The article is available in Russian only. 

Tax

1 How does an individual become taxable in your jurisdiction?

According to Ukrainian law, an individual can be considered a tax resident of Ukraine if he or she meets the Ukrainian tax residency criteria, which
are as follows:

• if the individual has a domicile in Ukraine;
• if the individual also has a domicile in another country, the individual is deemed a resident of Ukraine provided he or she has a permanent place of residence in Ukraine;
• if the permanent place of residence is also available in another country, the individual is deemed resident of Ukraine provided his or her centre of vital interests is situated in Ukraine (eg, the place of the permanent residence of the members of an individual’s family or the place of an individual’s registration as a business entity);
• if it is not possible to determine the actual centre of vital interests, or if the individual does not have a permanent place of residence in any country, the individual is deemed to be tax resident of Ukraine if he or she stays in Ukraine in excess of 183 days during a tax (calendar) year;
• if it is impossible to determine tax residency on the basis of the above provisions, then the individual will be a tax resident of Ukraine if he or she is a Ukrainian citizen;
• a person who fails to qualify as a Ukrainian tax resident will be considered a ‘non-resident’ for purposes of the Tax Code;
• the Tax Code also provides for a self-recognition procedure, according to which an individual can voluntarily elect to be a Ukrainian tax resident; and
• in conflict cases, the rules of the relevant double taxation treaties may be applied.

2 What, if any, taxes apply to an individual’s income?

In Ukraine, individuals are subject to personal income tax, regardless of whether they are tax residents or not. Individuals as tax residents of Ukraine are taxed on their worldwide income, while non-residents are taxed on their Ukraine-sourced income only. Ukrainian laws determine Ukraine-sourced income as income derived by an individual as a result of any business activity performed in Ukraine, which, inter alia, includes remuneration for work performed in Ukraine, whether paid by a Ukrainian
or a foreign company.

Both resident and non-resident individuals are taxable at the same tax rates, being 15 per cent and 20 per cent applied as follows:
• the 15 per cent rate applies to monthly income up to a threshold of 10 minimum wages per month (since 17 September 2015, 13,780 hryvnas);
and
• the 20 per cent rate is applicable to monthly income in excess of a threshold of 10 minimum wages per month.
The individual’s income is taxable whether it was obtained in cash or in kind. Taxable income includes employment income (with in-kind benefits), income from trading or professional activities (including operations with intellectual property), income from the alienation of property, winnings and prizes, insurance payments, interest and dividends, investment income and contributions to unqualified pension plans made on behalf of a taxpayer by another person or employer.

3 What, if any, taxes apply to an individual’s capital gains?

The general rate applied to employment income is 15 per cent (to monthly income not exceeding 10 minimum wages) and the 20 per cent rate applies to monthly income exceeding that threshold.
All passive income (including royalties, bank deposit interest, but excluding dividends, except for those paid out by joint investment institutions), and investment income is taxed at a 20 per cent rate. Dividends, paid out by resident CPT payers are taxed at a 5 per cent rate, and those paid out by non-residents at 15 per cent. Winnings and prizes are subject to 30 per cent tax by both residents and non-residents, except winnings in the state lottery and those received from a gambling organiser. As an exception, cash winnings in sports (other than remuneration to athletes) are subject to the standard 15 per cent and 20 per cent tax rate.

Gains derived from the sale of a real estate are not subject to tax if the sale takes place once during the year, provided the owner has held legal title for at least three years before the sale (the three-year ownership period does not apply to inherited property). The rate is 5 per cent if the taxpayer makes more than one sale per year. Gains derived from the sale of moveable property by a resident are subject to a 5 per cent rate; gains derived by a non-resident are subject to a 15 per cent or 20 per cent rate. As an exception, income derived by the taxpayer from the sale (exchange) during the year of one of the objects of personal moveable property, such as a car or motorcycle, is not subject to taxation. Sale of two or more motor vehicles by the same person during the year will be taxed at rates of 5 per cent for residents, and 15 per cent and 20
per cent for non-residents.

4 What, if any, taxes apply if an individual makes lifetime gifts?

In Ukraine, funds, property or property rights, and the cost of work or services presented to the taxpayer as a gift shall be taxable in the same way as inheritance. 

Inheritance (real estate, chattels, securities, corporate rights, cash, insurance, etc) and gifts are taxable at the following rates:
• zero per cent if the recipient is a resident defined as a close relative (parent, spouse, children, etc);
• 5 per cent if the recipient is a resident not qualified as a close relative; and
• 15 per cent (or 20 per cent on income which exceeds 10 minimum wages per month) if the recipient (non-relative) is a nonresiden  but the testator was a resident (or vice versa).

Please find the full chapter by clicking on the link below.

We are pleased to announce the release of a new edition of IBA Surrogacy Newsletter that is focused on the legal aspects of surrogacy in the world's major jurisdictions. It’s also worth mentioning that partner of AGA Partners Law Firm Irina Moroz, who is an expert in the field of family law, has contributed to this edition by describing peculiarities of surrogacy in Ukrainian and Russian jurisdictions.

Ukraine must not be mistaken for a surrogacy haven

Ukrainian legislation regulating assisted reproductive technologies (ART) favours the individual’s reproductive rights and is considered to be one of the most tolerant in Europe. At first sight, there is nothing to be worried about. A married couple (either Ukrainian or foreign) applies for ART treatment to the clinic of their choice. Once the clinic and the method is approved they enter into a binding agreement with the surrogate mother, a woman aged 20–40, in good physical and mental health with at least one child of her own. The surrogate mother is delivered of a child and the intended parents’ names appear on the child’s birth certificate.

Thus, at first sight, Ukrainian jurisdiction might seem to be a surrogacy haven, but once you take a closer look, you will see a number of traps the intended parents should keep their eye on.

Pitfalls of surrogacy regulation in Ukraine

To be legally recognised as the parents and proceed with a child’s registration, the couple must comply with the basic requirements of Ukrainian Law. Pursuant to the Order of the Ministry of Health of Ukraine No 787 dd. 09.09.2013 (‘Order No 787’), ART is defined as a method of infertility treatment, whereas the intended parents are regarded as patients of ART treatment. In accordance with Article 123 of the Family Code of Ukraine, only married couples may be recognised as a child’s parents and shall proceed with the child’s registration. It means that cohabiting couples, single people and same-sex couples are prohibited from undertaking ART. Furthermore, to be registered as a child’s parents in Ukraine, at least one of the spouses shall contribute his/her genetic material along with the donor’s gametal cells. Donors may be known or unknown.

Before the ART treatment begins, commissioning parents and the surrogate mother enter into a surrogacy and childbearing agreement that stipulates their rights and obligations. Ukrainian legislation does not provide for a specific form of the agreement. Many issues, such as refusal to accept the child and terms of payment, fall outside the scope of the regulation; therefore, the terms of the surrogacy agreement are agreed at the parties’ discretion.

As was mentioned above, the intended parents are deemed to hold the legal status of the child’s parents from the very moment of conception and their names are listed on the birth certificate of the newborn baby. However, so as not to mislead foreign couples, their trespass towards exercising parental rights does not end up with receipt of the child’s birth certificate listing their names in Ukraine. The commissioning parents shall recognise their parental rights in the country of their residence and comply with the legislative requirements of their country in order to bring their child home.

Given what is set out above, Ukrainian legislation requires a number of improvements. In particular, there is a need to provide legal regulation of the surrogacy and childbearing agreement that will cover relations deriving from surrogacy arrangements and will comply with international surrogacy standards. There is also a need to find a solution to the problem of surrogacy treatment for foreign couples who come from countries where surrogacy is prohibited.

Absolute discretion of the surrogate mother to leave the child or hand him or her over to the intended parents

One of the major controversies of Russian surrogacy law is that the surrogate mother holds exclusive power whether or not to give her permission to the intended parents to register a child under their names. The commissioning parents might find themselves in a vulnerable position, being dependent on the surrogate mother’s decision.

Article 51 of the Family Code of the Russian Federation1 explicitly states that the registration of a child by the commissioning parents shall be accompanied by the written permission of the surrogate mother of a child. Furthermore, according to Article 16 of the Law on Acts of Civil Statuses, such permission shall be given only after the child’s birth and certified by the medical institution. In other words, the surrogate mother’s permission given on the child’s birth is a necessary condition for the child to be registered under the names of the commissioning parents. Any other documents, including the surrogacy contract, signed and given by the surrogate mother before the child’s birth, are not acceptable. Intended parents should not be tricked with promissory notes of any kind, even if they explicitly state the surrogate mother’s permission. However, once the permission that complies with the requirements of Article 16 of the Law on Acts of Civil Statuses has been given by the surrogate mother, the spouses’ parental rights may not be contested.

It should be noted that there are no legally binding instruments that might force the surrogate mother to give her permission. If she decides to register the child under her name, the Russian authorities will not prevent her from doing so.

The couple may seek remedy in court, but in the majority of cases, courts are reluctant to award the parental rights over the child to the commissioning parents. In this regard, we would refer to Order No 880-0 of the Constitutional Court dated 15 May 2012, where the court refused to admit the petition of the commissioning parents for recognition of their parental rights, prioritising the rights of the surrogate mother as a woman that gave birth to a child. In this course, the legislators should be guided by the principle of the best interests of the child and amend current laws by putting the rights of the commissioning parents above the rights of the surrogate mother.

Russian law, unlike legislation in the majority of European countries, allows single women and cohabiting couples to undertake a surrogacy programme on the same basis as married couples.5 Furthermore, the costs are comparably reasonable and procedures are simplified. Therefore, notwithstanding the potential risk that the surrogate mother might leave the baby, the Russian jurisdiction is known as being favourable for assisted reproductive technology (ART) treatment.

Irina Moroz, Partner in AGA Partners Law Firm

Contracts and background facts

The dispute arose out of three separate contracts for the sale of 158,000 mt of Ukrainian feed corn CPT Nikolayev with delivery pe-riods from September to Decem- ber 2010 (Contracts). Each contract obliged the sellers to obtain “at his own risk and expenses any export license [sic] or any other official document” (Clause 11.3) and in-corporated the terms of GAFTA 78, where such terms were not in con-tradiction with the above. In turn, GAFTA 78 included the so-called GAFTA Prohibition Clause (Clause 17) whereby the contract could be deemed as cancelled in case of “any executive or legislative act done by or on behalf of the government […] restricting export” provided that such restriction prevented per-formance of the contract. Custom-arily for all GAFTA contracts, the contract was subject to English law and GAFTA arbitration in London.

Most grain industry players in Ukraine remember late 2010 well, when the Ukrainian Government introduced grain export quotas and subjected grain export to licencing. The quota allocation rules and pro-cedures were changing on a daily basis, often at the last minute and in a very impracticable for busi-ness manner. As a result, only a few companies were able to obtain export licences; the majority, in-cluding most international trading houses, were unable to do so and could not perform their contractual obligations, which led to a wave of terminations and cancellations of contracts. Unfortunately, sell-ers fell under the unsuccessful category and aimed to cancel the contracts pursuant to Clause 17. The buyers treated the sellers’ ac-tions as a repudiation of contract, held the sellers in default and referred the case to GAFTA arbi-tration in London claiming some  USD 26 million in damages. 

Arbitration awards and issues for the court

The first-tier GAFTA Tribunal found that the events of Ukraine did fall under Clause 17 and sell-ers could potentially be relieved from liability for non-performance; however, on the facts, the Tribunal had not seen evidence of sellers’ reasonable efforts to perform the Contracts and eventually found for the buyers.

The sellers appealed and took that opportunity to furnish the previously omitted evidence of their best efforts in performing the Contracts to the GAFTA Appeal Board. Consequently, from the Ap-peal Award issued on 23 April 2014  (Award) it followed that the Board of Appeal was obviously satis-fied with the sellers’ evidence of their efforts but made some quite surprising findings on law and construction of the respective con-tractual clauses. Consequently, the Board found for the buyers again, but reduced the sellers’ liability to about USD 17.5 million.

Firstly, in the Board’s view, the sellers’ obligation to obtain export licences under Clause 11.3 was ab-solute, and Clause 11.3 overrode Clause 17, except in the event of a total ban; on the facts, there was no such ban. In support of its conclu-sion, the Board relied on the case of Pagnan v Tradax (1987),2 where the factual matrix was substantially similar to the present case. 

Secondly, the sellers could not rely on Clause 17 since they were not “prevented” but were merely “restricted” in making the ship-ments to the buyers. 

Thirdly, having reached the above conclusions, the Board  nevertheless recognised the ex-treme difficulties, under which the sellers were operating, and stated that if the Board was to have de-cided whether the sellers had dis-charged their duties of best or rea-sonable endeavours in obtaining export licences, the Board would have unhesitatingly decided that the sellers had. 

Naturally, the sellers disagreed with the Board’s findings on law and in May 2014 sought permis-sion to appeal from the High Court in respect of the following ques-tions of law: 

(1) whether Clause 11.3 over-rode Clause 17 or was qualified by the same; 

(2) whether Clause 17 applied exclusively in circumstances of a “total ban”; and 

(3) whether the sellers could rely on Clause 17 if they were merely “restricted” rather than “prevented” from shipment.

On 25 September 2014 the per-mission to appeal was duly granted in respect of all three sellers’ ques-tions with the court agreeing that “the Award was open to serious doubt” and the main hearing of sellers’ appeal was subsequently fixed for 4 March 2015.

The judgment

The matter was heard by  Mr. Justice Hamblen, who, by coin-cidence, also appeared as a counsel for the winning party in Pagnan v Tradax, the authority at the core of the appeal from the sellers.

As to question (1), the buy-ers’ main argument was that the two clauses were inconsistent as Clause 17 contradicted the spe-cially agreed terms of Clause 11.3. Hamblen J disagreed. According to the normal principles of contractu-al construction under English law, there is no inconsistency between the contractual clauses unless they cannot be sensibly read together. Pagnan was directly relevant be-cause the Court of Appeal had to deal with the same question of con-sistency between the two clauses, and found that the GAFTA clause simply qualified the obligation to provide an export licence. Moreo-ver, in the judge’s view, the proviso “at their own risk” did not mean the clause could not be qualified by the other contractual terms. Conse-quently, the judge concluded that Clause 17 qualified Clause 11.3, but was not overridden by it.

As to question (2), the judge pointed out several references to “partial restriction” in the word-ing of Clause 17, and found that it plainly applied to a qualifying event “partially restricting” export and, as such, to a partial prohibition or other qualifying event which had a like effect. He also referred to the case of Bunge v Nidera3 where the Court of Appeal made exactly the same observation and concluded that the relieving effect of Clause 17 was not limited by circumstances of a “total ban”.  

As to question (3), and in line with previously decided authori-ties, Hamblen J emphasised that the Prohibition Clause requires both proof of a qualifying event (i.e., “an executive or legislative act done by or on behalf of the Government” which had the ef-fect of “restricting export, whether partially or otherwise”) and evi-dence of its restricting effect on the seller’s total or partial ability to perform. On the specific point of prevention versus restriction, the judge made the following observa-tion: “In so far as the Appeal Board are… saying that it is necessary to establish a qualifying event which prevents export that is not correct. What needs to be established is a qualifying event which restricts export. The word “prevent” appears as part of the deeming provision in the clause. It is not part of the definition of the relevant qualify-ing event. However, if the Appeal Board are saying that it is neces-sary to show that the qualifying event prevented performance in the sense that it caused inability to perform then that would be a cor-rect approach.”

Finally, in the view of the judge, the Board had not specifi-cally addressed the critical causa-tion question (i.e., whether the ex-port restrictions in fact prevented the sellers from performing), and, on the basis of the findings in the Award, the judge could not confi-dently conclude what the Board’s answer to that question was. Con-sequently, he remitted the matter to the Appeal Board for further consideration and the parties are currently awaiting the revised ar-bitration award from the Appeal Board.

Ukrainian side of the coin

In the meantime, the real drama was unfolding in a totally different place. On 18 September 2014, just a few days short of the sellers’ per-mission to appeal, the buyers filed an application for recognition and enforcement of the Award to the Svyatoshyn district court in Kiev. On 13 November 2014 the sellers  provided their objections empha-sizing, in particular, that the High Court in London allowed the sell-ers’ appeal and considered the Award to be open to serious doubt. However, on 30 January 2013 the Kiev district court decided to sat-isfy the buyers’ application for enforcement and issued respective order. Apparently, the Kiev district court was unimpressed by the fact that the high specialized court (Commercial Court of the HCJ) in the most impartial dispute resolu-tion jurisdiction (England), which was the only judicial body statuto-rily authorized to consider appeals from arbitration awards (akin to the Ukrainian concept of a cassa-tion instance), unequivocally rec-ognized that the Award had a flaw and required reconsideration.

Naturally, the sellers immedi-ately challenged the first instance court decision and appealed to the Kiev Court of Appeal, hoping for a more reasonable approach of the appeal judges. Yet, within just over a month, on 5 March 2015, the Kiev Court of Appeal re-confirmed the decision made by the court of first instance. The appeal court was very brief in its analysis of Mr Jus-tice Hamblen’s findings relating to the Award being open to “serious doubt” and effectively ignored the point, calling the sellers’ argu-ments to that effect “unfounded”. One can only speculate as to the reasons why this matter received such speedy consideration and why the decision coincided almost to the day with the hearing of the sellers’ appeal by the High Court, which, for technical reasons, was shifted from 4 March to 6 March 2015.  However, from the conduct of the proceedings by the judge at the hearing one could already sensibly see that the sellers’ position ap-peared to be more persuasive. At the end, judge Hamblen promised to deliver his judgment within the “next week or two”; and, at it hap-pened, the proximity of the final decision in this matter had a magi-cal effect on the speed, at which further developments unfolded.

To prevent the decision of the Kiev Court of Appeal from be-coming final and enforceable, on  10 March 2015 the sellers applied to the last resort — the High Spe-cialized Court of Ukraine (HSCU), which had statutory powers to stay enforcement proceedings com-menced pursuant to decisions of lower courts. Indeed, on 17 March the HSCU ordered such a stay. One can just imagine the surprise of the sellers when, three days lat-er and with no trace of compli-ance with the HSCU’s order, on  20 March 2015 the Kiev district  court issued a writ of execution al-lowing collection of the full amount of USD 17.5 million against the sellers’ funds and assets.

At the same time, on  24 March 2015, judge Hamblen finally announced his judgment and answered all questions of law in the sellers’ favor, as described above. From that moment the Award was formally remitted for reconsideration to the Board and could no longer be enforceable against the sellers. All would be well if not for a minor detail: on the same day, 24 March 2015, just as the judgment of Judge Ham-blen was being announced, the State Execution Service (Bailiffs) was arresting all sellers’ bank ac-counts and assets pursuant to the execution proceedings initiated on the same day, 24 March 2015.

Eventually, the execution pro-ceedings were suspended as per the HSCU’s order of 17 March 2015 until the HSCU’s final determina-tion in this matter. However the sellers’ funds remain attached to date, irrespective of the fact that (1) the actual Award is currently being reconsidered; and (b) there is a clear order within the Ukrainian judicial system to stay any and all execution proceedings that might have been commenced to date. 

Conclusion

The story is notable in three respects. First of all, it shows how (still) remarkably different are the approaches of English and Ukrainian courts when it comes to the administration of justice and dealing with specific issues in the same matter and factual sce-nario.  Secondly, it flags the problem of “selectivity” in the Ukrain-ian system of justice, which picks only favourable or suitable legal principles to justify certain deci-sions and completely ignores the obviously relevant concepts, sim-ply because they do not fit the re-quired position. Thirdly, and most importantly, it raises the question as to whether it is worth seeking justice in jurisdictions with strong rule of law, if one is bounced back to the system described by one re-nowned English commercial QC as the “Wild, Wild East”? It is, of course, our choice as both mem-bers of the legal profession and users of the system on whether to keep it as is, run from it or reshape its future. However, it is at least hoped that with the current wind of changes stories like this will slowly but inevitably sink into ob-livion. As they should.

Ivan Kasynyuk, Partner of AGA Partners law firm

Ivanna Dorichenko, Consultant with Clyde&Co

The article is available in Russian only.

Link to the source

The essence of fraud 

It has become a part of common practice in international transactions, when trading companies, due to their own negligence, become victims of fraud. The present scheme of deception is as follows: the buyer, having received a bill (invoice) for payment of the goods delivered by the seller and being sure of its (invoice) authenticity - conducts the appropriate payment as specified in the account details.

At the same time, there may be cases where the buyer sent SWIFT message as proof of payment to the seller. In turn, the seller, having received a confirmation of payment from the buyer, acts in accordance with the contract and releases the original documents proving ownership of the goods. 

Thus, the transaction took place, the bill is paid, the buyer confirmed payment in the SWIFT message, and original documents were "released" in favor of buyers. However, in the end, the money for the goods has not been transferred to the seller’s account. So what is the catch?

The answer is simple. Parties to the transaction have become victims of fraudsters, who illegally got the information about the transaction (by hacking mailboxes) and faked account. As a result, fraudsters got money, and parties to the transaction - losses and months and even years of criminal litigation and arbitration processes around the world. The reason for that - the lack of minimum precautions during the transaction, and the payment procedure, in particular. Meanwhile, by compliance with those precautions you would significantly reduce the chances of fraud.

Our recommendations 

Firstly, always check with the buyer, whether he had received the right banking requisites. Make sure where and to whom the buyer paid. If you are a buyer - verify the accuracy of the account details for payment of goods, accuracy of information about payee. Pay attention to the suspicions and inaccuracies in the invoice, contact with the bank and the beneficiary before you make payment, be vigilant and inform your counterparty about all your intentions and actions. 

Secondly, we recommend that sellers always "release" all original documents for the goods, especially bills of lading, only upon the actual receipt of money to your account. For this purpose, the contract must prescribe the appropriate provision, which can be formulated as follows: "The original documents, including bills of lading shall be dispatched by the Seller upon the actual receipt of full payment by the Buyer."

If you trade on a FOB basis, do not allow the vessel to leave the port of loading until payment is received.

Thus, guarantee of the buyer’s security – reassurance in correct payment details, as for the security of the seller - safeguarding of the title documents for goods until the actual cash is deposited. By following these precautions, both sides of the transaction – the buyer and the seller - will minimize the risks of fraud and ensure the safe performance of the transaction for the mutual benefit. 

Be careful, and remember: the devil is in the details!

Ivan Kasynyuk, Partner

Dmitry Koval, Junior Associate

AGA Partners Law Firm

TAX

1        How does an individual become taxable in your jurisdiction? 

According to the Ukrainian law, an individual can be considered as a tax resident of Ukraine if he/she meets the Ukrainian tax residency criteria, which are as follows:

• An individual is considered a Ukrainian tax resident if he/she has a domicile in Ukraine;

• If the individual also has a domicile in another country, the individual is deemed resident of Ukraine provided he/she has a permanent place of residence in Ukraine;

• If the permanent place of residence is also available in another country, the individual is deemed resident of Ukraine provided his/her center of vital interests is situated in Ukraine (for example, the place of the permanent residence of the members of an individual’s family or the place of an individual’s registration as a business entity etc.);

• If it is not possible to determine the actual center of vital interests, or if the individual does not have a permanent place of residence in any country, the individual is deemed to be tax resident of Ukraine if he/she stays in Ukraine in excess of 183 days during a tax (calendar) year;

• If it is impossible to determine tax residency on the basis of the above provisions, then the individual will be a tax resident of Ukraine if he/she is a Ukrainian citizen;

• A person who fails to qualify as a Ukrainian tax resident will be considered a ‘non-resident’ for purposes of the Tax Code;

• The Tax Code also provides for a self-recognition procedure, according to which an individual can voluntarily elect to be a Ukrainian tax resident;

• In conflict cases, the rules of the relevant double taxation treaties may be applied.

2        What, if any, taxes apply to an individual's income?

In Ukraine, individuals are subject to Personal Income Tax (hereinafter - PIT), regardless of whether they are tax residents or not. Individuals – tax residents of Ukraine are taxed on their worldwide income, while non-residents are taxed on their Ukraine-sourced income only. Ukrainian laws determine Ukraine-sourced income as income derived by an individual as a result of any business activity performed in Ukraine, which, inter alia, includes remuneration for the work performed in Ukraine, whether paid by a Ukrainian or a foreign company.

Both resident and non-resident individuals are taxable at same tax rates being 15% and 17%:

• the 15% rate applies to monthly income up to a threshold of 10 minimum wages per month (in 2014, UAH 12.180, circa USD 940)
• the 17% rate is applicable to monthly income in excess of a threshold of 10 minimum wages per month.

The individual’s income is taxable whether it was obtained in cash or in kind. Taxable income includes employment income (with in-kind benefits); incomes from trading or professional activities (including operations with intellectual property); incomes from the alienation of property; winnings and prizes; insurance payments; interest and dividends; investment income; and contributions to unqualified pension plans made on behalf of a taxpayer by another person/employer.

3        What, if any, taxes apply to an individual's capital gains?

The taxation of an individual’s capital gains depends on the source of the gains.

The general rate applied to employment income is 15% - to monthly income not exceeding 10 minimum wages and the 17% rate applies to monthly income exceeding that threshold.

Interest income is taxed at a 15% rate. Dividends, including foreign dividends are taxed at a 5% rate. Winnings and prizes are subject to 30% tax, except winnings in state lottery and received from the organizer of gambling by both residents and non-residents. As an exception, cash winnings in sports (other than remuneration to athletes) are subject to standard 15%/17% tax rate.

Taxation of royalties and investment income is at 15% rate (if such income exceeds 12 180 UAH. The amount of such excess is taxable at rate of 17%).

Gains derived from the sale of a real estate are not subject to tax if the sale takes place once during the year, provided the owner has held legal title for at least three years before the sale (the three-year ownership period does not apply to inherited property). The rate is 5% if the taxpayer makes more than one sale per year.

Gains derived from the sale of movable property by a resident are subject to a 5% rate; gains derived by a non-resident are subject to 15% or 17% rate. As an exception, income derived by the taxpayer from the sale (exchange) during the year, of one of the objects of personal movable property such as a car or motorcycle is not subject to taxation. Sale of two or more motor vehicles by the same person during the year will be taxed at rates of 5% and 15%/17% for residents and non-residents respectively.

4        What, if any, taxes apply if an individual makes lifetime gifts?

In Ukraine, funds, property or property rights, the cost of work or services presented to the taxpayer as a gift shall be taxable in the same way as inheritances...

Thus, more relevant for us becomes a question of efficiency and legal security of international trade operations, including those in the agricultural sector - the driving force of Ukrainian exports. When we talk about international trade, each lawyer would primarily rise a question of law, which should be applied to the agreement of the parties. Recently, more and more we get used to the fact that one or another agreement is a subject to the provisions of countries with the most sophisticated and effective legal system by far. The most striking example is the above-mentioned trade in agricultural products in general, and trade in grains and oilseeds in particular. Thus, 80% of world trade and, in my estimation, 95% of trade in grains and oilseeds from Ukraine are subject to English law, by the incorporation of standard contract terms of GAFTA and FOSFA.

Therefore, in this article I would like to touch directly upon the issues of international trade agreements that in its essence constitute the basis of relations between Ukrainian exporter and the foreign buyer or customer of goods and services in accordance with the rules of English law. In particular, narrowing the topic, I think it necessary to give an example of when this or that international agreement can be invalidated on the grounds of its conclusion under the influence of economic duress.

Although at first glance, this question is quite simple, wherein specific criteria of such duress may be distinguished and analyzed without much difficulty, in fact, recent case studies show the opposite. Anyone can become a victim, or without even realizing it, the initiator of such economic duress.

First, when exploring this subject, we are talking about legal actions made under the influence of duress, which limits true will and internal intentions of innocent person concerning the terms of the concluded agreement, which could eventually become a reason for cancellation of the contract and substantial losses and damages.

Ukrainian law at glance.

For comparison, it is especially interesting to see how Ukrainian Law explores issues of economic duress, what approach Ukrainian practice and doctrine have taken in this issue.

In this regard, it should be noted that the civil law provides a definition of economic duress, describing it as psychological or physical pressure and recognize it as violence (see Art. 231 of the Civil Code).  The notion of violence should be understood as any pressure that limits the freedom of one of the parties, aiming at inducement to commit certain actions, particularly in order to increase or decrease the price of goods, agree more favorable for the "aggressor" terms of delivery and other.

Giving analysis of modern Ukrainian court practice regarding the annulment of agreements concluded under the influence of violence, I conclude that the current understanding of Ukrainian judges is quite straightforward and provides limited opportunities for enforcement of Article 231 of the Civil Code, on assumption of the realities of modern trade relations particularly in an international context. This approach makes it impossible to protect fully the rights of persons affected by the pressure of its counterparty. Ukrainian court sets extremely high criteria for recognition of the agreement invalid. As a rule, it is a direct and real threat to human life and/or health, threat of dismissal, threat of financial and other sanctions.

The question arises how to deal with a situation when your counterparty requires, for example, reconsidering of the prices of goods under the contract, by threatening that otherwise he would have to cancel the contract or delivery of the goods? Will you be entitled to recognize additional agreements as null and void in future, including the price increase, even if you have agreed and signed them?

There are extremely serious doubts that under such conditions the innocent party will have real prospects in the Ukrainian court, initiating a claim for recognition of the transaction invalid.

Let us go ahead and presume that you have a similar foreign economic agreement you knowingly subjected to English law, such as it happens in contracts for the supply of agricultural products from Ukraine. You have faced with a same pressure, when the counterparty is threatening not to fulfil the contract and you are forced to agree to the proposed terms. Is it possible to challenge such a contract, by recognizing it invalid?

The continental system of law perspective.

The doctrine of economic duress has formed in continental legal system a long time ago. For example, major court cases[1] in England dated by the late 70's, early 80-ies.

Historically, until the formation of the current system, the practice of economic duress in England was similar in some ways, to the modern Ukrainian approach that defines duress as a violence and direct threats of physical or psychological pressure and as a rule, was qualified as a criminal offense. However, over time, the threat of violence in the continental system has been reformed into economic duress, acquiring more sophisticated meaning that makes it possible to recognize the agreement as invalid in the presence of, for example, the threat of not to deliver the goods or terminate the main agreement.

Thus, we approach to the key features and criteria of economic duress in the continental system. In general, the overall vision is to be formed as follows. If there is a threat in respect of a contract that can cause financial loss and there was no reasonable alternative actions for innocent party, such agreement shall be deemed invalid, for example:

Company A entered into an agreement to sell the Company B and further threatened to refuse delivery of the goods, if the latter will not agree to increase the price. Company B has no reasonable alternative in the market to buy a similar product. Having no other choice, Company B agrees to sign an additional agreement to increase price. Thus, the actions of the company A will be qualified as economic duress, and additional agreement to increase price shall be subject to invalidation.

Based on this example, we have an opportunity to outline two key criteria of the presence of economic duress in the actions of the seller:

First, there is a real threat to terminate the main agreement for the supply of goods;

The main reason for the conclusion of a supplementary agreement to increase price is a threat. It is necessary to establish a clear causal link between the threat and signed supplementary agreement. In addition, this threat must have additional features such as illegality and lack of principle of honesty in the actions of a person who is threatening. That is necessary to distinguish between illegal extortion and actual circumstances. For example, if the seller got in trouble and asks the buyer review the price, economic duress will not take place.

Secondly, the lack of alternative options, including the possibility of selling or buying a product on the market;

The court must examine whether the real alternative actions exist, including effective possibility of recourse to a competent court for a recovery of losses.

Of course, it would be irrational to provide a party with possibilities to avoid liability for default of contract at the slightest chance when the agreement was disadvantageous to the party. Therefore, particularly English courts treat such claims with a high degree of caution and often apply additional criteria confirming fact of economic duress existence.

Existence of parties’ objection on the proposed terms of the supplemental agreement shall be determined.

If the party voluntarily accepts the terms of the additional agreement on a price increase, without objection, the court may have questions about the true intention of the party. Has the party signed the agreement forcibly or voluntarily?

The theoretical approach is undoubtedly needed for a common understanding of the criteria and conditions of duress, but only practical experience provides us with real examples of enforcement. In reality, things could be different.

Practical experience.

Based on the above criteria, it may seem that it is rather difficult to satisfy these conditions. How to distinguish normal trade from economic duress? How these criteria are applied in practice?

The answers to those questions can be found in the case, which was recently reviewed by the Tribunal of GAFTA (Grain and Feed Trade Association) in London, which incorporates and subordinates, by an arbitration agreement, the aforementioned trade-related disputes in grain around the world and in particular with Ukraine.

The essence of the dispute was as follows. Seller signed a contract for the supply of goods on FOB, which presume the duty of the buyer to provide a vessel for loading. In due time for delivery, the seller states the buyer as follows:

"Our supplier refuses to deliver the goods, if the price will not be revised upward. Accordingly, we ask buyers to review the price of the contract between the seller and the buyer in order to be able to perform the contract”

Buyer, in its turn, not objecting to raise the price, gave their consent to increase the contract price, and therefore signed the additional agreement. Once the goods have been loaded on the ship, the buyer refused to perform the contract at the new price, paying only the price stated by the main contract. The seller, of course, being dissatisfied by shortfall of funds requested in GAFTA arbitration, requiring appropriate surcharge for delivered goods.

Buyer has given his objection to arbitration, arguing that additional agreement to increase the contract price was signed under the influence of economic duress and asked the Tribunal to recognize it invalid.

At first glance, seller’s actions comply with usual behavior in such situations. Thus, the seller did not require the buyer to increase price and not threatened to break the contract for failure to fulfill his requirements. The essence of the seller’s letter was simply to ascertain the fact of provider’s refusal to supply in case the price will not be revised. For its part, the buyer agreed to terms on a price increase without claiming any protests. In addition, under normal conditions, barriers to purchase alternative products on the market usually should not exist and if the conditions for price increase would not suit the buyer, nothing prevented the latter to "go to market" and purchase similar product.

However, GAFTA Tribunal came to the opposite conclusion, finding, in these conditions, the actions of the seller the presence of economic duress, satisfying the requirements of the buyer and finding additional agreement invalid.

The Tribunal’s motivation was the following. The Seller’s message requesting a review of the price of goods should be interpreted in conjunction with the supplier’s refuse to delivery. The Tribunal concluded that the seller used illegal duress of supplier in its favor, since the buyer realized that if the price is not raised, he could ultimately remain with no goods. That is, if the price of the contract were not increased, the goods would not be loaded. Thus, the seller’s letter was an act of unlawful pressure.

As to the possibility of buying an alternative product on the market, the tribunal decided that the evidence, including such from trading brokers, is not sufficient for the quick acquisition of goods, especially when it was determined that the product was needed in the short term.

Despite the lack of protest, the tribunal concluded that this criterion is not "vital" in the circumstances of this dispute, therefore it should not be used because the illegal pressure on the buyer and the lack of real alternatives is sufficient to declare the agreement invalid. Thus, the Tribunal accepted the seller’s position and satisfied the requirement for an additional contract cancellation and leaving for claim at its initial stage.

It can be assumed that majority of Ukrainian lawyers may be at least surprised by similar solutions, but as we see from the above example, despite the relatively high level of proving the criteria for recognition of the agreement invalid on the grounds of economic duress, in a real international trade disputes, arbitrators satisfy these claims easily.

Of course, it is necessary to take into account the fact that in essence the decision was made not by professional judges but trade arbitrators, which usually have only basic legal skills necessary for the highly specialized cases, particularly in the agricultural sector. However, in any case, such a case is an example of a common approach, used in continental system of law in matters of economic duress in contractual relations.

International arbitration and bankruptcy are frequently encountered in practice, but in their essence, it is very different legal processes, with its own goals, objectives and underlying principles. Relations of these processes are rather difficult mostly because of their competing goals.

This article explores the complex process of coexistence of international arbitration and bankruptcy particularly in the process of arbitration. Given the magnitude of the issue, the paper focuses on the most problematic issues, such as establishing jurisdiction in disputes involving the bankrupt company and possible consequences of the bankruptcy of one of the parties to the dispute on arbitration that has commenced. In addition, through the example of the well-known case, we will explore a number of jurisdictions approaches when addressing these problematic issues.

When one of the parties to the arbitration process goes bankrupt, there are a number of important issues appear - whether the relevant provisions of national laws on bankruptcy of country of insolvency (or decisions of state courts) are binding on arbitration tribunal? Can arbitral tribunal ignore bankruptcy or should the arbitration be paused or stopped at all? Who decides when and whether to continue the arbitration or the bankruptcy should be simply ignored - the arbitral tribunal or national court?

The answers to these questions are ultimately determined by a number of national laws that apply to the concrete arbitration proceeding, given the diversity of national laws and lack of uniformity from state courts and arbitration tribunals. Thus, in order to answer these difficult questions, some general legal principles must be considered.

Bankruptcy and arbitrability of the disputes

The term "arbitrability" in this article is used to refer to the ability of a dispute to be submitted to arbitration in order of resolving it, i.e., to determine jurisdiction. Arbitrability of dispute determines what types of questions may or may not be submitted to arbitration.

International arbitration is based on the ability of the parties to grant jurisdiction to arbitrators to resolve disputes. Such jurisdiction is meaningful only if it is recognized by states, and the arbitration decision rendered pursuant to this jurisdiction will be further smoothly executed in judicial system of a country.

Herewith, the state reserves the right to prohibit the authorization of certain categories of disputes outside of its national courts. These categories are recognized by the court as non-arbitrable disputes and arbitration agreement concluded to address this category of dispute will be declared null and void by the court.

The legislator of each country determines the extent to which the arbitrability of the dispute is limited by national legislation. Neither 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), nor any other international instrument contains substantive provisions concerning arbitrability of such disputes. These international instruments always pass the question of arbitrability to the relevant national legislation.

That is, each country can usually determine the question of dispute jurisdiction in accordance with its own national policy.

Thus, arbitrability is a condition validity of the arbitration agreement and therefore the existence of the jurisdiction of arbitration court. A bankruptcy, in turn, is an area in which the state may, in its sole discretion limit arbitrability of certain categories of disputes.

In arbitration

If a party to the arbitration claims that the dispute is not arbitrable due to the bankruptcy of the other side, there is a general rule is that the tribunal should, in principle, resolve the issue with reference to the law applicable in the jurisdiction of arbitration (seat of arbitration or lex arbitri). For example, arbitration tribunals usually do not claim that the dispute shall be settled by arbitration, if such arbitrability is contrary to the rules of international public policy at the location of the arbitration. In some cases, arbitration tribunals determine arbitrability of dispute as to the basis of the provisions applicable in the place of arbitration (place of arbitration).

The arbitral tribunal shall consider the other following sources when determining arbitrability, namely the laws applicable to:

• the arbitration agreement;

• merits of the case (lex causae and lex contractus); and

• place (-s) of possible award execution.

In state court

If the party to arbitration proceeding believes that the dispute is not arbitrable due to insolvency of the other party, and thus represents its complaint to the court in the country of insolvency proceedings, court usually applies its national legislation on bankruptcy because its provisions are mandatory and replace the provisions of the relevant tribunal’s provisions. If insolvency procedure has started in the place of arbitration, then to the extent necessary and permitted by its national law, the court shall have the right to suspend the arbitration. If insolvency proceedings instituted in another country, any foreign court orders are not necessarily paralyze arbitration. When such issues arise before the court outside the "country of insolvency", the application of insolvency legislation depends on the relevant conflict rules applicable to the court. Generally, courts will not apply foreign law on insolvency.

Ultimately, the national court may cancel the arbitration award at the place of execution and may refuse to enforce an arbitral award if, under the laws of the court’s jurisdiction the dispute lacks arbitrability due to the bankruptcy of one of the parties.

Influence of place of arbitration

As mentioned above, the arbitral tribunal shall endeavor to ensure that its decision would be valid at the place of arbitration. Arbitration tribunals usually consider themselves "bound" by provisions of bankruptcy law, in fact, where: (a) the law of the place recognizes them as binding law and/or part of the international public policy of the country of arbitration; and (b) bankruptcy procedure was (or could be) recognized in the country of arbitration.

Some scholars believe that the main provisions of bankruptcy law (in particular those designed to ensure equal treatment of creditors and proper disposal of property of the bankrupt company) are bound by the provisions of domestic law and sometimes are part of domestic and international public policy.

Since arbitration tribunals do not have lex fori, it is assumed that they should not be "concerned" about the national laws or internal public policy of the country of arbitration. Such provisions shall be binding only on the arbitral tribunal, where they form part of international public order recognized by law of the place of arbitration. Further, the existing arbitration case law shows that the courts indeed consider where exactly the bankruptcy takes place-  at the seat of arbitration or abroad. 

Elektrim against Vivendi: The story of two jurisdictions

A good example to illustrate the "genetic" difficulties when trying to define the correct law that determines the impact of insolvency on arbitration is a dispute between Elektrim and Vivendi. In this case, England and Switzerland were able to form its position on this conundrum and their conflicting results emphasize the need to investigate the matter promptly.

Background

Elektrim is a Polish company and at one time the owner of a significant stake in the PTC, a large Polish mobile company. Vivendi - a French company, has signed a contract with Elektrim, known as the Third Investment Agreement (TIA). TIA contained an arbitration agreement providing that the dispute should be resolved by the London Court of International Arbitration (LCIA) in London. In addition, English law governed the arbitration agreement itself, even though Polish law governed the rest of the TIA.

In August 2003, the dispute arose under this Agreement, and Vivendi began arbitration in LCIA. Vivendi announced that Elektrim had violated its contractual obligations under the TIA. In 2006, Vivendi began the second arbitration against Elektrim regarding the foreseeable peace agreement between the parties. The second dispute was under the Arbitration Rules of the International Chamber of Commerce (ICC) in Geneva.

LCIA decision

In early 2007, LCIA Court scheduled a hearing on liability on 15-19 October the same year. However, August 2, 2007, Elektrim was declared bankrupt by Warsaw district court decision, and thus became "bankrupt" within the meaning of Polish law, according to which:

  "Article 142

Any arbitration agreement concluded by bankrupt becomes invalid on the date of bankruptcy and all arbitration proceedings shall be terminated. "

Elektrim claimed that, through its bankruptcy, and as evidenced by the Polish bankruptcy law, arbitration agreement contained in TIA should be terminated, thereby the jurisdiction of the Tribunal should be cancelled. However, despite the objections of Elektrim, the October hearing planned before was held in London, and LCIA tribunal heard both sides on jurisdiction and responsibility on key issues.

Subsequently, LCIA issued interim decision accepting jurisdiction over the dispute and ruled in favor of Vivendi on the merits. Elektrim appealed the decision of the Tribunal, referring to s.67 of the Arbitration Act 1996 (England) on the grounds that the Tribunal was deprived of its primary jurisdiction over the dispute because of the bankruptcy of Elektrim. The main issue concerned the interpretation of the phrase "lawsuit pending" provisions of 4.2 (F) and 15 EU Regulation on insolvency (EU Regulation), which is directly applicable in the UK.

Accordingly, Elektrim argued that the phrase "lawsuit pending" was limited by executive process of the debtor's assets, and that it cannot apply to arbitration, since arbitration is not an instrument of execution. The High Court of England ruled (later confirmed by the Court of Appeal) that the phrase "pending lawsuit" was broad enough to include a reference to arbitration for the purposes of Articles 4.2 (F) and 15. Therefore, the English courts have rejected arguments and Elektrim refused to cancel or modify the decision of LCIA tribunal.

The significance of these British courts’ decisions confirms that when the company was the subject of bankruptcy proceedings in Poland, but was involved in arbitration proceedings in London before the commencement of bankruptcy procedure, then it is the law of England (the law of the seat), which must determine the impact of the bankruptcy process on arbitration. In addition, the court held that there was nothing in the domestic English law that could stop the arbitration proceedings, despite the bankruptcy process in Poland. On the other hand, if arbitration had not started before the bankruptcy, then the Polish bankruptcy law would determine the effect of the bankruptcy process on the future possibility of initiating arbitration, and any suspension or cancellation of arbitration under Polish law would have effect in England.

ICC decision (Switzerland)

In the second arbitration in Geneva, Vivendi argued that the law of the place of arbitration should determine whether the Tribunal has retained its jurisdiction over the dispute, regardless of whether Elektrim in bankruptcy process or not. However, since Switzerland is not a member of the European Union, Vivendi failed to refer to EU Regulation as it was in English decisions. Accordingly, the central issue in ICC tribunal was to determine whether Elektrim has the right to be a party arbitration, as soon as he became bankrupt in the light of Polish law on insolvency (art.142).

After hearing the parties on this issue, ICC Tribunal issued an interim solution, which explained that the purpose of art.142 is deprivation of arbitration courts’ jurisdiction over the Polish bankrupt parties. The court ruled that the party's ability to participate in the Swiss arbitration is governed by the conflict provisions of Swiss law on private international law.

These rules provide that companies governed by the State in which they are created, and "shall manage, in particular: ... (c) capacity and capability." And if so, ICC tribunal, and then the Swiss Supreme Court should apply the Polish bankruptcy law (art.142), which abolishes the Elektrim’s ability to participate in the arbitration. Under this approach, when Elektrim became bankrupt, any arbitration clause concluded by it are no longer valid and all arbitration processes such as the Geneva arbitration have been discontinued.

In view of the above, it should be concluded that there is no single approach to decide "the destiny" of insolvent party after arbitration proceedings began. What arbitrators and practitioners have learned from Elektrim against Vivendi is that they must be prepared in advance to the effects of the bankruptcy of one of the parties to the arbitration process. As shown above, the impact of the bankruptcy of one of the parties on unresolved disputes can vary considerably, depending on the national legislation, which varies between jurisdictions and in most cases can be unpredictable.

Parties should carefully consider any potential jurisdictional issues that may arise at the conclusion of the arbitration agreement. In particular, in light of the global financial crisis and its ongoing consequences, the parties should closely analyze:

• laws of the State in which bankruptcy can potentially be launched;

• laws of the place of arbitration; and

• any other laws that are likely to be applied by the court (eg EC Regulation and the Model Law).

Taking these into account, the parties may minimize the risk of negative impact of bankruptcy in the arbitration proceedings.

Ukraine is one of the several countries that allows married couples to give birth to a child through the Assisted Reproductive Technologies (hereinafter - ART) and provides opportunity to use it not only for Ukrainians, but for foreign couples as well. The main legal act, which regulates procedure for the application of ART, is the Order of the Ministry of Health Care of Ukraine No. 787 adopted on the 09 of September 2013 “On the Approval of the Procedure of Assisted Reproductive Technologies Application in Ukraine” (hereinafter - Order No. 787).

Unfortunately, Ukrainian legislation in the sphere of application of ART does not cover all aspects of the surrogacy program, especially when it comes to foreigners. However, it worth noting that in recent years there has been significant changes in the legal regulation of surrogacy programs, in particular:

1. The right to undertake surrogacy program was given only for married couples, for husband and wife. Meanwhile, singles cannot exercise such a right. 
2. The right to use donor gametes in surrogacy program was clearly provided by law.
3. The need to confirm the genetic link between the parents or one of the parents and child was provided by law. Such connection must be confirmed by a certificate in the form prescribed by the Order № 787.
4. The need to execute written consent of the surrogate mother’s husband in the form prescribed by the Order № 787 was provided by law.
5. The need to execute notarized agreement between the surrogate mother and the couple was provided by law.

In 2012 the Parliament of Ukraine has been considering the draft law number 8282 “On Amending Some Laws of Ukraine” (regarding limitations in the use of assisted reproductive technologies). Most important aspects of the bill included:

-          Prohibition to establish the genetic link between the child and the surrogate mother, unless the surrogate mother is a relative;

-          Limitation of the age of surrogate mother;

-          An attempt to permit surrogacy programs for foreign couples.

However, the attempts to adopt that draft were not successful and that draft is still pending its further elaboration.

I would like to draw your attention to the legislation concerning the surrogacy application by foreign couples and legal aspects of recognition of parental rights over the child born through surrogacy programs in some countries.

Ukrainian legislation that prescribes surrogacy programs procedure for foreign couples requires major changes and improvement. However, while proposing amendments one should bear in mind the legal aspects of paternity for the child born via surrogacy programs in the foreign countries. Surrogacy is permitted in India, Ukraine, Georgia, Russia, and some states of America. France, Germany, Italy, Spain, Portugal, Bulgaria, Sweden prohibit the use of any form of surrogacy. In Belgium, Finland, law does not regulate the birth of the child through surrogacy programs. Australia, United Kingdom, Denmark, Israel, Canada, the Netherlands and some US states allow the use of non-commercial surrogacy only.

Ireland

Until recently, there was no legal regulation of surrogacy programs in Ireland. To fill this gap, the legislators drafted the Child and Family Relationship Bill (2014), which will enter into force after publication. The bill is expected to allow the use of a non-commercial surrogacy only. Surrogate mother will be entitled to obtain compensation only of reasonable costs, which may include medical expenses, relocation, the cost of medicines and compensation for lost earnings.

How can parents establish parental rights for a child born via surrogacy programs? Under Irish law, a woman who gave birth to a child is considered to be a mother of this child, and future parents have no parental rights over the child. However, the parents who gave birth to a baby abroad after passing through surrogacy program have the right to obtain parental rights for the child by a Court Order for a Declaration of Parentage and Guardianship. For example, we advised the Irish citizens who after passing through surrogacy program in Ukraine have successfully recognized their paternity rights for a child born in Ukraine by obtaining a court order in Ireland.

Great Britain

The case RE: X and Y (Foreign Surrogacy) 2010 had a precedential effect for the recognition of parental rights to a child born via foreign surrogacy program.

According to the provisions of Section 27 of Human Fertilization and Embryology Act 1990 ( hereinafter - Act) a woman who carried a child as the result of the placing in her of an embryo is considered to be  a  mother of the child, regardless of where fertilization was done and where she was at the time of placing in her of the embryo. English court practice recognizes this provision as extra-territorial, i.e. applicable even when the parents were passing the surrogacy program in another country. British parents can establish their paternity by obtaining a Parental Order. Future parents should meet the following requirements of Section 30 of the Act in order to successfully fill application for Parental Order:

1. The husband and the wife must apply for the order within six months of the birth of the child.

2. At the time of the application and of the making of the order the child’s home must be with the husband and the wife, and the husband or the wife, or both of them, must be domiciled in a part of the United Kingdom or in the Channel Islands or the Isle of Man.

3. At the time of the making of the order both the husband and the wife must have attained the age of eighteen.

4. The father of the child (including a person who is the father by virtue of section 28 of this Act), where he is not the husband, and the woman who carried the child must have freely, and with full understanding of what is involved, agreed unconditionally to the making of the order.

5. The woman who carried the child should give the agreement for making of the order not less than six weeks after the child’s birth.

6. The court must be satisfied that no money or other benefit (other than for expenses reasonably incurred) has been given or received by the husband or the wife for or in consideration of—

(a) the making of the order,

(b) any agreement required by item(4) above,

(c) the handing over of the child to the husband and the wife, or

(d) the making of any arrangements with a view to the making of the order, unless authorized by the court.

In the above case, the court found that "reasonable costs" that may be reimbursed to surrogate mother in terms of item. 5 above may include loss of earnings, cost of treatment, medicine etc. According to the agreement signed between the surrogate mother and parents, the surrogate mother received compensation of 235 euros per month, and a fixed compensation of 25 000 euro. At the same time, 80% of this amount was paid to surrogate mother after giving her notarized consent to register parents in the birth certificate of the child, and the balance was paid to surrogate mother after giving her written consent to parents for making of parental order in England. The court concluded that these costs exceed the amount of «reasonable expenses» incurred by a surrogate mother and were in contradiction with the requirements of the Act. However, the court granted the Parental Order and found this compensation legitimate based on the principle of the welfare of children and the priority of the interests of children. Furthermore, the court noted that the lawfulness of such costs is a question of interpretation of the facts of each case and the parents who undertake treatment program abroad have to be very careful when agreeing all payments under the contract of surrogacy that might be legal in the country of medical treatment and illegal in the country of residence of parents and eventually become an obstacle to the establishment of parental rights over the child. The subject of a separate legal analysis in this case was also the good faith of parents and lack of fraudulent intent.

In one more case Re: IJ (A Child), 2011, concerning the recognition of parental rights over a child born in Ukraine using surrogacy, the court emphasized that foreign jurisdiction may provide commissioning parents with the legal status of parents, however this status is not recognized by national laws of England. Parents who go abroad to undertake the surrogacy program should receive professional advice in order to be sure that signed documents will comply with the national laws of England, not only in respect of matters of immigration, but also in relation to payments and will not be an obstacle for parents to recognize their parental rights in England.

The rules of law of England and Ireland indicate that obtaining a certificate of the child's birth in Ukraine is only the beginning of the legal path that parents should undertake to establish their parental rights over the child in the country of residence. Thus, the peculiarities of legal regulation of surrogacy in the country of residence must be considered at the initial stage of the paperwork with the clinic and the surrogate mother. Particular attention should be drawn to the payments made under surrogacy agreements.

Another important issue that should be mentioned is the lack of appropriate legal advice for foreign couples concerning the legal status of the born child and the procedure of establishing of parental rights for the child. This is the reason why different problems appear with obtaining travel documents for the child, registration of citizenship and establishment of parental rights to the child in the country of residence of foreign parents.

Problems that occur in conjunction with surrogacy programs for foreign couples cannot be resolved by simple prohibition or allowance to apply surrogacy programs. There are  number of foreign countries where having a baby via surrogacy is permitted under certain requirements.

Summarizing all the above, we can conclude that Ukrainian legislation in the sphere of surrogacy treatment should be improved in the following areas:

1. Legal advice to future parents.  To provide in law the need for foreign couples to obtain legal advice in the home country and in Ukraine concerning the legal status of the surrogate born child, rights and duties of parents.

2. Legal regulation of surrogacy agreement. To provide in law legal definition of the surrogacy agreement, payments under the agreement, the form of the agreement.

3. State control of the clinics. To provide strict control over compliance with legislation concerning ART application and prescribe the clinics’ liability for violations of requirements of the Order No. 787.

Ukrainian legislation on the application of the ART keeps up with the development of new technologies and provides the opportunity for couples to feel the happiness of parenthood, even when nature creates barriers to it. However, practicing lawyers in this field should remember that foreign couples can successfully establish parental rights over the child only when they comply with the requirements of Ukrainian legislation as well as with the laws of the country of residence of the future parents.

Irina Moroz, Partner at AGA Partners

Now the Convention is being applied between Ukraine and Albania, Norway, Bosnia and Herzegovina. Since August 1, 2014 the Convention has come into force in the countries of European Union.

In comparison with New York Convention on the Recovery Abroad of Maintenance of 20 June 1956, the Convention provides greater opportunities for the recovery of maintenance abroad. The innovations that can be mentioned are: availability to receive preliminary information about the place of residence and financial situation of the defendant, possibility to recognize parentage for the recovery of maintenance, possibility of recognition and enforcement of the maintenance agreements.

Upon ratification of the Convention, Ukraine made a reservation and asserted its right not to recognize and not to enforce the maintenance agreements. In connection with this reservation, recognition and enforcement of the maintenance agreements, concluded in another country could be impeded in Ukraine. Nevertheless, the Convention provides the basis in order to recognize and enforce the maintenance agreements signed in Ukraine in another country.

At its core, the Convention could be applied not only to the citizens of foreign states, that are participants to the Convention but also to foreign citizens, whom  are long-time residents or habitually reside on the territory of participant state. For example, these are persons, who are temporarily and legally working on the territory of foreign country.

Scope of the Convention

Each State, by ratifying the Convention, has right to set specific types of maintenance, covered by the Convention. Ukraine, in turn, upon ratification of the Convention, has set up that the Convention is being applied to obligation of maintenance of a child under the age of 18 years. In addition, Articles 5, 8 of the Convention provide opportunity to apply for the recognition and enforcement of decisions regarding maintenance recovery:

-from parents to adult incapable children;

-from parents to adult children continuing their education until the age of 23;

-from adult children to incapable parents;

-from grandmother or grandfather in favour of grandchildren, who have not reached the age of majority;

-from adult grandchildren, great- grandchildren to incapable grandmother, grandfather, great-grandmother, great- grandfather;

-from adult brothers, sisters to brothers, sisters, who have not reached the age of majority and adult incapable brothers and sisters;

-from stepmother, stepfather to stepdaughter, stepson who has not reached the age of majority;

-from adult stepdaughter, stepson to incapable stepmother, stepfather.

We are focusing more in detail on the analysis of mechanisms of maintenance recovery for the child up to 18 years.

Preliminary Measures

The applicant has right to submit application to the central authority of another country with a request to take specific preliminary measures to establish place of location of the debtor, to receive information about his income and financial situation, to receive the documents, that could be used as evidences, to establish paternity with the view of further recovery of maintenance and apply for interim measures. Thus, the Convention gives opportunity to preliminary find out perspectives of submitting of the application to the requested state and assists the applicant in preparation of the documents for application. Application of the preliminary request is not mandatory and can be exercised at discretion of the applicant.

Available Applications

If the applicant decides to submit the application, he can request for:

-recognition or recognition and enforcement of a decision, regarding recovery of maintenance, made in the requesting state;

-enforcement of a decision, made or recognized in the requested State;

-establishment of a decision in the requested State, in case if a decision on recovery of maintenance has not been made yet, or if necessary, establishment of parentage;

-establishment of a decision in the requested state, where recognition and enforcement of a decision is not possible;

-modification of a decision made in the requested state;

-modification of a decision made in a state other than the requesting state.

One of the most interesting mechanisms is opportunity to receive a decision on the recovery of maintenance in the debtor’s country of residence and subsequently enforce it, that provides facilities to apply the legislation of another country for determination of amount of the child support and impose provisional measures, that as a result secure more effective and fast enforcement of a decision.

Some practical tips for the application of this mechanism may be found in the guidelines of the application of the Convention in the Northern Ireland of Great Britain.

While making a decision on determination of amount of the child support, the Court will apply only the material and procedural law of England. Under the English law, child support may include: periodic payments for maintenance, payments in fixed amount, child care costs, expenditures for additional training, health -care expenses etc. Child support payments in each case are established individually, taking into account the peculiarities of development of the child, health condition and creative skills and may include other fees, which the party incur in the up-bringing of the child.

The specific feature of the English jurisdiction is possibility to establish the child support for the past time. Child support may be established from the date of the child’s birth or the date of the filling of a claim for support.

Child support payments are usually established until the child reaches 17 years. In case of continuation of studying, probation training, incapacity of a child or in other cases, the alimony may be established up to 18 years or even more.

Responsibility for Evasion

In case of evasion of the debtor from child support payments, the debtor may be prosecuted or deprived of licensed documents, such as driver’s license. To use coercive measures against the debtor, the applicant should prove intentional evasion of the debtor to pay alimony and to exhaust all the available mechanisms for the enforcement of the decision or prove that all the available methods of enforcement are ineffective.

Such coercive measures may include: wage withholding; seizure of bank accounts and other financial resources; seizure or confiscation of property or assets; tax refund withholding; withholding or attachment of pension benefits; withholding or seizure of lump-sum payments; denial, suspension or revocation of various licenses; imprisonment.

The central authority in Northern Ireland organizes all the available procedures regarding recovery of maintenance in accordance with the provisions of the Convention. In case of necessity, the central authority also provides free legal assistance.

The Convention recently has come into force in Ukraine. At present, the Ministry of Justice of Ukraine that acts as the Central Authority has not yet adopted the instruction that details order of implementation of the Convention in Ukraine. The judicial practice of its application has not been developed yet. Despite this, today one of the parents has the ability to run in action new mechanisms of recovery of maintenance between state parties of the Convention.

However, in each case, practitioners must carefully analyse available mechanisms taking into account the peculiarities of legal system of involved foreign State, determine and subsequently apply the most effective methods, that help to achieve the final goal and obtain child support payments promptly.

Irina Moroz

Partner AGA Partners Law Firm

YP № 30-31 of August 12, 2014.

Key Advices for Intended Parents Who Go to Ukraine to Have Children through ART

Ukraine is one of not numerous states that have legally provided the use of assisted reproductive technologies.

The methods of treatment by assisted reproductive technologies include: in-vitro fertilization (IVF); insemination; application of donors gametal cells and embryos; surrogacy motherhood.

Under Ukrainian law, the intended parents are considered as the patients of assisted reproductive technologies treatment and shall pass the treatment according to Order of the Ministry of Health of Ukraine No. 787 adopted on the 09 of September 2013 “On the Approval of the Procedure of assisted reproductive technologies appliance in Ukraine” (hereinafter Order No. 787).

The relations with medical institution are designed by filling the necessary applications by the patients (intended parents). Order No. 787 provides the forms of these applications.

Assisted reproductive technologies shall be applied only under medical indications by the written free will of the patient and by the statement of the patient (patients) concerning the application of assisted reproductive technologies, (the form of this statement is provided by the Order No. 787).

ART can be carried out only in Ukrainian clinics that are licensed to the business of medical practice, hold accreditation certificate and own appropriate equipment and machinery.

Intended parents have the right to choose freely the clinic on their own discretion, there is no need to receive official direction for treatment.

It is allowed to use assisted reproductive technologies only for married couples.

Intended parents file all necessary documents directly in the clinic. The issue regarding the method of treatment to apply is solved after the intended parents file application in clinic and pass the appropriate medical examination.

The scheme of application of ART is as following:

1. Intended parents choose the clinic; agree the terms of their cooperation and fees.
2. Execute necessary documents in clinic, pass examination and treatment, carry the pregnancy, and gave birth to a child.
3. Register the childbirth according to Ukrainian law.
4. Receive child travel document at the consulate (embassy) of their country situated in Ukraine.
5. Take the child abroad.

Ukrainian legislation recognizes the intended parents as the sole legal parents of a child born with assisted reproductive technologies; accordingly, they bear all parental rights under Ukrainian law and are obliged to register the child birth in accordance with the requirements of Ukrainian law.

Those couples who temporarily enter Ukraine for treatment with assisted reproductive technologies do not have any right to receive state monetary support for child birth with the assisted reproductive technologies. Foreigners have right to receive state monetary support for the child birth only if they live on the territory of Ukraine permanently.

The costs for medical treatment with assisted reproductive technologies differ depending from the methods of treatment, clinic tariffs for services, the scope of services, attempts of fertilization etc.

To take the child through Ukrainian border custom authorities, apart from the child certificate of birth, will require travel document for the child issued by the consulate of parents’ country of residence. 

Ukraine has set free visa regime for citizens of US, Canada, Japan, European Union countries, Norway, Monaco, San Marino, Andorra, Iceland, Swiss Confederation and Liechtenstein. Free visa regime is established for the period of up to 90 days staying in the country.

If intended parents come from the country that does not have free visa regime with Ukraine the possible solution for them is to get short term visa marked as type C or VC.  Short term visa is processed as one-time, two-time or multiple visa for the period of six month or other period, depending from the documents which are the basis to process visa but no longer than for 5 years period.

The ground to process visa may be invitation from medical institution of Ukraine.

Unfortunately, Ukrainian insurance companies do not have insurance programs covering treatment by supporting reproductive technologies (including surrogate motherhood).  Therefore, intended parents shall personally bear all expenses of supporting reproductive technologies treatment.

Surrogacy Motherhood

One of the methods of ART treatment is surrogacy motherhood. Only married spouses have the right to use surrogate motherhood method.  The intended parents have to pass medical examination in the clinic and file at the clinic all necessary documents among which the application for use of assisted reproductive technologies treatment, the application of the recipient of donor gametal cell etc.

Intended parents may use surrogate motherhood method only under certain medical indications provided by the Order (e.g. absence of womb, unsuccessful 4 or more attempts to use assisted reproductive technologies treatment, difficult somatic disease that make impossible to carry the pregnancy, deformation of womb etc.).

It is worth to pay attention that surrogate mother cannot be biologically connected with the child. Therefore, the surrogacy motherhood in Ukraine is allowed only with use of spouses and donors gametal cells.

Usually each clinic has its database of potential surrogate mothers and the intended parents have opportunity to choose the woman from this database. The surrogate mother may also be the woman acquainted with the intended parents or their relative, provided she meets particular requirements.

List of documents to be submitted by a surrogate mother:

-          application of a surrogate mother;

-          copy of the passport of a surrogate mother;

-          copy of marriage certificate or divorce of surrogate mother (exception for single women);

-          copy of the birth certificate of the child (children);

-          consent of the husband of a surrogate mother for her participation in the surrogacy program (exception for single women).

The list of documents required from intended parents:

-          statement of patient/patients on the use of ART;

-          copies of passports;

-          copy of marriage certificate;

-          notarized copy of the written joint agreement between the surrogate mother and spouses.

The intended parents are recognized automatically as the parents of a child by virtue of law provisions and are registered as the sole legal parents of a child on child certificate of birth.

To register the child birth the intended parents shall also submit to register office:

• Notarized written consent of the surrogate mother to record the spouses as the parents of child;
• Certificate verifying genetic connection of the parents (father or mother) with the child;

Surrogacy motherhood is allowed only in 15 countries, the rest of counties forbid it, establish criminal responsibility or allow under certain conditions. Some countries permit only non-commercial surrogacy and very often recognition of the spouse’s paternity over the surrogate born child is possible only through the court proceeding (England, Ireland).

The fact is that in the majority of cases, legal recognition of the spouses’ paternity in Ukraine does not create any parental rights for them in the country of their residence. Therefore, before entering Ukraine for surrogacy arrangements it is necessary to investigate the legal regulation of surrogacy in the domestic jurisdiction of foreign parents and make sure that there is a legal possibility to take the child home and recognize the paternity in the country of the parent’s residence.

Assisted reproductive technologies are lawful in Ukraine and are recognized as the methods of infertility treatment. Ukrainian jurisdiction allows for intended parents to be legally recognized as the parents of the child and to be registered as such in child certificate of birth. However, Ukrainian recognition of child paternity does not create any grounds for the intended parents to recognize their paternity in the country of their domicile if assisted reproductive technologies are restricted or forbidden there. Therefore, before entering Ukraine for assisted reproductive technologies treatment, intended parents have to consider all legal aspects of their paternity recognition in Ukraine and abroad and receive competent legal counselling. Only cognizance of domestic and Ukrainian law may serve as a good pledge of their legal paternity over the tiny baby.

The article is available in Russian only.

The article is available in Russian only.