Lengthy process set for foreign worker quotas
Annual 6-step procedure starts with employer requests

The Russian Federation Labor Ministry has established a complicated, lengthy process for setting annual quotas for foreign workers, reports Evgeny Kuzmenko, of Russin & Vecchi's office in Yuzhno-Sakhalinsk. The six-step process, which will take place from June 1 to Dec. 15 each year, will involve employers, federal and regional state representatives and law enforcement agencies, he explains.

"Initial quotas for each region will be determined based on employer requests, so it is vitally important that employers actively participate in filing their respective requests in order to arrive at quota amounts that reflect real demand," Kuzmenko comments.

"After employers who plan to employ foreign workers make their requests for the following year, various state bodies will amend this number based on their informed opinion, taking into account the preferred use of the Russian labor force over foreign labor," he explains. The Labor Ministry’s Enactment No. 23 in late April detailed the regulations governing the quota-setting, he reports.

Recommendations guide taxation of foreign firms
Ministry aims for uniform treatment on Profit Tax, treaties

The Russian Ministry on Taxes and Levies recently issued recommendations to tax authorities, which they must use in applying provisions that tax foreign organizations for income they receive from activity in Russia or from Russian sources, reports Zhanna Radmaeva, of Russin & Vecchi's Vladivostok office. The directives aim "to ensure the uniform use by tax authorities all over Russia of provisions in the Tax Code on the Profit Tax and international treaties on avoidance of double taxation," she explains.

The ministry’s 21 pages of recommendations clarify the Tax Code’s Chapter 25, which itself contains 90 articles, Radmaeva notes. They clarify calculation of profits subject to taxation, payment procedures, payment terms and steps for return of the tax, among other things, she says.

The ministry detailed procedures regarding two types of foreign organizations - those acting through a "permanent establishment" in Russia, and those who receive income from Russian sources without having a "permanent establishment" - she reports. "A foreign legal entity will be considered as having a ‘permanent establishment’ if it has an agency, branch or representative office, or other place of execution of regular commercial activity in Russia," she explains.

The tax on profits of foreign entities with a "permanent establishment" generally is 24%, while the tax on those without one ranges from 10% to 20%, "depending on the type of source of income located in Russian territory," Radmaeva notes. Regional laws and international treaties can reduce those levies, she adds.

Court backs bailiffs’ access to bank account data
Law limits access, protects privacy, top court also rules

The Russian Federation’s Constitutional Court has resolved a conflict between bailiffs’ authority to enforce court orders and personal privacy rights in favor of the bailiffs, reports Natalya Prisekina, of Russin & Vecchi's Vladivostok office. However, she adds, the May 14 decision does not grant bailiffs unrestricted access to personal bank account information. The decision allows bailiffs to determine whether an account contains sufficient funds to execute a particular court order. The bank, however, will not disclose to the bailiff the exact account balance.

"The Constitutional Court’s ruling came at the request of a city court in the Khanty-Mansiisk autonomous area of Siberia, which considered a complaint of a local bank manager whom a court bailiff had fined for refusing to provide information on a client’s bank account," Prisekina explains. "Courts in a number of regions had earlier issued contradictory rulings after bank officials had refused to comply with bailiffs’ requests, citing bank secrecy provisions," she notes.

The Constitutional Court stressed that Federation law prohibits bailiffs from divulging information on personal bank accounts that they obtain while performing their duties, Prisekina reports. The law also provides remedies for those whose privacy rights are violated and penalties for bailiffs who violate them, she adds.

PSA projects’ tax future unclear as debates rage
Competition rises between Russian, international oil concerns

Vigorous debates this year over proposed amendments to tax provisions for Production Sharing Agreements (PSAs) indicate an emerging struggle between growing Russian oil companies and international industry leaders, observes Rinat Zakirov-Ziev, of Russin & Vecchi's Moscow office.

"A fragile compromise between supporters and opponents of PSA tax benefits was broken this year when the Russian Federation Government declared that PSA tax provisions could be used only where no one shows interest in developing subsoil under the general tax regime," Zakirov-Ziev reports. Although the debate will affect future minerals projects, it is unlikely to affect the Sakhalin 1 and 2 projects that are already under way.

Major Russian oil company YUKOS has led attacks against PSA tax benefits, including alarmist advertising that suggested they could lead to disintegration of Russia, Zakirov-Ziev notes. PSA opponents primarily argue that PSAs produce less tax revenue than the general tax regime, and that domestic firms now can invest independently in oilfield exploration and development, he explains.

"Major international oil companies investing in PSA projects are mainly concerned about stability of existing PSA projects (Sakhalin-1 and -2, and Kharyaga) and the future of projects which already received substantial investment though not signed by the government (like Sakhalin-3)," Zakirov-Ziev comments.

The State Duma also is discussing a proposal that would remove the "competitive principle" for purchases of goods and services under PSAs’ Russian content requirements, although the requirement for 70% Russian content in PSA projects would remain, Zakirov-Ziev adds.

In other tax developments, the PSA Chapter of the Russian Tax Code was enacted in early June. Among significant changes introduced is the abolishment of the VAT exemption for PSAs.

R&V helps Japanese firms know Sakhalin project rules
Tokyo seminar informs potential contractors in oil, gas projects

Russin & Vecchi co-sponsored a seminar in Tokyo on June 6 to help potential contractors understand the rules for participating in Sakhalin oil and gas projects, reports Denis Marchenko, of the firm’s office in Yuzhno-Sakhalinsk.

"The conference focused on ways to structure companies and transactions to ensure that potential contractors meet the Russian content requirements of the Production Sharing Agreements, under which Sakhalin-1 and Sakhalin-2 oil and gas projects are operated," Marchenko notes. "It also addressed legal peculiarities of employment law and benefits on Sakhalin, and other issues of interest for Japanese potential contractors," he adds.

In presenting the event, Marchenko explains, Russin & Vecchi joined Kojima Law Offices (a fellow member of Meritas, formerly Commercial Law Affiliates); the Committee for International, Overseas and Economic Relations of the Administration of Sakhalin Region; and the Japan External Trade Organization.

© 2003 Russin & Vecchi, LLP