The legislation in the business area undergoes constant changes. Some laws enable businesses further development and create a favorable environment, while others burden them and show their ineffectiveness in practical use. Many recent novelties are caused by the new political situation that has changed due to the beginning of the military operation. How to maintain a balance while adapting the legal rules to the challenges of time? What problems still delay creating a comfortable business environment? Read in this Yug Times interview.

Yuri Pustovit, Managing Partner of Advocates Bureau Yug.

- Mr. Pustovit, the Russian Government recently announced a record decrease in business inspections. At the same time, the local prosecutor s office has canceled thousands of planned and unscheduled unjustified inspections. What does the business community think about it?

- Indeed, by the Decree of the Government of the Russian Federation, the moratorium on scheduled inspections has been extended for 2023. The only exception is monitored objects classified as Hazardous production facilities of extremely high and high risk (2 hazard class) and hydraulic structures (2 class). As for unscheduled inspections, there are other mechanisms there. I am glad to hear that the local prosecutor s office has canceled thousands of unjustified and unscheduled inspections. Nevertheless, the Prosecutor General s Office filed lawsuits against numerous owners of land plots and real estate properties of the Black Sea Coast in the Krasnodar Territory, requesting termination of lease agreements and demolition of completed buildings. Many properties belonged to their owners for decades, meaning that at least the statute of limitations has already passed. However, the above-mentioned does not prevent such claims from being satisfied. Courts often consider such claims with multiple defendants in one or two sessions. I believe this does not allow them to study each case and make an objective and legitimate decision. Respect for private property and the stability of civil transactions are the basics of any investment activity. Many Russian media outlets and Telegram channels urge businesses to invest in the domestic market and not in the salary of Ursula von der Leyen. Unfortunately, such stories cool down the patriotic spirit to invest in Russia.

Under enormous paperwork.

Why do the supervisory authorities and departments have such a hard time changing their way of working with the business community, despite the moratorium? Which of them is more likely to execute inspections of entrepreneurs?

- To my mind, the so-called "quota system" plays here an important role. It means that detected and solved crimes or offenses directly affect the performance evaluation of a particular supervisory authority. In my experience, the business is likely to be inspected by the Ministry of Emergency Situations, Rospotrebnadzor, the Federal Tax Service, the Police, Rosselkhoznadzor, Rostechnadzor, Rostrud.

- How can a business protect itself from inspections?

- The best protection from inspections is to manage your business impeccably and transparently, consulting with the company s lawyers or outsourcing legal services at every step. So, a recent form of tax control known as tax monitoring allows a tax authority access to a taxpayer s accounting data. Such interaction helps taxpayers to coordinate their taxation and consult with the tax authority on completed and planned transactions using reasoned tax opinions.

It is impossible to challenge the audit in court. You only can file an appeal against instructions to rectify the discovered violations due to an audit or the decision to impose administrative penalties.

- How did the local legal community react to the scandal surrounding the Rostov court? What is the problem there, in your opinion? Is it possible to ensure that only people with moral stability who won t be swayed by money work as judges?

- The case of the Rostov s judges and the police caused a great resonance in the legal community. I can t recall another case in modern Russia when the head judge of the regional court was brought to justice. Since all information I know about it, Ive got from the media, I cannot comment on this case. Moreover, the investigation is still undergoing.

Living with restrictions

- Can you say that the business has already overcome the restrictions caused by the sanctions and adjusted its operation under new conditions? Or do the new packages of sanctions cut off all the alternative paths?

- Business owners are always ahead of the legal regulations, especially regarding the bans imposed. I ll give them that. And sanctions are no exception. As we can see, all the familiar goods are present in the Russian market. It means the domestic business has learned how to import them through territories of friendly countries, marking them as parallel imports. I think the primary goals of the last 11th package of sanctions, as the previous ones, are to cut off bypass routes and opportunities to avoid the imposed sanctions. But I believe that Russian businesses will successfully overcome this challenge.

- Can you give us this year examples of sanctions being lifted from any company or businessperson? How many chances does a company have if it files a lawsuit? What influences the outcome?

- Challenging sanctions in court is a rather complicated and lengthy process. One needs to involve a group of lawyers and lobbyists of different legal competence and execute business procedures. As sanction orders are mostly taken in unfriendly countries, the legal proceedings likely become part of a political play than a legal notion. So, I have no illusions that one can lift sanctions via court. However, not so long ago Yandex was able to successfully appeal against the court decision on delisting on the American stock market NASDAQ. It encourages cautious optimism.

Good business climate

- One of the main topics of the recent St. Petersburg International Economic Forum involved the decriminalization of economic crimes. It is not a new discussion for Russia, but the problem keeps arising after all these years. Where does decriminalization begin in the business sector, in your opinion? When one changes the laws? Or does the problem come from another place?

- Decriminalization of several economic crimes has been overdue for a very long time. The business community uses any speaking opportunity to talk about it every year and share its opinion with the Government. For now, we can see the beginning of new trends, but it is a long process. Firstly, the Government must be willing to implement all these changes. It is necessary to start with changes to the legislation and, after that, to create a new judicial practice. Nowadays, it is an act of heroism to be doing business in Russia. Thus, when the Government meets the business community s expectations regarding the decriminalization of economic crimes, we consider it a positive response.

Different initiatives

- Krasnodar region is the southern resort region. There are many restaurants and cafes here. From a legal point of view, is it a good idea to make them intermediaries in money transfers between citizens and the State Fund to Support Participants in the Special Military Operation? Does the principle of voluntariness remain intact, as people should contribute to any charity foundations on free will? So far, this law is still under discussion in the State Duma.

- There is an undergoing discussion about transferring 1% of the profit of cafes and restaurants to the State Fund to Support Participants in the Special Military Operation.

I think there are no legal or economic grounds for this fee. Firstly, we cannot consider it as a tax. It is possible only if there is a taxable database - an asset for which ownership requires payment, such as income or property. But there is no such database. Secondly, we cannot consider this 1% as a fee itself. According to the Tax Code of the Russian Federation, a fee is a one-time payment to the state for performing any public action. Example: a state duty for filing a lawsuit in court. This 1% levy under discussion has no features of the fee. Thirdly, the authors of this proposition claim that prices will increase by only 1% after introducing a 1% levy. Naive fools. 1% levy management, cash register modifications, and changes in accounting and reporting will entail additional expenses for cafes and restaurants. Customers will have to bear all costs. As a result, we likely get a situation when cafes and restaurants massively switch to payments in cash and by card transfer. If they want to introduce such a thing in cafes and restaurants, I believe voluntary donation by non-cash tips is more effective. Every patriotic customer can make such a donation in the amount feasible for him.

- What do you think about an initiative that allows selling companies of "unfriendly countries" with the sole approval of local government?

- I have an extremely negative attitude to any initiatives requiring permission from public authorities to manage any assets. A free market with free circulation of goods, works and services is the highest value of the economy. It s fatal to limit it. However, in the current situation, when a lot of money and assets of the Government and private Russian businesses are frozen in unfriendly countries, we have to act inversely. Moreover, it was necessary to prevent the mass exodus of foreign companies from Russia and the loss of jobs.

Transactions involving residents of unfriendly countries are now possible only under the State Commission on Monitoring Foreign Investment. I think getting permission from local authorities is just an element in the chain to obtain it from the State Commission. It s reasonable as local authorities can fully assess the consequences for the economy and residents of a region in case a particular foreign company leaves the Russian market.

Response to the risks of modern times

- Recently, Krasnodar was attacked by drones. One of them fell on an office building. Can a business claim property damages in such cases? Or does it bear all expenses?

- In case of damages caused by the fall of a drone, the responsible person is the one who launched it. Or the one who was obliged to prevent the fall. We do not know the first one, but the second one is the Ministry of Defense of the Russian Federation, which army is obliged to protect people. But no court will satisfy such a claim against the Ministry of Defense. Therefore, a business shall bear all damage caused by drones and try to minimize it with insurance.

- Is it important to settle the issues of business inheritance, given that anyone can be called to arms? Generally, why are there problems with business inheritance? Can the documented will of the owner (legal entity) be sufficient to resolve the issue?

- As a rule, any businessperson makes plans for many years ahead. When you reach the end of your life, it s always unexpected. No one can prepare for it. Modern business in Russia has a relatively short history. Initial capital and assets are just beginning to form, together with the procedure of their civilized transfer to heirs. The issue of business inheritance is old news. The special military operation only deepened it. It is worth remembering the high-profile scandals of recent years, where ex-wives, cohabitants, illegitimate children, and business partners enter into major corporate wars after the death of some company s founders. A business is a very complex structure. It is not easy to describe and settle by making a will. The simple thing is to sign over equity stakes, shares, and assets to particular heirs. But how to be sure that they won t ruin the business, fire the management board, or sell it to the competitors for nothing right after entering into the inheritance? Not long ago, a novelty appeared in Russian law - an inheritance fund. It resembles a trust in English law, which was also created to settle inheritance issues, but later began to be used to solve other corporate tasks. Time will tell what awaits the assets in the Russian inheritance funds.

- The business owner is mobilized and participates in the special military operation.

But the manager appointed by proxy makes illegal or illiterate decisions that create problems for the business. Will the owner be able to cancel his previous decisions through the court after military discharge? What are the best ways to protect your business during military service?

- It is impossible to cancel illiterate or illegal decisions of the manager by proxy via court since the actions of the person appointed by proxy are recognized as the actions of the appointer. But if the actions of the person appointed by proxy caused losses, the appointer can recover losses from them. If a director or a member of the director /management board is called up for military service, he d better leave his position in the company. When shareholders of a joint-stock company or limited liability company are called up to arms, they shall issue a proxy to a person they trust or transfer their shares in the authorized capital to trust management.