Odesa FEA office refuses to register foreign investment

Actions of local councils/municipalities: Investment disputes Odesa region

Object of the complaint: Department for Foreign Economic Activity and EU Integration, Odesa Oblast State Administration 
Complaint in brief: On June 25, 2015, the Danish shareholder of a Ukrainian engineering service company filed a complaint with the BOC. The complainant had made a share capital contribution in Danish krones (DKK). However, the Department for Foreign Economic Activity in Odesa refused to register this share capital contribution as a foreign investment on the ground that the UAH equivalent of the DKK contribution amount exceeded the declared UAH share capital contribution amount by UAH 250. This discrepancy arose because of UAH currency fluctuations and constituted a difference between the UAH equivalent of the contribution declared by the shareholders on the date of the corporate protocol and UAH equivalent of the contribution calculated based on the NBU official exchange rate on the date of the contribution. In order to proceed with the registration of this foreign investment, the Department required from the complainant to adjust its corporate documents by amending the Charter and protocol on increasing share capital so that the UAH equivalent of the share capital contribution was calculated on the date of the contribution, as stated in the information card on foreign investment contributions. The complainant filed an appeal unsuccessfully. The intercession of the Embassy of Denmark did not help, either. 
Actions taken: The BOC investigator determined that, according to Article 5 of the Law “On the Foreign Investment Regime,” the UAH conversion of foreign investment amounts is to be performed according to the official NBU exchange rate. The law does not specify the date when the conversion should be calculated. Pursuant to the law, the complainant performed the UAH conversion calculation as of the date of the protocol on increasing share capital. Once the investment arrived in Ukraine and was converted into UAH by the servicing local bank, the positive difference arising because of currency fluctuations was included in the complainant’s taxable income. In support of its position, the Department referred to the Rules for Filing an Information Card, approved by Cabinet Resolution #139 dated March 6, 2013, where the UAH conversion of a foreign investment amount should be deemed as of the date of the investment.
However, the BOC investigator determined that, in practice, it may be quite difficult for an investor to adjust corporate documents as required by the Department since, from the viewpoint of Ukrainian corporate legislation, such change/adjustment may appear unacceptable to the State Registrar, the agency responsible for registering changes to charter documents. The BOC investigator had a number of telephone conversations to discuss the case with a Department official and the Ministry of Economic Development and Trade, to which the Department is subordinate. The conclusion was that the Department was not justified in requiring the complainant to change its corporate documents. The BOC did not issue formal recommendations to the Department since it was quite cooperative and was willing to find an amicable solution. 
Result achieved: On July 20, 2015, the Department informed the BOC that the foreign investment had been registered. The case was closed.

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