Currency Restrictions: How to Get Through

В статье рассматриваются правила валютного регулирования в Украине. А именно: принудительная продажа валютной выручки; возврат (репатриация) валютной выручки; регистрация займов (кредитов), получаемых от иностранцев; ценовая экспертиза. Автор достаточно критично относится к жесткой монетарной политике Украины.

Ukrainian currency legislation has neven been known to have a liberal stance: surrender of export earnings, repatriation funds, ad hoc licensing of foreign investments and so on are not commonly accepted worldwide as a measures of sound monetary policy. Yet, at the very start of the worst Ukrainian crisis the National Bank of Ukraine (the NBU) imposed far more restrictions facing the outflow of capital abroad and the extreme devaluation of national currency. In this article we will analyse most of them and outline the best practice of how business tries to get through.

1. Surrender of export earnings

Currently established under NBU Resolution No. 581 as of 3 September 2015 (Resolution No. 581): such acts have been adopted for every single three-month period from early 2014, so we believe that they are not going to abolished in the near future. According to this rule 75% of export earnings are subject to compulsory sale on the interbank currency market.

Basically, business used to get through this restriction by establishing trading models involving non-residents: Ukrainian exporter sales commodities to non-resident at minimal margin, then non-resident conducts reselling at the usual price accumulating profits abroad. Hence, the Ukrainian company sells only that part of export earnings that are used in Ukraine to cover operating expenses. Common jurisdictions for establishing non-residents in such trading models are such respectful ones like the UK, Austria or Netherlands or such low tax ones (but not qualified as offshores) as Estonia or United Arab Emirates.

It is noteworthy that the Ukrainian company shall bear in mind at least following two complications that may occur during the implementation of trading models:

— Transfer pricing rules. In case when annual turnover with a non-resident that is either related or incorporated in low tax judisdiction exceeds UAH 5 million and the annual income of Ukrainian company exceeds UAH 50 million, transfer pricing rules apply. Taking into account that the margin of a Ukrainian company is going to be lower than usual this may bring out allegations of tax avoidance. Hence, the Ukrainian company is advised to escape transfer pricing rules by involving a non-related non-resident from a non-low tax judisdiction;

— Licensing of foreign investments. In case when the non-resident is going to be owned by either a Ukrainian company or Ukrainian individual the ad hoc license has to be obtained from the NBU pursuant to clause 5.4.e) of the Cabinet of Ministers Decree On system of Currency Regulation and Currency Control. Basically business used to get through this restriction by acquiring shares of non-residential companies as a gift since the legistation provided respective relief. However, currently this method is well known by all competent authorities, whiсh may try to put forward challenges on the allegation of sham arrangements. It is notable that NBU Resolution No. 478 of 24 July 2015 stipulated that there is no need in the said ad hoc license provided that the subject matter of foreign investment (shares in our particular case) is paid in UAH in Ukraine. Therefore, Ukrainian residents are generally advised to acquire participation in non-residents by purchasing shares for UAH from Ukrainian commissioner of the seller in Ukraine, who afterwards buys foreign currency and transfers the funds to the seller. To date, this seems to be quite workable relief on this issue.

2. Repatriation of funds

Currently established under to Resolution No. 581 as well. Accoding to this rule Ukrainian companies are obliged to repatriate funds from preshipment or commodities from prepayment within 90 consecutive days following the day of preshipment or prepayment, respectively.

Basically business used to get through this restriction by international trade set-offs against the debts under other arrangements between the parties. The NBU tried to block this remedy from early 2013, although Resolution No. 581 has provided a loophole: the parties are allowed to conduct set-offs in a currency that is not subject to surrender of export earnings in the amount not exceeding the equivalent of USD 500,000 per one agreement. Hence, the parties contemplate under separation of contract values into different agreements with further change of contract currency into e. g. UAH, PLN or HUF that will give the go-ahead to international trade set-offs without the repatriation of funds to Ukraine.

3. Registration of foreign loans

Currently established under NBU Resolution No. 270 as of 17 June 2004. According to this rule all loans that are acquired from non-residents are subject to prior registration with the NBU.

Frankly speaking, despite thresholds for the interest rate (no higher than 9.8-11%, depending on the term) this restriction did not seem burdensome for business until early 2014, when certain extra restrictions were put forward, i. e.:

— Ban on early repayment of loan. Currently established under Resolution No. 581. According to this rule the borrower is prohibited from early repayment of both the interest and principal amount of loan in foreign currency. There is no single remedy for this case, although business get through this restriction aiming at termination of loan obligations or repatriation of funds abroad in one of the following ways:

1) transforming the loan into additional capital of the legal entity, provided that the lender is a shareholder of the Ukrainian borrower as well;

2) change of contract currency into UAH with early repayment in UAH;

3) change of contract currency into UAH, PLN, HUF etc. with further set-offs against another obligations between the parties;

4) capitalization of the accrued early payments into a new loan with short terms of repayment.

— Ban on assignments of rights and obligations. Currently established under Resolution No.581. According to this rule the parties to the loan agreement in foreign curency is prohibited from assignment of both rights and obligations thereunder, except for a special ruling issued by the NBU in cases when the parties to the planned assignment are related (we believe this will not work properly due to the high level of the NBU’s discretion, which may involve a certain corruption element). Business is going to get through this restriction by either transfer of shares instead of assignment of loan obligations or application of a three-part procedure:

1) change of contract currency into UAH with further registration with the NBU;

2) assignment of loan obligations since the ban applies solely to loans nominated in foreign currency;

3) change of contract currency back into the needed foreign curency with further registration with the NBU.

4. Pricing expertise

Currently established under NBU Resolution No. 597 as of 30 December 2003. According to this rule, the Ukrainain payer is obliged to provide a positive conclusion of pricing expertise provided that annual payment for the similar category of commodities other than goods if the benefit of a single non-resident exceeds EUR 50,000.

Business used to get through this restriction by separation of subject matters of respective works or services into different categories that do not happen to be similar. Another way is to conduct payments in favor of different non-residents under different contracts in amounts not exceeding EUR 50,000 annually. However, the most practical one is transforming the respective obligations into a loan, with further repayments under the schedule without these restrictions, which does not apply to non-residential loans.

We still remain frustrated with how reforms in the currency control area are going, since business still has to search for loopholes in legislation and to  develop various schemes of getting through in order to survive. Another bad thing is that recently a team of young reformers engaged by the NBU for practical implementation has gone, citing complete failure. Yet, we still hope that the NBU is going to revise most of the analyzed currency restrictions upon revival of the economic situation in Ukraine along with stabilization of the balance of payments and strengthening the national currency. Standing on liberal positions we believe that strict administrative measures look overly artificial for the market’s needs. This is hardly likely to help further economic growth, which has been much  anticipated in Ukraine since the time of the revolution of dignity in 2014. Thus, more liberalization is still needed.

Автор: Stanislav S. Lobko

Источник: http://www.ujbl.info/article.php?id=694

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