LAW DIGEST:

List of offshore countries has been amended

The Order of the Cabinet of Ministers of Ukraine of 14 May 2015, No 449-p approved a new list of countries that will be subject to transfer pricing control. The list was supplemented with Austria, Turkmenistan and Niue. At the same time, Albania was excluded from the list. In total, the list includes 76 countries (territories), where income tax (corporate tax) rates are lower than 13%, and where ownership structure is not publicly disclosed, or the countries that do not have agreements on information exchange with Ukraine.

Legislation on ESCOs

Ukrainian President Petro Poroshenko has signed the acts on Energy Service Companies (ESCo) that enable companies to work with budget institutions. These include the Acts of Ukraine On Introduction of New Investment Opportunities, Guarantees of Rights and Interests of Businesses for Major Energy Modernization of 9 April 2015, No.327-VIII and On Changes to the Budget Code of Ukraine concerning Introduction of New Investment Opportunities, Guarantees of Rights and Interests of Businesses for Major Energy Modernization of 9 April 2015, No.328-VIII. The Acts that intend to establish a framework for energy services to improve energy efficiency of public sector facilities are already in effect. These Acts establish mechanisms of energy service contracts in budgetary institutions. The motivation to attract investments will be appropriate long-term budget obligations. It is assumed that the money saved on utilities will be paid back to investors at the cost of the accomplished energy efficiency measures. The new legal mechanisms will allow the private sector to attract investment for energy efficiency of budget institutions, provide an opportunity to implement large-scale thermal modernization of budget institutions, create an energy services market, thousands of new jobs and increase revenues to budgets of all levels.

Transactions with public debt

The On Features of Transactions with Guaranteed Public Debt and Local Debt  Act of 19 May 2015, No.436-VIII was submitted by the Cabinet of Ministers of Ukraine. In connection with transactions with public and guaranteed public debt, the Act empowers the Cabinet of Ministers of Ukraine and respective municipalities to decide on the suspension of payments on all or some public external borrowings, government-guaranteed foreign loans and local foreign loans that are referred to in the Annex to the Act, and introduction of a temporary moratorium on satisfaction of creditors under the obligations where the Cabinet of Ministers of Ukraine and/or a respective municipality adopts an appropriate decision.

Related persons

The Resolution of the National Bank of Ukraine (NBU) On Approval of the Regulation on Determination of Banks’ Related Parties of 12 May 2015, No.315 has been developed to identify related persons of banks, to set the order of the banks’ disclosure of information on such persons to the NBU, and to enable the NBU to determine whether individuals and legal entities are banks’ related persons. A decision on whether legal entities or individuals are banks’ related persons will be made by an authorized official of the NBU.

A person shall be deemed as related to a bank, if the bank fails to prove otherwise within 15 working days of receipt of the relevant notice of the NBU. If the bank is able to prove that the person is not related, then the appropriate decision of the authorized official shall be canceled/amended by the Commission of the National Bank that supervises and regulates banks’ operation, and supervises payment systems.

The Resolution sets out features to determine whether individuals or legal entities are associated with the bank. It includes the nature of relations and the nature of transactions.

The purpose of a transaction and use of funds:

— the purpose of a transaction and use of funds does not meet the main type of operation (a typical business activity) of a person;

— funds received by a person are used for purposes other than those stipulated in the agreement;

— funds are used by banks’ related persons for their benefit, directly or indirectly;

— use of funds is not clearly defined or is not controlled by a bank properly.

Debt and credit. A loan would not have been granted to a person by another bank that adheres to efficient banking practices, including, but without limitation, the following situations:

— creditworthiness or cash flows to the accounts of such persons do not ensure timely repayment of loans;

— the planned proceeds from investment of credited funds do not guarantee timely and adequate loan repayment;

— transactions with a person whose credit rating or quality of assets are below the acceptable level according to the bank’s calculation;

— extension of the credit for a period exceeding one year without evidence of payment of interest.

Interest rates, fees and prices:

— interest, commissions, operating income (expenses) under transactions with such a person differ from current market conditions/terms of transactions with other debtors/contractors;

— the sale price of assets and/or the price of services provided to such persons by the bank  differ significantly from the market;

— the purchase price of assets and/or the price of services provided to the bank by such a person differ significantly from the market.

Collateral and guarantees:

— a person’s agreement with the bank and/or a person related to the bank on fulfillment of each other’s obligations;

— less security of obligations or security of lower quality offered by a debtor/counterparty compared to securities accepted from other clients.

The Government, territorial communities, as well as international financial institutions that have cooperation agreements with Ukraine and hence enjoy preferences and immunities cannot be considered to be banks’ related parties.