Fast Moving Consumer Goods
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With 3 offices in Ukraine (Kiev, Lvov, Odessa) and a representation in Germany (Berlin), GOLAW is one of the leading and most capable teams of business legal advisors in Ukraine, combining international legal expertise and local know-how to offer clients top-quality legal services. Since its establishment in 2003, the firm is oriented toward providing comprehensive support to local and international businesses in Ukraine and has grown steadily by providing clients with the right mix of legal expertise and strategic direction.
The firm provides a broad range of business-related legal services to foreign and domestic clients in Ukraine. It strives to stay competitive by enhancing the services portfolio through implementation of innovative approaches to client service and provision of creative and practical solutions. The firm renders industry-tailored legal advice to serve all areas of business law and primarily focuses on corporate and commercial law. It also has strong credentials and client recognition for advice in mergers and acquisitions, corporate and debt restructuring, banking and finance, taxation, corporate and tax dispute resolution.
GOLAW is proud to have developed a reputable and skillful team of criminal defense lawyers. The firm’s practice covers client representation through all aspects of criminal litigation and relevant enforcement actions. Preventive counseling in criminal matters of economic nature, white-collar crimes and corporate internal investigations make up the scope of well-managed services to handle response to fraud on behalf of corporate or individual clients.
The firm’s lawyers can create added value to the clients’ transactions and litigation cases with both cutting edge expertise and solid industry experience. Thus, by sector, most of the work involves acting for clients investing in agriculture, energy and natural resources, real estate, media and technologies, aviation, food production and retail in Ukraine. The firm has also proven itself as a trusted advisor to international and local financial institutions, made up of banks and insurance companies.
With a team of 35 dedicated lawyers, the firm is divided into practice and industry sector groups. This allows proper assembly of a project team for each assignment through a perfect combination of requisite skills and sector knowledge. Successful recruitment of the best legal talents, ongoing professional development and strong corporate culture encourage business focus and a team spirit, which finally bring the firm to smart leadership in the market.
The companies involved in the Fast Moving Consumer Goods (FMCG) industry are of the most famous brand names that we come across every single day. These FMCG companies are identified by their ability to give the consumer those products that are highly demanded, while also developing a relationship with them that involves trust and loyalty. One of the peculiarities of the industry is diversity and dynamics that lead to the emergence of new regulations and requirements on a monthly basis. Lots of them overlapping cause much confusion and ambiguity for manufacturers subsequently. That’s why a successful retailer should bear in mind a large number of issues upon running the business: corporate, tax, customs, competition, IP, regulations, consumer rights protection, etc.
Customs Procedures/Customs Value/Related Persons
The first and the foremost problematic area for a manufacturer intending to enter a Ukrainian market is the customs procedure for imported goods.
Customs value is a key element in the business activities of a FMCG company. The importer or its authorized representative determines the customs value of goods during the declaration process. However, customs authorities quite often do not agree with the customs value determined by the importer and make a decision on adjustment of the declared customs value. In such a case any negative effect on customs value will immediately be reflected either on financial results of the company or on the price of goods sold. Both consequences involve certain business risks: company’s competition on the market, cash flow gaps, additional tax liabilities, etc.
Disputes regarding adjustment of the declared customs value are one of the most common in the customs sphere in Ukraine. In order to mitigate the risks of negative consequences of customs value adjustment we recommend using the following advice.
The first recommendation is to follow exactly what the Customs Code specifies, step by step, notwithstanding any explanations of customs officers or their requests. If part 2 of Article 53 of the Customs Code of Ukraine envisages an exhaustive list of documents confirming the declared customs value, these particular documents must be filed to the customs office, no more and no less. There are two exceptions envisaged by the Customs Code of Ukraine where the company is required to file additional documents for the purposes of customs value confirmation: (a) if the already filed documents contain discrepancies or may be deemed as counterfeit; or (b) if the importer and supplier are related persons and the customs authorities have reasonable grounds to believe that such relationship affects the declared customs value.
In both cases the Customs Code provides a detailed and exhaustive list of documents that must be filed to the customs office. A company, however, has the right to file any other additional documents at its own discretion and the customs office is obliged to accept and review such documents. Another problem that an importer may face is determination of the custom value of the goods and use of a particular method for determining such value. The Customs Code of Ukraine stipulates an exhaustive list of methods, which must be used to determine customs value. They are: 1) basic method — customs value of goods is determined according to the price of goods stipulated in the contract; 2) accessory methods: a) according to the price of identical goods; b) according to the price of similar goods; c) subtraction of costs method; d) adding of costs method; e) reserve method. It is important to note that each subsequent method can be applied only in cases when the previous method cannot be used.
Customs authorities often quite often use accessory methods, instead of basic method, to determine customs value without any reasoning. If customs authorities make a decision on adjustment of the declared customs value, such decision must be issued in writing and contain, inter alia, an explanation of the reasons why the declared customs value cannot be accepted and information available to customs office giving reasons to challenge the declared customs value;
The customer has the right to appeal against abovementioned decision justifying the position with the absence of contradictions in the documents submitted to the customs office, sufficiency of information stipulated in such documents and absence of reasonable doubt to demand additional documents from the customer.
In such types of disputes the importer may rely on the position of the Supreme Court of Ukraine according to which the custom authorities have no right to use accessory methods instead of the basic one without sufficient reasoning and grounding (decision of 14 May 2013, case No. 21-130а13). Therefore, if the tax authorities do not provide any valid and sound reason for demanding additional documents from the importer or adjust a declared custom value of the goods due to the application of accessory method such decision may be successfully challenged by the importer in a court of law. In such types of disputes it is important to develop a strong legal theory from the very beginning. Hence, we recommend addressing these types of issues to professionals.
Customers’ Rights Protection/Regulations
Another issue that is highly important for FMCG companies is compliance with regulations regarding customers’ rights protection and quality control. Ukrainian law on protection of customers rights in the FMCG sector is very complicated. It contains different regulations and legal requirements for every single type of good and provides for strict sanctions in the event of violation of consumer rights. Therefore, compliance in this sphere should be a priority task for FMCG companies.
Non-compliance with established requirements is commonly revealed upon auditing of retail activities carried out by the Inspection for customers’ right protection (Inspection). In this article the most common issues treated as violation of regulations on customers’ rights and quality control will be considered.
There are several major legislative acts that stipulate general requirements for business activities in the FMCG sector: On Customers’ Rights Protection Act of Ukraine, On General Safety of Non-food Products Act of Ukraine and On General Principles and Requirements to Safety and Quality of Food Products act of Ukraine.
For instance, according to Article 4 of the On Customers’ Rights Protection Act customers shall, among other rights, have the right to receive necessary, complete, true and available information on products, their amount, quality, range and producer (contractor, seller).
This right is concretized in Article 15 of the On Customers’ Rights Protection Act and considers provision of information about: name of the product, name or visual appearance of trade mark under which goods or services are sold; main features of the goods; price; content of harmful substances; date of production; expiry date, etc. The list provided is not complete and differs depending on the type of products.
This information is usually brought to customers in supporting documents attached to the label on products, as well as on labeling or in another manner (in visually accessible manner), generally acceptable for certain types of products or in other areas of retail business. Information (description, price, materials, etc.) should be readable and comprehensible. The proper labeling of products is always scrupulously inspected by the Inspection.
Another essential requirement of FMCG customers right protection law should deal with is goods safety. Both food and non-food products should comply with basic safety require- ment — no products should cause any harm to the health of a human being.
In this area Inspection pays attention to facts as to whether the conformity assessment is carried out, whether the producer or retailer has all the required documents (e.g. conformity certificate), to the proper indication of the National conformity sign, the compliance of the goods with technical regulations or hygienic, sanitary rules, etc. If the Inspectorate has doubts about safety of a certain product, they will have right to examine samples of goods to be sure, even if all documents for this product are provided.
Violation of safety requirement regulations causes producers and/or retailers huge negative consequences, right from temporary bans on the sale of goods to the withdrawal and destruction of goods, which are always supported with huge fines.
To sum up everything mentioned above, retail trade and the FMCG sector are rather complicated businesses from the perspectives of legal and regulatory requirements. A large number of regulations should be taken into account and a variety of risks should be assessed and managed. Therefore, involvement of a legal advisor at the early stage of a dispute may be crucial in terms of further implications. Moreover, negative consequences can be mitigated if the company independently or with involvement of professional advisers audits its activities in view of compliance with applicable laws and regulations.