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Pepeliaev Group hereby advises that there is a higher risk of claims on the part of Rosfinnadzor in respect of loans extended by residents to non-residents in cases where debtors fail to discharge their obligations in monetary form through the crediting of funds to the resident’s bank account at an authorised bank.
In a speech the head of the Department for Currency Control of Rosfinnadzor N. V. Plotnikova expressed her opinion that the granting of a loan constitutes a service fr om the perspective of currency control and consequently the failure to return the loan and pay interest to the resident’s bank account in the authorised bank by the deadline established in a contract constitutes a violation of clause 1, part 1, article 19 of Federal Law No. 173-FZ dated 10 December 2003 “On Currency Regulation and Currency Control”.
This conclusion was based on the terms of the All-Russia Classifier of Business Activities, Products and Services OK 004-93 (approved by Resolution No. 17 of the State Standard Committee of Russia (Gosstandart) dated 6 August 1993),which does include item 6590050 “Provision of Long-Term Financial Loans to Industries, Provision of Money Loans and Financial Leasing Services Outside the Banking System” (section 6500000 Financial Agency Services, Excluding Insurance and Pensions”).
In view of the above approach, Rosfinnadzor may refuse to recognise the discharge of the borrower’s obligations through the mutual offset of claims or other form of settlement that complies with civil legislation, citing the fact that the “proceeds fr om the loans” should be credited in monetary form to the resident’s bank account at an authorised bank.
This approach entails negative implications for lenders that are Russian residents in that they may be held administratively liable. By virtue of part 4, article 15.25 of the Russian Code of Administrative Offences, the default by a resident on the obligation on the remittance to its bank accounts at authorised banks by the established deadline of the money for goods transferred to non-residents, work performed for non-residents, services provided to non-residents or for information and intellectual property transferred to non-residents, is qualified as an administrative offence and the offender may be held administratively liable for such an offence.
The imposition of an administrative penalty on officials and legal entities is stipulated as the administrative punishment, in the amount of 75% to 100% of the money that was not credited to bank accounts at authorised banks.
At present OK 004-93 is applied together with other commodity classifications according to types of economic activity (OK 034-2007 - CPA 2002) and two other classifications of the types of economic activity (OK 029-2001 - NACE Rev. 1 and OK 029-2007 - NACE Rev. 1.1) without abolishing OK 004-93 (Order No. 329-st of the Russian Federal Agency for Technical Regulation and Metrology dated 22 November 2007).
At the same time, as far as we know, OK 004-93 was not announced as a regulatory act of the federal executive authority.
Moreover, in the aforementioned section OK 004-93 the granting of loans is included with such types of activity as 6519010 “Wholesale Deposit Services ”, 6519030 “Discount House Services”, 6590040 “Trust Fund Establishment Services”.
Consequently, OK 004-93 is at variance with the current state of Russia’s legal and economic system, including the Russian Civil Code and other laws, which were adopted at a later date and have more legal force than OK 004-93.
A paid services agreement is broadly defined in point 1, article 779 of the Russian Civil Code as the performance of specific actions or the performance of specific activities.
At the same time, the concept of services in civil legislation excludes actions, the performance of which per se does not constitute the intention and purpose of the agreement, in particular in cases wh ere the transfer of property in kind or the transfer of money is the intention and purpose of the agreement. Therefore, most scholars of civil law believe that the obligation to extend a loan does not constitute a service under civil legislation .
According to clause 8, article 2 and article 33 of Federal Law No. 164-FZ dated 8 December 2003 “On the Fundamentals of State Regulation of Foreign Trade”, foreign trade in services is understood to mean the provision of services (performance of work), including the production, distribution, marketing and delivery of services (work) with a foreign component (delivered abroad or equally if the service is provided to a client outside the client’s country or if the contractor provides services outside its country).
Such an interpretation of the foreign trade of services is inapplicable to loans.
As a result, after assessing the above approach to a loan as a service, we concluded that the content of article 19 of the Federal Law “On Currency Regulation and Currency Control” evokes certain doubts. These doubts cannot be eliminated through interpretation of the law. Consequently, by virtue of part 6, article 4 of this law, such a doubt should be interpreted in favour of residents and non-residents involved in currency transactions.
In our opinion, the risk of claims and court dispute with Rosfinnadzor on the issues under review has increased materially.
However, we believe that it is still likely that a court will rule in favour of a resident. Our assessment could change in future in connection with developments in the administrative practice of Rosfinnadzor, case law and possible amendments to currency legislation.
Proceeding from the above, we recommend that residents wh ere possible receive money from non-residents under loan agreements within the time frame stipulated by such loan agreements, until the situation becomes clearer.
For further information, please contact:
in Moscow – Ivan Khamenushko, Senior Partner, at: (495) 967-0007 or by i.khamenushko@pgplaw.ru; Peter Popov, Senior Associate, at: (495) 967-0007 or by p.popov@pgplaw.ru
in St Petersburg - Sergey Sosnovsky, Head of Tax Practice (St. Petersburg), at (812) 333-07-17 or by s.sosnovsky@pgplaw.ru
