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On 25 April 2018, the VEGAS LEX law firm jointly with RSPP and KPMG consulting company held the conference "Special Investment Contract: reload".

The representatives of the Ministry of Industry and Trade of the Russian Federation, Ministry of Finance of the Russian Federation, Ministry of Economic Development of the Russian Federation, Ministry of Energy of the Russian Federation, Industrial Development Fund, representatives of regional authorities as well as representatives of the major Russian and foreign companies met together in order to discuss the new rules and forthcoming changes for special investment contracts (SPICs).

Alexander Sitnikov, Managing partner at VEGAS LEX, Igor Vdovin, Chairman of RSPP Committee for Investment Policy, Development Institutes and Export Support, and Mikhail Orlov, KPMG Partner and Head of Tax and Legal Consulting Department in Russia and CIS, acted as moderators of the conference.

The conference was held in the format of lively discussion. The experts discussed the forthcoming, in June 2018, changes concerning the procedure for conclusion and conditions for transition from SPIC 1.0 to SPIC 2.0 as well as advantages offered by SPIC as compared to other support measures. The public authorities told about the current and planned measures of state support for special investment contracts.

Alexander Shokhin, RSPP President, spoke in favour of keeping SPIC in the same form as established in the law on industrial policy, having supported the idea of introducing additionally a new SPIC 2.0 tool by a special law. According to him, within the framework of SPIC, companies, first of all, need the stability of conditions of doing business during the period of implementation of investment projects rather than tax incentives. "The primary focus in SPIC 2.0 is on investment guarantees and cost effectiveness of a project", - Mr Shokhin noted.

Alexander Sitnikov, Managing partner at VEGAS LEX, noted that, since the introduction of SPIC as a statutory category at the end of 2014, this tool continues to be the most advanced as compared to the laws on PPPs or concessions and generates the utmost interest among business.

According to Roman Trotsenko, Chairman of the Board of Directors of AEON Corporation, the lack of large investments is one of the reasons that there is no economic growth in Russia; consequently, the state must better promote the attraction of investments on the basis of the public-private partnership.

The representatives of companies with proven experience in implementation of investment projects (DMG MORI and Sanofi Russia) as well as companies that have already submitted applications to the Ministry of Industry and Trade of the Russian Federation for the conclusion of SPICs or that intend to use this tool (KAMAZ, Uralkali, LUKOIL, OMK) took an active part in the discussion.

The attended business representatives introduced several proposals for improving SPIC, including those that provide for a legislative framework for the possibility to maintain separate records of income and expenses of companies in order to get a profit tax relief. The investors also appealed to extend the deadline for granting tax incentives up to the period that goes beyond 2025 – the deadline that is currently established by law.

Vasiliy Osmakov, Deputy Minister of Industry and Trade of the Russian Federation, supported the proposals of business and expressed his hope that relevant provisions would be reflected in the new SPIC 2.0 tool. "SPIC is a complicated tool but it is necessary if the state wishes to gain the result for economic development and not merely to distribute monetary funds and preferences", – Mr Osmakov noted.

"SPIC is essentially an administrative tool of economic impact. It is not a market tool but merely an administrative economic development tool. This particular thesis raises the greatest concerns", – Maхim Chemerisov, Director of the Contracting System Development Department of the Ministry of Economic Development of the Russian Federation, imparted his apprehensions.

Mr Chemerisov outlined a number of possible problems of implementing SPIC that, according to him, may lead to adverse effects, i.e. barriers to promotion of competition in the industry due to the tool of granting benefits (preferences) to the particular market participants and establishing them over an extended time frame; deterioration in the quality of products because of the simplified access of the market participant as a sole supplier of government procurement, etc.

Andrey Ivanov, Deputy Minister of Finance of the Russian Federation, assured the conference participants that SPIC 2.0 would not create selective preferences, and that its conclusion must not be a goal in itself for an investor and must be merely a tool that allows to improve the efficiency of a project. He further noted that SPIC 2.0 being drafted does not contradict the currently effective tool that is applied in accordance with law on industrial policy.

The matter of a SPIC tool as the way of attracting foreign investments was touched upon in detail by Frank Shauff, General Director of Association of European Businesses. The expert noted that the conclusion of SPIC is rather complicated and lengthy negotiation process in which the predictability and transparency of the rules of the game as well as fair competition are of great importance. Otherwise, a foreign investor will not understand whether or not it may participate in government procurements and may be acknowledged pari passu with Russian manufacturers.

Maxim Grigoryev, VEGAS LEX Partner, Head of special projects, spoke about the matters related to performance and alteration of SPIC and withdrawal of investor from such contract. The expert compared how SPIC is being performed, altered and terminated at present and how these would take place from June 2018, as well as provided the recommended practices when structuring SPIC that would help the private party to the contract to protect its interests, including in the case of alteration of the project implementation conditions or violation by the public party of its obligations.

Alexander Smekalin, Chairman of the Government of the Ulyanovsk Region, shared his experience in concluding SPICs in the region. Thanks to the SPIC tool, the Government managed to import foreign machine-building technologies into the Ulyanovsk Region and to create a wind power engineering production cluster being unique for Russia.

Yuriy Ivanov, Head of Tax practice at VEGAS LEX, outlined the tax preferences that are currently available to the private party to SPIC, taking into account the specifics in various regions of Russia.

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For information on VEGAS LEX’s activity in implementation of investment projects, please click here.

For more detailed information on VEGAS LEX’s projects in tax law, please click here.

The source of the photo: RSPP.