Moratorium on the compulsory repatriation (return) of funds: the judicial authorities’ position over the two years of the moratorium

Background

As a rule, currency residents of the Russian Federation were obliged to repatriate (return) currency to accounts with authorised banks only under agreements (contracts) concluded with non-residents of the Russian Federation in the course of foreign trade activities. Starting from April 2018, the repatriation requirement was extendedFederal Law No. 64-FZ dated 3 April 2018 “On amending the Federal Law ’On currency regulation and currency control’ and article 15.25 of the Code on Administrative Offences of the Russian Federation”, and Federal Law No. 246-FZ dated 29 July 2018 “On amending the Federal Law ’On currency regulation and currency control’” to situations where Russian residents lend money to non-residents under loan agreements.

In order to fulfil the repatriation requirement, residents must specify the due dates for the fulfilment by the parties of the obligations under such agreements (contracts), provide authorised banks with information on the expected repayment due dates, delivery dates and / or dates of other fulfilment or termination of obligations under foreign trade contracts, etc.

For violating such requirements, Russian currency residents could be held administratively liable under article 15.25 of the Administrative Offences Code of the Russian Federation (“Administrative Offences Code”).

On 8 August 2022, the President of the Russian Federation signed Decree No. 529 “On the temporary procedure for the performance of obligations under bank account (or deposit) agreements expressed in a foreign currency and obligations under bonds issued by foreign organisations” (“Decree”), which abolishes the requirement for Russian entities and individual entrepreneurs to repatriate (return) to accounts with authorised banks funds due under foreign trade contracts and loan agreements with non-residents.

In particular, the requirements of paragraph 1 of part 2 of article 14 (to the extent of compliance with the requirement on the mandatory form of payment) and parts 1 and 2 of article 19 of Federal Law No. 173-FZ “On Currency Regulation and Currency Control” dated 10 December 2003 (“Law”) became inapplicable to Russian companies and individual entrepreneurs. In addition, Russian entities and individual entrepreneurs were granted the right to set off their claims against, and liabilities owed to, non-residents and to novate non-residents’ obligations.

It should be noted that the Decree did not abolish the relevant repatriation requirement for individuals who are not individual entrepreneurs.

Law enforcement practice

In exercising their powers, the administrative authorities closely monitor the application of and compliance with the currency control regulations, including the provisions of the Presidential Decrees imposing additional temporary measures of an economic nature.

Since the Decree was issued, there have been a sufficient number of court cases which make it possible to analyse the approaches of the law enforcers to the application of the moratorium on the compulsory repatriation of funds under foreign trade contracts and loan agreements.

For instance, courts of the first and appellate instances, when considering disputes on holding Russian companies administratively liable under parts 4 and 5 of article 15.25 of the Administrative Offences Code due to the failure to comply with the obligation to repatriate funds under foreign trade contracts and loan agreements with non-residents, have recognisedResolution of the Eighteenth Arbitrazh Court of Appeal dated 6 June 2024 No. 18AP-5600/2024 in case No. A76-42121/2023, Resolution of the Nineteenth Arbitrazh Court of Appeal dated 10 November 2023 No. 19AP-4985/2023 in case No. A08-2268/2023, Resolution of the Thirteenth Arbitrazh Court of Appeal dated 18 September 2023 No. 13AP-23408/2023 in case No. A56-18609/2023, Resolution of the Moscow Arbitrazh Court dated 3 June 2024 in case No. A40-6197/24-130-34 that the Decree only abolishes the repatriation obligation as of the date of its publication, ie 8 August 2022. Therefore, if the due date for the repayment of funds under the relevant contracts or agreements was determined by the parties before 8 August 2022, ie earlier than the date of entry into force of the Decree, its provisions are not applicable.

In finding Russian organisations guilty of failing to fulfil the repatriation obligation, courts take into account the fact that the relevant measures imposed by the Decree were not accompanied with [the relevant] amendments to currency laws and regulations, and reached the conclusion that the lawmakers were unwilling to change the nature of offences committed before the Decree entered into force.

In the meantime, appeal courts of cassation have ruled as illegalResolution of the Arbitrazh Court of the Moscow District dated 20 February 2024 No. F05-186/2024 in case No. A40-67404/2023, Resolution of the Arbitrazh Court of the Moscow District dated 21 December 2023 No. F05-32543/2023 in case No. А40-67418/2023 decisions of administrative authorities on the violation of the requirements of the Law to the extent of the compulsory repatriation of funds, arguing, with reference to part 2 of article 1.7 of the Administrative Offences Code, that since the Decree abolishes the requirement on the repatriation of foreign and Russian currency by residents and, consequently, the administrative liability for the violation of such requirements, it should be applied retrospectively.

Therefore, courts currently have mixed views regarding the application of the provisions of the Decree abolishing the compulsory repatriation requirement, which complicates a uniform understanding of the changes introduced by the Decree.

Denuo’s Tax team will be happy to discuss the possibility of applying the provisions contained in the Decree, in light of the existing law enforcement practice, to a specific situation and provide our professional assistance in carrying out the relevant transactions.