Author: Aliona Yevtushenko, lawyer at F&P
Foreign economic activity of Ukrainian business entities and foreign business entities, as well as the activity of state customers for defence procurement in cases specified by the laws of Ukraine, is based on the relationship between them, which takes place both in Ukraine and abroad.
The Law of Ukraine ‘On Currency and Currency Transactions’ No. 2473-VIII dated 21.06.2018 (hereinafter – the Law No. 2473-VIII) defines the legal basis for currency transactions, currency regulation and currency supervision, the rights and obligations of currency transactions and authorised institutions and establishes liability for violation of currency legislation.
Currency control in the field of foreign economic activity requires strict compliance with the deadlines for settlements under export and import transactions. Violation of these deadlines may result in the imposition of penalties in accordance with Article 13 of Law No. 2473-VIII.
However, in a number of cases, a taxpayer may avoid liability or appeal against the accrued penalty. Such cases will be discussed in this article.
According to the Law No. 2473-VIII, the National Bank of Ukraine exercises currency supervision over authorised institutions in accordance with the procedure established by it. The National Bank of Ukraine has the right to set deadlines for settlements under export and import transactions.
In accordance with clause 21 of the NBU Board Resolution No. 5 dated 02.01.2019, the deadline for settlements under export and import transactions is 180 calendar days.
The control over compliance with the settlement deadlines is vested in:
- banks that carry out currency supervision of clients’ transactions (in accordance with NBU Instruction No. 7);
- the State Tax Service of Ukraine (STSU), which conducts inspections and levies penalties in case of violations.
The Bank carries out currency supervision over the resident’s compliance with the deadlines for settlements for:
- a resident’s export of goods, if the settlement of such transaction is not completed (funds from the sale of goods to a non-resident have not been received on the resident’s current account or have not been received in full) or the bank has no information on the completion of settlements under such transaction;
- a resident’s import transaction, if on the date of payment by the resident for the goods, the non-resident has not delivered the goods under the import transaction;
- an import transaction of a resident, if on the date of payment by the resident for the goods, the import transaction was not completed without importation of the goods into the territory of Ukraine.
Pursuant to Article 13(5) of Law No. 2473-VIII, in case of violation of the payment deadline, the tax authorities shall charge a penalty of 0.3% for each day of delay. However, the total amount of the penalty cannot exceed the amount of the debt under the contract.
In case of objective impossibility to execute the contract within 180 days, the law provides for the possibility of extending the payment deadlines. The decision to extend or refuse such an extension falls within the competence of the Ministry of Economy of Ukraine and is regulated by the Resolution of the Cabinet of Ministers of Ukraine No. 104 dated 13.02.2019.
The Ministry of Economy of Ukraine issues an opinion on certain export and import transactions carried out by residents. This applies to transactions arising from the following types of foreign trade contracts:
- Production cooperation – the supply of raw materials, parts, and components necessary for the manufacture of final products.
- Consignment – the sale of goods through a consignor who sells them from a warehouse on his own behalf for a fee.
- Construction – the supply of construction materials, equipment, and machinery for construction works.
- Tender supply—supply of goods ordered as a result of international tenders.
- Warranty service – export of goods with phased payment after inspection, installation, and expiry of the warranty period.
- Supply of complex equipment – import of equipment in parts that requires installation, adjustment and warranty service, as well as goods with a long production and delivery time (more than 180 days).
- Supply of special purpose goods – international supplies of military goods, natural gas and its transit with final payments made after signing the relevant acts.
An application for an extension of time must be submitted no later than 10 business days before the expiry of the deadlines for settlements for export and import transactions. The period for the extension of settlements is calculated from the date of expiry of the deadline or the deadline set in accordance with the opinion of the Ministry of Economy issued earlier in respect of the transaction.
Despite the existence of a mechanism for extending the settlement deadlines, in practice, in the vast majority of cases, the Ministry of Economy refuses to extend the settlement deadlines.
In this case, a business entity has the option to stop the accrual of penalties in two ways:
- providing the supervisory authority with a confirmation of the impossibility of fulfilling the foreign trade contract due to force majeure.
Part two of Art. 14-1 of the Law of Ukraine ‘On Chambers of Commerce and Industry in Ukraine’ stipulates that force majeure (force majeure circumstances) are extraordinary and unavoidable circumstances that objectively make it impossible to fulfil obligations under the terms of the agreement (contract, agreement, etc.), obligations under legislative and other regulatory acts, namely threat of war, armed conflict or a serious threat of such conflict, including but not limited to enemy attacks, blockades, military embargoes, actions of a foreign enemy, general military mobilisation, military operations, declared and undeclared war, actions of a public enemy, riots, acts of terrorism, sabotage, piracy, riots, invasion, blockade, revolution, rebellion, insurrection, mass riots, curfew, quarantine, established by the Cabinet of Ministers of Ukraine, expropriation, compulsory seizure, seizure of enterprises, requisition, public demonstration, blockade, strike, accident, illegal actions of third parties, fire, explosion, long interruptions in transport operations regulated by the terms of relevant decisions and acts of state authorities, closure of sea straits, embargo, prohibition (restriction) of export/import, etc., as well as those caused by exceptional weather conditions and natural disasters, namely epidemic, severe storm, cyclone, hurricane, tornado, storm, flood, snow accumulation, ice, hail, frost, freezing of the sea, straits, ports, passes, earthquake, lightning, fire, drought, subsidence and landslide, other natural disasters, etc.
The existence of force majeure must be confirmed by a certificate of the authorised organisation (body) of the country of location of the party to the foreign economic agreement (contract) or a third country in accordance with the terms of the agreement (contract).
- Providing the supervisory authority with evidence that a court has accepted a resident’s claim for consideration to recover from a non-resident a debt arising from the non-resident’s failure to comply with the deadline.
If a court or international commercial arbitration decides to dismiss the claim in whole or in part as to property claims or to refuse to initiate proceedings or to leave the claim without consideration, as well as if a document on debt collection from a non-resident debtor is declared unenforceable, invalid, illegal, etc., and/or if the proceedings are closed (terminated) without crediting funds to residents’ accounts in Ukrainian banks under such a document, the term established in accordance with this Article shall be renewed.
Thus, in order to suspend the accrual of penalties for violation of the deadlines for settlements under a foreign economic contract, it is not enough to provide documents relating to the opening of proceedings, but also to obtain a court decision to satisfy the claims and recover the debt from the non-resident.
Appealing against penalties for late currency payments is an important mechanism for protecting the interests of foreign economic operators. A decision to impose a penalty may be appealed administratively (by filing a complaint with the State Tax Service) or in court. It is important to file timely objections with proper evidence to prove the validity of the taxpayer’s claims.
Thus, taxpayers engaged in cross-border transactions should not only closely monitor compliance with the deadlines for currency settlements but also be aware of their rights in case of unjustified penalties. The use of legal protection mechanisms available to FEDORYSHYN&PARTNERS allows for the reduction of financial risks and the avoidance of unjustified sanctions from regulatory authorities.
