Total chipping

Russian Government Resolution No. 7871  (the "Resolution"), which provides for mandatory labeling of fur products with control (identification) tags ("identification tags"), was adopted in 2016 to implement the Agreement made by Eurasian Economic Union (EAEU) member states on implementing a pilot project in 2015-2016 to introduce the labeling of goods with control (identification) tags.

Identification tags are made by Goznak JSC after the Federal Tax Service ("Federal Tax Service") approves each application. There are three basic forms of identification tag: sewn in, glued on and attached, and they are a label with built-in RFID tag. Information about fur products "chipped" with such tags is included in the Federal Tax Service's labeling database. Mandatory labeling of fur products with identification tags makes it possible to track the entire process of those products' circulation in EAEU member states from their manufacture or from import to sale to the end user. Companies manufacturing and distributing goods are required to report on movement of the goods by entering the relevant information in a unified Federal Tax Service database (for example, the manufacturer must communicate that the goods have been shipped, the retailer must communicate that the goods have been received, and so forth, until the product is sold to the consumer, after which information about it is deleted from the Federal Tax Service database).

Administrative liability (under Article 15.12 of the RF Administrative Offenses Code) and criminal liability (under Article 171.1 of the RF Criminal Code) were introduced as of August 12, 2016 for the circulation of unlabeled natural fur products and for violating the procedure for labeling such goods in Russia. The legality of labeled goods can be verified online by entering the identification tag number in a special form on the Federal Tax Service website.2

The mandatory fur product labeling system was introduced to solve a set of problems arising in the circulation of such products, the most important of which is effectively combating counterfeit goods. The Russian fur coat market is still the second largest in the world (about RUB 200 billion).3 The Russian Ministry of Industry and Trade ("Minpromtorg") estimates that 90 percent of fur is imported to Russia, and supplies are mainly from China and Greece. At the start of 2016, Minpromtorg and the Federal Customs Service ("Federal Customs Service") noted a high percentage of illegal fur product import to the country. According to data as at the end of 2016, the introduction of mandatory labeling made it possible to legalize about 20% of market participants.4

The success of the fur product "chipping" experiment led Minpromtorg at the end of 2017 to prepare a draft resolution providing that product labeling requirements will be extended to leather footwear4 (in 2018). Minpromtorg also proposes using identification tags to label colognes and fragrances, natural leather garments, blouses, overcoats, bed sheets, towels, table cloths and jackets (in 2019), and to introduce mandatory identification labeling for all commodity headings by 2024.67

Recycle or pay!

According to Federal Law No. 89-FZ on Industrial and Consumer Waste of June 24, 1998, manufacturers and importers of goods in commodity headings the list of which was approved by RF Government Order No. 2970-r8  of December 28, 2017, including outerwear, hosiery, knitted goods, lingerie and other categories of finished textiles, as well as accessories not classed as clothing, are required to independently recycle goods,9 including packaging, after they lose their consumer qualities. If the goods are not recycled, then the manufacturers and importers must pay a special environmental fee, report on payment of the fee and comply with the procedure for declaring goods to be recycled.10

The amendments introducing these duties were adopted back in 2015 but only started to be applied in 2017 after the requisite legal database had been created. This made it necessary to report on 2016 in 2017.

The environmental fee rates are determined separately for each commodity heading according to the calculation rules set forth in RF Government Resolution No. 284 of April 9, 2016. For example, the environmental fee is RUB 11,791.00 per ton for the commodity heading "other wearing apparel and accessories."11 No environmental fee is paid for goods that are subject to recycling and are exported from Russia.

A calculation of the environmental fee is submitted and the environmental fee is paid annually by April 1 of the year following the reporting period. The Federal Service for Supervision of Natural Resources ("Rosprirodnadzor") charges the environmental fee, monitors correct calculation, full and timely payment of the fee.

According to the draft federal law on amendments to the Administrative Offenses Code,12 an administrative fine of up to RUB 500,000 can be imposed on a company for failure to pay the environmental fee within the set time, and an administrative fine of up to RUB 100,000 can be imposed for late submission, intentional distortion of declarations about the quantity of goods to be recycled, and about the quantity of consumer packaging.

How an online retailer can get customer consent to personal data processing

In November 2017, the Federal Service for Supervision of Communications, Information Technologies and Mass Media ("Roskomnadzor") published a clarification regarding the procedure for operators of online shops to obtain customers' consent to process their personal data ("personal data").13 The agency takes the position that an online retailer may obtain a customer's consent to process personal data in a simplified form by the customer placing a check mark in the appropriate online form.

Roskomnadzor stated that such consent needs to be obtained if the relationship with the user is not covered by any form of contract.

Customers' written consent to processing of their personal data will be required in any event in the following cases:

  • When processing biometric and special categories of customers' personal data.
  • When customers' personal data are transferred to countries that do not provide adequate protection of personal data. The list of countries that provide adequate protection of personal data was approved by Roskomnadzor Order No. 274 of March 15, 2013, which underwent changes in the summer of last year.14 That list still does not include the USA or China.

Roskomnadzor emphasized in its clarification that online retailers have a duty to post a personal data processing policy on their site. It also identified recommended sections that should be included in the personal data processing policy, as well as requirements to the content of each of the sections.

There will be tax free in Russia, but not for all

In the fall of last year Federal Law No. 341-FZ15 of November 27, 2017 ("Federal Law No. 341") adopted amendments to the tax laws intended to launch a tax-free system in Russia that will allow citizens of non-EAEU member states to recover VAT (18%) from the purchase of goods for personal use. The main part of Federal Law No. 341 entered into force on January 1, 2018; however, the tax free system should actually be launched in March of this year.

Federal Law No. 341 states that foreign nationals are refunded tax within one year of making a purchase of at least RUB 10,000 in Russia,16  provided the goods are exported from the country within three months of purchase. Tax is not refunded on purchase of excisable goods (e.g., alcohol and cigarettes) and other goods a list of which is approved by the Russian Government.

Only entities or individuals who are on a Minpromtorg-approved list of retailers are permitted to participate in the tax-free system (and issue tax-free receipts). The Russian Government is expected to approve the form of the application for an organization to be included on that list, the procedure and criteria for inclusion and exclusion, by the end of February of this year.

The draft of the relevant Russian Government resolution17 (the "Resolution") sets forth the following criteria to a retailer applying to get on the list of retailers participating in the tax-free system:

  • The organization must have been in business in Russia for more than two years
  • The organization is a VAT payer
  • There are no arrears to the budget for the payment of taxes, customs duties, insurance premiums, penalties or fines
  • The address of the organization's shop is on the list approved by the Resolution

The current version of the draft Resolution contains a list of specific addresses in such cities as Moscow, St. Petersburg, Vladivostok, Kaliningrad, Velikiy Novgorod, Sochi, Adler and others, where the multibrand shops most popular with tourists are located. It is assumed that only those shops will participate in the tax-free system at its initial stage (about a year).

However, according to Federal Law No. 341, any retail organization meeting the criteria approved by the Russian Government may initiate the inclusion of its shops on the tax-free system participants list. Therefore, we expect that the mechanism and criteria for including new participants on the list of retailers entitled to participate in the tax-free system will undergo changes, including in light of applicable antimonopoly norms.


Online retailer whitelist

The Federal Service for the Oversight of Consumer Protection and Welfare ("Rospotrebnadzor") has put forward an initiative to "de-anonymize" online retailers by creating a registry of online retailers (both Russian and foreign) entitled to sell goods to Russian citizens. This proposal by Rospotrebnadzor was included in the Draft Action Plan for implementing the Consumer Protection State Policy Strategy for the Period until 203018 (the "Draft Plan"). There are plans to adopt the relevant federal law by the start of 2019 to carry out Rospotrebnadzor's initiative.

As noted in Rospotrebnadzor's report titled "Consumer Protection in the Russian Federation in 2016,"19 a study of more than 700 online retailers popular in Russia found that almost 100 companies do not post mandatory information on their websites about their location, or they post inaccurate information, which means that consumers are unable to protect their rights by making complaints. In Rospotrebnadzor's opinion, the new regulation will help to ensure greater consumer protection and reduce the number of dishonest actors in online shopping.

The Draft Plan proposes to make online retailers responsible for registering with the Federal Tax Service. The name of the owner of the online shop, the domain name of the online shop and the email address used to receive complaints from customers will need to be registered.

The information the online shop provides to the tax authority will be accessible to the public and will allow consumers to get up-to-date and accurate information about each online shop. It is anticipated that for the purposes of applying the consumer protection laws an online shop, including an online platform aggregating information about products offered by third parties, will be considered an entity responding to customer complaints.

As yet, no liability has been determined for online shops failing to fulfill the duties specified in the Draft Plan. However, from practice one can assume that access to online shops not fulfilling these duties will be restricted in Russia.

Trading platforms equated to sellers

After almost two years of active discussions, in early March 2017 the draft law on Amendments to the Russian Federation Law on Consumer Protection of February 7, 1992 (the "Draft Law") was introduced to the State Duma. The amendments being made are intended to increase protection of the rights of consumers who purchase goods or services on the Internet. In particular, the Draft Law plans to introduce obligations and liability of online goods (services) aggregators by extending the effect of the Russian Federation Law on Consumer Protection (the "Law") to them.

According to the provisions of the Law in effect today, goods aggregators are not the subjects of relations in this area, because they themselves do not sell goods to consumers but merely post information about goods and sellers on their websites.

The Draft Law defines a goods aggregator as an organization of any form of incorporation or an individual entrepreneur who, via mobile apps, websites or Internet website pages, grants the consumer the following rights at the same time:

  • To become familiar with information about the goods being sold by the seller under a sale and purchase contract
  • To enter into a sale and purchase contract with the seller
  • To prepay for the goods directly to that organization's or entrepreneur's bank account

The Draft Law requires goods (services) aggregators to provide consumers with full and accurate information about the aggregators themselves, and also about the sellers (providers) when goods are sold or services are provided. According to the Draft Law, it is enough for the goods aggregator to link to the official website of the seller/provider in order to fulfill this duty. The Draft Law provides for civil-law liability for failure to fulfill this duty. For example, aggregators will be required to compensate the consumer for losses incurred because the consumer relied on the inaccurate information about the goods or about their seller provided to the consumer by aggregators, unless the aggregators did not modify the information about the goods provided, respectively, by the seller of the goods and contained in the offer to enter into a sale and purchase contract.

Notably, the Draft Law exempts goods aggregators from liability for breach of contracts for the sale and purchase of goods or provision of services and for the quality of the goods or services purchased. The Draft Law identifies Rospotrebnadzor as the agency responsible for monitoring aggregators' activities.

The Draft Law was adopted in the first reading in June 2017. In February 2018 the Russian Government proposed amendments to the Draft Law that substantially reduced aggregators' liability for providing consumers with inaccurate information about goods and their sellers.20 The next stage should have been the submission of amendments to the Draft Law; however, according to the information on the State Duma's official website, amendments have yet to be submitted. Considering that the Draft Law was adopted in the first reading amid serious criticism from Russia's largest electronic trading platforms, it is quite difficult to guess when it will be adopted.

They put in a good word for fashion design

A proposal has been made in the State Duma to introduce temporary legal protection of fashion industry industrial designs similar to the temporary protection of inventions provided by Article 1392 of the Civil Code.

Russian law currently has no special mechanism that would protect fashion design as a separate item of intellectual property taking into account its specific features (in particular, the brief timeliness and consumer demand for an item of seasonal collections).

State Duma deputies believe that the initiative of introducing temporary protection for fashion industry industrial designs will make it possible to quickly obtain legal protection for the design of products with a short lifecycle (it is anticipated that a fashion industry industrial design will be given temporary protection as of when the application to register with the patent authority is filed), and also to protect fashion design not only from direct copying, but from the creation and sale of products with a similar purpose with the same general visual impression on the consumer as the industrial design being registered.

We believe that if the proposed mechanism granting fashion industry industrial designs temporary protection is included in the Civil Code without additional reservations and limits, there is a risk that market players will use it as a tool for unfair competition. For example, if an applicant gets temporary protection for a design which a patent authority expert review declares unregistrable, until the patent authority decision to this effect is received the applicant will be entitled to use the courts to prohibit all other market players from using similar design elements in their products. This will give the applicant an unjustified advantage in business, and also the ability to receive unjust enrichment, including in the form of compensation recovered from third parties for infringing the applicant's rights to the industrial design.

Sales under control

The Association of Internet Trade Companies ("AKIT"), among whose members are Russia's largest trade companies, has proposed to regulate how sales are held in Russia. The president of AKIT is of the opinion that unscrupulous entrepreneurs sometimes take advantage of the popularity of sales among the population. For example, before holding sales such entrepreneurs artificially raise prices in order to then sell goods at a discount on more favorable terms for themselves.21 Sometimes the seller doesn't even have the product on which a large discount was announced.

As a regulatory benchmark AKIT chose the model used in Italy, where sales are held twice a year strictly during a period whose start and end dates are approved annually in an official sales calendar. The exact amount of the discount is not fixed, but may vary from 5 percent to 70 percent. A seller who wants to hold a sale not during the official sales calendar must seek approval from the competent government authority.

AKIT proposes adopting a separate law on Sales and defining in it the term "sale" (rasprodazha), types of sales, the terms and procedure for holding them, as well as liability for violating the requirements of the law. AKIT's initiative was sent to Minpromtorg last year; however, the regulator has not yet made its official position public.

The "Bourne Identification"

The draft law on Amendments to Article 7 of the Federal Law on Combating Money Laundering and Terrorist Financing (the "Draft Law") was introduced to the State Duma in July 2017. Companies buying and selling jewelry are covered by this law, so the amendments will directly affect their business.

The Draft Law introduces, among others, a new article envisioning the introduction of a "list of entities and individuals on which there is information that they are involved in the proliferation of weapons of mass destruction" (the "List"). The List will be posted on the official website of the Federal Service for Financial Monitoring ("Rosfinmonitoring").

The Draft Law imposes the duty on jewelry companies to check at least once every three months whether persons on the List are among their clients and to inform Rosfinmonitoring of the results of the check according to the procedure established by the Russian Government. They will also be required to take steps to freeze funds or other assets of persons immediately, but no later than one business day from when information that a person is included on the List is published on the Rosfinmonitoring website, and also to promptly inform Rosfinmonitoring of the steps taken.

The Draft Law was introduced to the State Duma; however, the process of considering it was halted at the stage of the responsible committee deciding whether to present it to the State Duma Council. The Opinion of the State Duma Legal Department states that adoption of this Draft Law will necessitate amendments to an entire range of other laws. Work on the Draft Law was likely suspended to prepare the relevant amendments.

We note that, at the same time, another draft law was introduced to the State Duma with proposals to amend the Federal Law on Combating Money Laundering and Terrorist Financing. For example, there is a proposal to change the purchase amount for jewelry made of precious stones below which the client does not need to be identified. According to the proposal, RUB 40,000 will be replaced with RUB 200,000, and RUB 100,000 will be replaced with RUB 500,000. The increase in amount is based on the rising dollar exchange rate and the changing economic situation. The Draft Law also awaits consideration in the first reading.


Fifty shades of "grey" import

The Federal Antimonopoly Service ("FAS Russia") has supported the idea of legalizing "parallel" import for around 10 years22; however, there is no uniform court practice on whether parallel import is legal. For example, in 2015-2016 when considering case No. А40-26875/2014 the Supreme Court Judicial Panel on Economic Disputes and the Intellectual Property Court successively confirmed that even goods placed in circulation by the right holder may be declared counterfeit if they were placed in circulation in the Russian Federation without the appropriate permission. In July 2017 FAS Russia issued a warning to KYB Corporation (Japan), which had restricted import to Russia of goods labeled with its trademarks by unofficial importers. KYB Corporation challenged the FAS decision in the Moscow Arbitration Court; however, the court sided with FAS and, at the end of 2017, rendered a decision confirming evidence of unfair competition in the right holder's practices creating a restriction on the import of products labeled with its trademark if those products were already placed in circulation.

The Constitutional Court considered a similar case in December 2017. In that case PAG LLC had acquired a shipment of special Sony-brand ultrasound paper from a Polish firm and imported it to Russia. The Sony Corporation filed suit, as a result of which the goods were seized, removed from circulation and destroyed, compensation (RUB 100,000) was recovered from PAG LLC for infringing the exclusive right to the Sony trademark, and PAG LLC was prohibited from importing, selling or otherwise introducing the goods into civil circulation in the Russian Federation. The court held that, according to the Civil Code, the fact that PAG LLC did not have the right holder's consent to place the goods in circulation was a ground to declare the goods counterfeit. PAG LLC disagreed with the ruling and filed with the Constitutional Court after the appellate and cassation courts confirmed the court of first instance's position. In its appeal to the RF Constitutional Court PAG LLC states that the goods it imported do not fall under the Civil Code definition of "counterfeit goods" (goods on which a trademark is illegally placed). To wit, PAG LLC imported to Russia not counterfeit products illegally labeled with the Sony trademark, but an original product that was legally introduced into another country's civil circulation by Sony (or its official distributor); however, it was imported to Russia by PAG LLC, which is not an authorized Sony distributor in Russia. Effective Russian law envisions the application of the same sanctions (removal from circulation, destruction and recovery of compensation) against both persons who import counterfeit goods and importers of original goods who were not authorized by right holders. Thus, in PAG LLC's opinion, the effective law violates the constitutional principles of legal certainty and fairness, and privacy.

After considering this case the Constitutional Court formulated a binding position according to which the same liability cannot be imposed on an importer importing original products without the right holder's consent and on a person importing counterfeit products, other than cases where losses from importing original goods without the right holder's consent are comparable to losses from importing counterfeit goods. Among other things, according to the Constitutional Court's position, goods imported in parallel import can be destroyed only "if they are of inappropriate quality or in order to ensure the safety and protection of the life and health of people, protection of nature and cultural valuables." The Constitutional Court noted that the actions of a right holder which unscrupulously uses the mechanism of the exclusive right to a trademark being exhausted, in particular, restricting import to Russia of specific goods or implementing a pricing policy consisting in overstating prices on the Russian market as compared to other markets, cannot be considered approved from the viewpoint of protecting constitutionally important valuables, if those actions result in restricting Russian consumers' access to the goods.

Soon the PAG LLC case will be reviewed in light of the Constitutional Court Ruling.23


1 RF Government Resolution No. 787 on the Implementation of the Pilot Project for Introducing Labeling of Goods in the Commodity Heading 'Articles of Apparel and Clothing Accessories of Furskin' with Control (Identification) Tags and Repealing Russian Federation Government Resolution No. 235 on Conducting the Experiment for Labeling of Goods in the Commodity Heading 'Articles of Apparel and Clothing Accessories of Furskin' with Control (Identification) Tags of March 24, 2016, dated August 11, 2016.

2 https://www.nalog.ru/rn78/taxation/labeling/mark/ 

3 https://fashionunited.ru/novostee/reetyeil/v-rossii-zapretyat-prodazhu-shub-bez-spetsialnoi-markirovki/2016020814456

4 https://vz.ru/economy/2016/11/22/845238.html

5 Draft of the RF Government Resolution on the Conduct of the Experiment to Label Footwear with Identification Tags in the Russian Federation: http://regulation.gov.ru/projects#departments=9&npa=77790

6 RF Prime Minister's Order on Development of the Concept to Create a System of Labeling Goods with Identification Tags in the Russian Federation by 2024 and the Plan for Implementing It: http://government.ru/info/30212/

7 https://ria.ru/economy/20170824/1501025169.html

8 RF Government Order No. 2970-r on Approval of the List of Finished Goods, including Packaging, to be Recycled after they Lose their Consumer Qualities of December 28, 2017.

9 A company can recycle waste itself or through an authorized organization under a contract.

10 RF Government Resolution No. 1417 on Approval of the Regulation on the Declaration by Manufacturers and Importers of Goods to be Recycled of the Quantity of Finished Goods, including Packaging, Released into Circulation in the Russian Federation over the Past Calendar Year of December 24, 2015.

11 RF Government Resolution No. 284 on Setting Rates of the Environmental Fee for each Heading of Commodities to be Recycled after They Lose their Consumer Qualities, Payable by Manufacturers and Importers of Goods who do not Independently Recycle Waste from Use of April 9, 2016.

12 RF Government amendments to draft federal law No. 690757-6 on Amendments to the Russian Federation Administrative Offenses Code and Other Legislative Acts of the Russian Federation adopted by the State Duma of the Russian Federation Federal Assembly in the first reading on March 18, 2015 (http://regulation.gov.ru/projects#npa=35671).

13 https://rkn.gov.ru/news/rsoc/news51712.htm

14 Roskomnadzor Order No. 105 on Amendments to the List of Foreign States Not Party to the Council of Europe Convention for the Protection of Individuals with Regard to Automatic Processing of Personal Data and Providing Adequate Protection of the Rights of Personal Data Subjects approved by Order No. 274 of March 15, 2013 of the Federal Service for Supervision of Communications, Information Technologies and Mass Media of June 15, 2017.

15 Federal Law No. 341-FZ on Amendments to Article 88 of Part One and Chapter 21 of Part Two of the Russian Federation Tax Code of November 27, 2017.

16 Approximately €145 or US$170 at the current exchange rate

17 Draft RF Government Resolution on Determination of the Criteria for Selecting Retail Organizations to Participate in the Value Added Tax Refund System (the Tax Free System) and Approval of the List of Locations of Participants in the Value Added Tax Refund System (Tax Free System) (http://regulation.gov.ru/projects#npa=75746).

18 The text of the Draft Action Plan for implementing the Consumer Protection State Policy Strategy for the Period until 2030 is published on Rospotrebnadzor's website: http://rospotrebnadzor.ru/documents/proekts/?ELEMENT_ID=9194.

19 The text of Rospotrebnadzor's report "Consumer Protection in the Russian Federation in 2016" is published on Rospotrebnadzor's website: http://www.rospotrebnadzor.ru/upload/iblock/392/gd_zpp_2016_.pdf

20 RF Government amendments to draft Federal Law No. 126869-7 on Amendments to the Russian Federation Law on Consumer Protection introduced by the Russian Federation Government and adopted by the State Duma in the first reading on June 14, 2017: http://static.consultant.ru/obj/file/doc/fz_190218.pdf

21 https://www.kommersant.ru/doc/3474780.

22 Import and placement in civil circulation in the Russian Federation of original goods labeled with a trademark protected in the Russian Federation without the appropriate permission from the trademark owner.

23 RF Constitutional Court Ruling No. 8-P of February 13, 2018 on the Case of Checking the Constitutionality of the Provisions of Article 1252(4), Article 1487 and Clauses 1, 2 and 4 of Article 1515 of the Russian Federation Civil Code in connection with a Complaint from PAG Limited Liability Company.

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