Petersburg Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.