UKRAINIAN OCTOBER LEGISLATIVE UPDATE
Gene M. Burd, Head, Representative Office in Kyiv
Marks Sokolov and Burd, LLC
Kyiv, Ukraine, Monday, November 5, 2007
During the month of September Ukraine was in the last month of its
election campaign season, and this fact gave strong political coloring to
many Presidential decrees and resolutions of the Cabinet of Ministers.
No laws have been adopted since the Parliament has been dissolved.
[1] BANKING -----
NBU Decided to Postpone Decreasing Limits on the Banks' Maximum US
Dollar Borrowing Rate
On October12 the National Bank of Ukraine (NBU) adopted resolution No.
350, which became effective on October 22, postponing the decrease in
maximum borrowing rates for cross-border loans.
Previously, NBU Resolution No. 235 (which was supposed to become
effective on October 19) imposed a maximum limit equal to the average
weighted interest rate of the outstanding Ukrainian government bonds
plus two percent.
The resolution was severally criticized because it would have cut out
borrowing by any Ukrainian banks that would have been unable to borrow at
the rates below the maximum. Western banks providing loans to Ukrainian
banks would also have been affected by the proposed regulations.
The adopted Resolution 350 postponed the effective date of the maximum
interest rates to January 1, 2008, meanwhile providing that maximum
borrowing rates would be "based on the value of government obligations."
The NBU explained that "at the time of determining such rates, the National
bank takes into account interest rates of the Ukrainian bonds issued by the
Ministry of Finance of Ukraine taking into account average spread
(difference between interest rates) between sovereign obligations and those
of the subjects of economic activities [companies], as well as the rating of
the subjects of the economic activities [companies] established by the
international rating agencies."
In a nutshell, the NBU, instead of binding itself into a concrete formula,
adopted a "wait-and-see" approach leaving itself the freedom (and
responsibility) to impose the maximum rate based on the market. It remains
to be seen whether NBU's judgment of the market and its financial wisdom
will be effective.
[2] NATURAL RESOURCES
The President Suspends Resolution of the Cabinet of Ministers Establishing
Procedures for Auctions of the Special Subsurface Permits
On September 7, 2007 President Yuschenko signed decree No. 829/2007
suspending the April 4, 2007 resolution of the Cabinet of Ministers No. 611
which established procedures for issuance of special subsurface permits
(mineral, oil and gas deposits; medicinal sources).
Resolution No. 611, in part, provided that special permits be awarded
through an auction to the highest bidder. That bidder was required to pay
for the permit within 30 days of winning the auction. If the highest bidder
fails to pay, the second highest bidder would become the winner.
In his decree suspending the resolution, the President explained that the
auction procedure could lead to abuses. For example, if two or more bidders
collude with the intention to acquire the permit at a low price and the
highest bidder would fail to pay, the permit would have to be issued at a
lower bidding price.
The President also asked the Constitutional Court of Ukraine to decide
whether Resolution No. 611 complies with the Constitution of Ukraine.
Currently it is unclear which if any procedures are effective in the
issuance of the subsurface permits. Normally the Cabinet of Ministers would
issue procedural guidelines to be effective for the current year. However,
given the Presidential decree at issue, no procedures arguably exist at
present.
[3] IMPORT/EXPORT
The Ministry of Economics of Ukraine Imposes Additional Re-export
Permit Requirements
In an apparent move to further regulate import and export to avoid
increasing inflation, on September 17, 2007, the Ministry of Economics
According issued Order No. 309 on September 17, 2007, requiring permits
for re-export of: (i) oil or oil products from bituminous materials of
foreign origin; (ii) natural gas of foreign origin; (iii) cattle and sheep as well
as their leather of Ukrainian origin.
Prior to this Order the re-export of oil or oil products from bituminous
materials and natural gas of foreign origin already required a permit.
While the new procedures add additional categories to the list of
commodities requiring permits, it somewhat clarifies the procedures for the
issuance of the permits.
[4] INTERNATIONAL TREATIES
Ukraine Accedes to the June 3, 1999 Protocol to the International Rail
Transport Convention
The Ministry of Foreign Affairs announced that the June 3, 1999 Protocol
amending the International Rail Transport Convention will be effective as to
Ukraine as of November 1, 2007.
[5] TAXATION
State Tax Administration Requires Banks to Collect Taxes on Uncollected
Secured Loans
In its letter No. 8465/6/17-0716, dated September 4, 2007, the State Tax
Administration (STA) instructed the banks to act as tax agents for
defaulting secured loans.
If an individual borrower defaults on a secured obligation including a
mortgage, the unpaid loan amount is deemed to be the personal income
of the individual.
If the collateral is sold or the bank obtains the ownership of the
collateral, the bank is required to withhold and pay to the treasury the
borrower's income tax and to file a tax return with the authorities.
Under the Ukrainian tax regime, payors act as tax withholding agents for
individual taxpayers in an attempt to limit the ability of individual
taxpayers to evade taxes. Accordingly, the letter does not impose new
obligations on the banks but rather clarifies the withholding procedure.
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NOTE: This legislative news update has been prepared solely as a
service to business and investment community and does not constitute
legal advice. Gene M. Burd is a member in the law firm Marks Sokolov
and Burd, LLC and the head of it representative office in Kyiv. He was
born in Ukraine and was educated in the United States where he also
practices law.
Marks & Sokolov, LLC (operating in Ukraine as Marks Sokolov and
Burd, LLC) is a boutique law firm known for its ability to handle
complex litigation and commercial work in countries around the world
including the U.S., Russia and Ukraine. The firm has offices in
Philadelphia, Moscow, and Kiev. [www.marks-sokolov.com]