On 15 July 2016 the Federal Law # 381-FZ “On Fundamentals of State Regulation of Trade Activities in the Russian Federation” was amended.
On 03 July 2016 the President of Russia signed the Federal Law # 273-FZ “On Amendments to the Federal Law # 381-FZ “On Fundamentals of State Regulation of Trade Activities in the Russian Federation” and to the Code of Administrative Offences of the Russian Federation” (hereinafter – Trade Law).
What is changed:
1. The total maximum receivable by a retailer under a supply contract for food products is reduced from 10% to 5% of the cost of the purchased goods (net of VAT and excise duties charged by the supplier).
2. The list of remuneration types subject to the said total limit of 5% is enhanced and became open. The “restricted” fee is no longer limited by volume bonuses and embraces the most common types of fees paid to a retailer, in particular:
Exceeding the 5% limit, as well as stipulating this in contracts signed after 15 July 2016, is subject to an administrative fine for the company, in range from RUB 1 MM to RUB 5 MM per contract.
3. Сertain operations and payment forms between suppliers and retailers are prohibited. In particular, it is not anymore possible to:
Identically to the previous version of the Trade Law, paying any other types of fees to retailers under supply contract is expressly prohibited. Goods promotion, pre-sale preparation, processing, packaging and other similar services shall be covered by a separate contract.
4. Maximum payment terms for the retailer in respect of food products are reduced and linked to the goods' shelf-life:
|Product shelf-life||Maximum payment term - previous version||Maximum payment term - new version|
|Less than 10 days||10 business days||8 business days
|10 – 30 days||30 calendar days||25 calendar days|
|Over 30 days, as well as alcoholic beverages, produced in Russia||45 calendar days||40 calendar days|
Setting a longer payment term in a supply contract is subject to an administrative fine for the company in range from RUB 1 MM to RUB 5 MM per contract.
5. Liability for breaching the new law requirements applies not only to the supply transaction parties (the food supplier and the retailer), but extends to entities belonging to the same group of persons with the contract parties (as defined by the anti-trust law).
What is required from the business community:
The new version of the Trade Law obliges suppliers and retailers:
What to expect in practice:
One cannot exclude that in practice the regulators will try to apply the 5% limit to any payments to retailers related to supply or further circulation of food products.
Enactment of the Trade Law amendments will likely lead to reconsidering the food supply contracts between producers and retailers, seeking for new options to structure the retailers’ fees, as well as changing the typical allocation of activities between suppliers and retailers.
What are the next steps:
KPMG team is ready to offer complex support with developing, assessing and implementing alternative arrangements between suppliers and retailers satisfying the new Trade Law’s requirements, in particular:
Any questions are welcome!