Supreme Court Formed Legal Position Regarding the Withdrawal of Export Operations from Foreign Exchange Control by Means of Admission of Homogeneous Counterclaims

Resident is free to choose the method of paying upon foreign economic operations among those, which are not controversial to laws of Ukraine, and being of such operations under control by itself does not cause the consequence in the form of application of punitive sanctions (delay interest).

The Supreme Court represented by the Judicial Chamber on Cases on Taxes, Fees and Other Obligatory Payments of the Administrative Cassation Court has reviewed in cassation procedure a case upon a claim of resident company to the Department of the State Fiscal Service on the acknowledgement as unlawful and cancellation of a decision, with which the delay interest had been counted for the plaintiff for the violation of the term for payment in the sphere of foreign economic activity on the ground of Article 1 of the Law of Ukraine “On the Procedure of Conducting Payments in Foreign Currency”.

Courts have found that the plaintiff had exported goods in the favour of non-resident company, which had had to pay in foreign currency. However, the finance was not received to the account of Ukrainian company (plaintiff). The companies have concluded an agreement on the termination of obligations by means of homogeneous counterclaims on the payment of finance in foreign currency (euro). Though, the tax body have not taken this fact into account and applied punitive sanctions to the plaintiff.

The position of the tax body regarding the lawfulness of such a decision was based on the fact that authorized banks were not able to withdraw clients’ export operations from control on the grounds of documents on the termination of obligations by means of scoring homogeneous counterclaims during the action of resolutions of the Board of the National Bank of Ukraine “On the Regulation of Situation on Monetary and Currency Markets” (of 14 September 2016 No. 386 and of 13 December 2016 No. 410); thus, the defendant considered that in case of the termination of controlled operations in such a manner, a resident was not exempt from financial liability for the violation of deadlines for payment in the sphere of foreign economic activity.

While providing legal evaluation of legal relations in this case, the Supreme Court remarked that subjects of foreign economic activity had right to conclude any types of foreign economic agreements (contracts), except for those prohibited by Ukrainian laws directly or on an exceptional basis. Besides, all subjects of foreign economic activity have right to determine by themselves the form of payments upon foreign economic operations among those, which do not contradict Ukrainian laws and correspond to international rules.

Taking into account the fact that current legislation does not prohibit or restrict legal forms of payments upon foreign economic operations, which do not provide, actually, the supply of foreign currency on resident’s account, the performance of duties by Ukrainian resident before non-resident upon foreign economic agreement by means of admission of monetary counterclaims with appropriately processed documents is one of legal means of regulation of mutual obligations by parties.

The restrictions implemented with resolutions of the Board of the National Bank of Ukraine regarding the withdrawal of clients’ export operations from currency control on the grounds of documents on the termination of obligations by means of admission of homogeneous counterclaims in foreign currency are addressed only for authorized banks. Besides, pursuant to the position of the Supreme Court, the obligation to sell currency earnings in a certain amount, by itself, is not a restriction for parties in holding payments upon foreign economic contracts by means of admission of monetary counterclaims; therefore, the termination of obligations in such a manner may not be the reason for the conclusion on the violation of deadlines for payment in the sphere of foreign economic activity and, relevantly, the grounds for delay interest application.

Taking into account the abovementioned, the judicial chamber in this case has formed a new legal position, pursuant to which it has remarked that a resident is free to choose the form of payment upon foreign economic operations among those, which are not controversial to laws of Ukraine, and thus being of such operations under control by itself does not cause the consequence in the form of application of punitive sanctions (delay interest) provided with Article 4 of the Law of Ukraine “On the Procedure of Conducting Payments in Foreign Currency”. Termination of obligation by means of admission of homogeneous counterclaims is a component of right to the freedom of entrepreneurial activity guaranteed by the Constitution of Ukraine, which may be restricted only by Ukrainian laws.

Resolution of the Supreme Court of 31Jjanuary 2020 in the case No. 1340/3649/18 (administrative proceedings No. К/9901/20383/19) - http://reyestr.court.gov.ua/Review/87478127.