Dear clients and co-operation partners,
We are glad to welcome you on the eve of the new business season with the latest Belarusian legal and business news.
The results of the first half of 2019 have re-affirmed concerns that Belarus will not be able to achieve the officially forecast GDP growth rate of 4% this year. According to the National Statistics Committee, GDP in January-June 2019 increased only by 0.9% in constant prices compared to the same period in 2018. State officials explain the slowdown by referring to external factors such as the roaming China-US trade war and the scandal with oil pollution in Russia. Based on expectations of the Economy Minister, the Belarusian economy should accelerate in Q3, although World Bank experts remain moderately sceptical about the prospects of economic growth this year.
On a positive note, the “youngest” (by average age of members) and “most market-oriented” government with Prime Minister Sergei Rumas at the helm has marked first anniversary since its appointment. The team has been praised for diversifying and quite effectively restructuring sovereign debt, achieving historically lowest inflation rates (6 % p. a. as of July 2019), supporting growth in the private sector.
Belarus is also approaching another election period which will comprise a parliamentary campaign in the fall of this year and presidential elections in 2020. This is when the political agenda has a strong impact on economic life and the investment environment in our country, so let us see what the nearest future brings.
We offer you news about changes in laws which address some of the problems our clients have been struggling with for years: tax corrections, organizing remote work by employees, employee transfer during idle periods, enhanced personal data regulations, and others.
New Rules for Correction of Taxes are in Force, but Practice Is Unlikely To Change
On 9 July 2019 the State Control Committee adopted Resolution No. 3 regulating issue of statements on determining grounds for correction of the tax base or tax amount. The new rules clarify the procedure for tax correction according to article 33 of the Tax Code, which entered into force on 1 January 2019 and introduced further measures against aggressive tax planning and unlawful reduction of taxes.
Previously the issue was regulated by Edict No. 488 “On Certain Measures for Preventing Unlawful Reduction of Tax Obligation”. According to the Edict, the Ministry of Taxes and Duties could list in a special Register a business entity that was subject to one of specific circumstances such as failure to report income from sale of goods.
Although the general intentions of the Edict were fair and reasonable, its implementation was sometimes excessive. For instance, the main consequence of inclusion in the Register was treatment of primary accounting documents for a certain period as invalid. Consequently, all affected counterparties of a non-compliant business entity had to correct their tax returns notwithstanding their actual unawareness of the unlawful operations of the business entity, or whether there was any evidence of the illicit nature of a particular transaction. In other words, it was a de-facto obligation of the counterparty to prove that its operations were real and should not be treated as illegal.
While preparing the new provisions of the Tax Code, state officials commented about the intended change in the established approaches, abolition of Edict No. 488 and the Register. As a result, the Edict was indeed abolished, and new provisions to control taxation of transactions were introduced in the Tax Code, including the following grounds for tax corrections:
- distorting information about the facts of performing business operations or about objects of taxation;
- performing business operations with the main aim of reducing tax obligations;
- lacking real performance of a business operation.
Some commentators perceived these grounds as being too broad and providing the controlling authorities with excessive powers. In response to these comments, the Supreme Court proposed non-binding guidelines for courts to assist in interpreting these provisions and resolving related disputes.
The recent Resolution No. 3 of the State Control Committee finally made it clear that Edict No. 488 was abolished only in form, but not in substance. Despite the elimination of the Register, information about non-compliant entities is still gathered and should be published by the competent state agency – the State Control Committee. The latter acknowledges an entity as non-compliant by issuing a statement confirming the fact of an offence in the economic sphere committed by or with the help of this entity. The statement is issued in the course of an inspection or criminal investigation if the State Control Committee discovers at least one of the grounds for correction of taxes under article 33 of the Tax Code if at least one of the following circumstances is present:
- failure to report income from a sale of goods (works, services, property rights) in tax returns or failure to provide a tax return regarding this income within two consequent reporting periods;
- failure to explain the factual circumstances of receiving monetary funds if their amount exceeds 5,000 basic units (BYN 127,500 or approx EUR 55,700) per month;
- an unauthorised person actually represents the entity or the entity has transferred its seals, blanks of documents with a certain degree of protection (e.g. excise stamps), or payment instruments to an unauthorised person.
This list reiterates Edict No. 488, except for two additional circumstances which have been irrevocably abolished.
The consequences of issuing a statement are effectively the same as for inclusion in the eliminated Register, i.e. the entity and its counterparties have to correct their tax base or tax amount with regard to a certain period. The main difference is that the new Resolution is less detailed than Edict No. 488 and, for example, does not establish rules for making the required corrections and does not explicitly mention the right of the counterparties to appeal a request to correct the tax base or tax amount.
As a result, the “re-introduction” of Edict No 488 indicates that the practice of the controlling authority is likely to remain basically the same, except for a new general anti-avoidance rule in article 33 of the Tax Code. The latter might lead to an increase in the number of tax correction requests, although it is not yet clear how actively the controlling authorities will apply the new rule and to what extent they will adhere to the non-binding guidelines of the Supreme Court.
For further information please contact Alexey Fidek, Co-Head of Tax & Customs Practice Group Sorainen Belarus.
The Law on Personal Data Passes the First Reading in the Lower Chamber of the Parliament
In mid-June 2019 the Parliament adopted a bill of the Law “On Personal Data” at the first reading. The bill, which had long been under development, is intended to introduce new rules on personal data processing in Belarus. Although current Belarusian law does contain certain requirements as to operations with personal data, it is not uniformly interpreted and enforced in practice. The new Law and supporting regulations should increase attention to compliance issues by introducing clear requirements as to personal data processing.
It is notable that the next reading of the draft Law may take place after new members of the Parliament have their mandates, which may change the approach. Should the provisions of the Law remain without significant changes, it will establish new requirements for operations with personal data which are, in essence, to a certain extent similar to the approach of the GDPR. The bill also provides for a special regulator in the sphere of personal data protection, which should give additional impulse to its enforcement. The draft also provides a possibility to give consent in electronic form, including via a click; limitation by purpose of processing; prohibition of processing not in line with the stated purpose; the data subject’s right to be informed, to recall consent, and to restrict processing as well as cross-border data transfer, which currently are not well regulated.
The new Law is expected to enter into force in a year after final adoption and official publication.
For further information please contact Kirill Laptev, Head of Technology, Media & Telecommunications Sector Group in Belarus.
Open Licence and New Charges from Copyright Holders Come into Existence with Amendments to the Copyright Law
A new Law dated 15 July 2019 has introduced a number of amendments to the Law “On Copyright and Related Rights”, a majority of which will enter into force on 27 May 2020.
The main changes relate to:
Open licence. Upon entry into force of the amendments, Belarusian law will regulate open licences by allowing copyright holders to provide non-exclusive licences via a simplified procedure.
An open licence agreement will be a contract of accession which may be entered into by a customer by starting to use the object of copyright or related rights or by performing other actions specified in the open licence. An open licence agreement must be made publicly available so that anyone can read it prior to using the object of copyright or related rights.
By default, an open licence will be worldwide and free of charge. The term of use will be equal to the term of the exclusive right for software and five years for other types of copyright and related rights. Different terms and conditions may be established in an open licence agreement.
Licence agreements. An important change relates to fees under a licence agreement. Should fees be stipulated as a fixed amount, the agreement must also set a maximum number of reproducible copies of the work.
The amendments also eliminate a rudimentary type of licence agreement called “an author’s agreement”.
Contributions to the Presidential Fund for Support of Art and Culture. Organisations for collective management of property rights will transfer to the Presidential Fund for Support of Art and Culture 25% of the fees collected from manufacturers and importers of equipment and data carriers for personal reproduction of audio-visual works and phonograms. Effectively, this will mean that authors and copyright holders will receive 25% less in terms of fees from these organisations.
Publication of audio-visual works. Authors of an audio-visual work will be deprived of the default right to prohibit publication or to withdraw it. However, this right may still be stipulated in an agreement with the manufacturer of an audio-visual work.
For further information please contact Maksim Salahub, Head of Intellectual Property Practice Area.
Extension of the Brest and Grodno Visa-Free Regimes
At the beginning of August, the President signed a Decree introducing changes to the visa-free regimes in Brest and Grodno regions. The two visa-free zones are united into one which is further expanded to five more districts in Grodno region: Byerastavitsa, Volkovisk, Voranava, Lida, and Shchuchyn. In total, the extended visa-free zone will cover 11 districts in the western parts of Brest and Grodno regions.
Tourists from 73 countries will be allowed to stay in the visa-free zone for up to 15 days (previously only 10 days). Visitors can enter Belarus via one of 13 entry points (previously 11) based on a special document which should be applied for from Belarusian tour-operators beforehand.
For further information please contact Maksim Salahub, Head of Migration & Relocation Practice Area in Belarus.
Supreme Court Clarifies Practice in Disputes Arising out of Loan Agreements
The Plenum of the Supreme Court has adopted a resolution summarising and clarifying court practice related to disputes over loan agreements. The most notable conclusions and recommendations are the following:
- Application of general rules. The Supreme Court confirmed that the general rules of the Civil Code regulating a loan agreement will also apply to specific types of loans regulated not by the Civil Code, but by special decrees of the President. This conclusion eliminates a legislative gap in regulation of microloans and convertible loans;
- Standard and default interest. The Supreme Court pointed out that default interest for delay in repaying a loan cannot be charged on the amount of standard loan interest.
In addition, if the agreement provides for an increased interest rate in case of delay, the difference between the standard and the increased rates should be considered as contractual default interest which may be decreased by the court upon request by a party if the amount of default interest is inadequate to the consequences of delay.
For further information please contact Ann Laevskaya, Co-Head of our Financial Services & Insurance Sector Group in Belarus.