The Federal Law of the Russian Federation No. 273-FZ, dated 3 July 2016, introduced amendments to the Federal Law 'On the Fundamentals of State Regulation of Trading Activities in the Russian Federation' and the Code of the Russian Federation on Administrative Violations (the Law No. 273-FZ), aimed at enhancing of the fundamentals of the state security in the domain of foods supplies, activation of the additional measures to support interests of domestic manufacturers and countering unfair competition through imposing by trade networks tying conditions on food products suppliers.
1. Requirements Related to the Conclusion and Performance of Contracts for Food Products Supply
The Federal Law 'On the Fundamentals of State Regulation of Trade Activities in the Russian Federation' (hereinafter - Trading Activities Law) clarifies the definition of trade network: a trade network is:
- a combination of two or more retail facilities that are legally owned by an economic entity or several economic entities within the same group in accordance with the Federal Law No. 135-FZ dated 26 July 2006 'On Protection of Competition' (Competition Protection Law'), or
- a combination of two or more retail facilities being operated under a single trade name or other means of individualization.
The amendments introduce the definition of sales promotion services as services rendered to economic entities engaged in supply of food products to trade networks (hereinafter - suppliers) for the purpose of products promotion, including by advertising, merchandising, demand research, preparing reports on such products or by way of other promotion activities.
In Article 9 of the Trading Activities Law the total amount of remuneration paid to an economic entity engaged in trading activities in connection with purchase thereby of a certain amount of food from a supplier, and fees for the sales promotion services, logistic services, services on preparation, processing, and packaging of the products, and other similar services is reduced from 10 percent to 5 percent of the price of purchased products. It is expressly provided that, when calculating the said total amount, they shall not take into account the amount of value added tax imposed by a supplier on an economic entity engaged in trading activities in connection with the purchase of these products. Moreover, in respect of excisable food products, the amount of excise duty calculated according to the Russian tax legislation shall be not taken into account as well.
The terms for payment by economic entities engaged in trading activities for food products in view of their shelf life are reduced:
- from 10 down to 8 days - for products with a shelf life of less than 10 days;
- from 30 down to 25 days - for products with a shelf life of less than 30 days;
- from 45 to 40 days - if the shelf life of over 30 days, as well as for alcoholic products produced in the territory of Russia.
These terms shall be calculated from the date of actual receipt of the food products by an economic entity engaged in trading activities.
The Law No. 273-FZ excluded provisions that the payment for food products is conditional on the performance by a supplier of the obligation to transfer documents relating to the supply of such goods in accordance with federal laws and other regulatory acts and the supply contract, and that in case of a failure or delay by the supplier to transfer such documents, terms for payment for food products shall be increased for the period of the documents submission. Instead, the term of 3 business days from the date of actual receipt of the food products for the supplier is established to provide the required documents.
It is expressly prohibited at the conclusion and(or) performance of a food supply contract to compel a counterparty to enter into a service agreement (including with third parties) aimed at the provision of sales promotion services and services for the preparation, processing, packaging of goods and other similar services, as well as other contracts.
In addition, for both trade networks and suppliers, the prohibitions are introduced:
- to charge for the right to supply food products to the functioning or opened retail facilities, as well as for changing the assortment of food products;
- to reimburse for losses from damage of food products after the transfer of ownership to such products (except for the cases when the loss or damage are caused by the supplier's fault), as well as for expenses not related to the performance of the supply contract and subsequent sale of specific batch of such products.
It is provided that the requirements in respect of economic entities engaged in trading activities and suppliers in connection with the conclusion and performance of the supply contract specified in Article 9 o the Trading Activities Law apply to the actions (omission) of persons being members of the same group of persons with the above entities.
2. Antitrust Rules
Article 13 of the Trading Activities Law as amended by the Law No. 273-FZ prohibits trade networks and suppliers to:
- enter into a contract for exercise of commercial activity under which products are transferred to a third party for sale without the transfer of the title thereto to such a third party, including the commission agreement, agency agreement or a combined contract containing the elements of one or all of the said agreements, except for the cases when such contracts are entered into within a group of persons as determined in accordance with the Competition Protection Law, and(or) enter into such contracts by economic entities forming a trading network, or
- perform such contracts.
It is also specified that the antitrust rules, requirements, prohibitions against actions (omissions) of economic entities set out in Chapter 3 of the Trading Activities Law apply to the actions (omission) of persons being members of the same group in accordance with the Law on Protection of Competition.
3. Administrative Liability
Article 14.40 of the Code of the Russian Federation on the Administrative Violations (the Administrative Code) is clarified to the effect that establishing by a trade network of a supplier of discriminatory conditions, as defined by the Competition Protection Law (except for the cases specified by Article 14.31 of the Administrative Code) entail administrative fine for officials in the amount from 20,000 to 40,000 roubles; for legal entities – from 2 million to 5 million roubles.
New administrative violations are introduced as well in this article:
- violation by a trade network of a supplier of the pricing procedure established by the regulatory legal acts of the Russian Federation, except for the cases specified by Article 14.6 of the Administrative Code, which entails administrative fine for officials in the amount from 20,000 to 40,000 roubles; for legal entities – from 2 million to 5 million roubles;
- entering into the contract by and between a trade network and a supplier, under which products are transferred to a third party for sale without the transfer of the title thereto to such a third party, including the commission agreement, agency agreement or a combined contract containing the elements of one or all of the said agreements, except for the cases when such contracts are entered into within a group of persons, and(or) entering into such contracts between economic entities forming a trading network, or performance of such contracts, which entails administrative fine for officials in the amount from 10,000 to 50,000 roubles; for legal entities - from 1.5 million to 4.5 million roubles.
Moreover, it is established that repeated commitment (within a year) of any of the administrative violations provided for by Article 14.40 of the Administrative Code, entails an administrative fine for officials in the amount from 50,000 to 200,000 roubles or disqualification for a period of one to three years; for legal entities - from 3 million to 5 million roubles.
In Article 14.42 of the Administrative Code, administrative offences related to violations of the requirements established with respect to the conditions for conclusion of the contract for food products supply in performing trading activities are brought in line with the provisions of the Trading Activities Law as amended by the Law No. 273-FZ.
In addition, the said article is supplemented with a provision that the commitment by a trade network and(or) a supplier of food products to trade network of actions prohibited by the federal law relating to collection of fees, making payment or reimbursement of expenses shall entail an administrative fine for officials in the amount from 20,000 to 50,000 roubles; for legal entities - from 1 million to 5 million roubles.
The amendments introduced by the Law No. 273-FZ became effective on 15 July 2016.
Please note that the conditions of supply contracts and other contracts governed by the Trading Activities Law and entered into before the entry into force of the Law No. 273-FZ should be brought in compliance with the provisions of the Trading Activities Law as amended before 1 January 2017. Since that date, contract conditions that are contrary to the new edition of the Trading Activities Law shall be deemed invalid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.