01 July – 30 September 2020 QUARTERLY REPORT REPORT FOCUS: NON-ENFORCEMENT OF COURT DECISIONS THE BOC IS FUNDED through the Multi-donor Account for Ukraine set up at the European Bank for Reconstruction and Development (EBRD) in 2014. The donors of the Multi-donor Account for Ukraine include: the European the Netherlands Union Denmark Norway Finland Poland France Sweden Germany Switzerland Italy the United Kingdom Japan the United States 3 TABLE OF CONTENTS Foreword of the Business Ombudsman 04 Q3 2020 at a glance 06 1. COMPLAINTS TRENDS 08 1.1. Volume and nature of complaints received 08 1.2. Timelines of the preliminary review of complaints 13 1.3. Number of investigations conducted and grounds for dismissing complaints 13 1.4. Timelines of conducting investigations 15 1.5. State bodies subject to the most complaints 16 1.6. Geographical distribution of complaints received 18 1.7. Complainants’ portrait 19 1.8. Report focus: non-enforcement of court decisions 22 1.9. Feedback 30 2. SUMMARY OF KEY MATTERS AND FOLLOW-UP OF RECOMMENDATIONS 32 2.1. Information on closed cases and recommendations provided 32 2.2. Systemic issues identified and solved 38 2.3. Summary of important investigations 40 3. COOPERATION WITH STAKEHOLDERS 68 3.1. The status of the draft law #3607 “On the Business Ombudsman Institution in Ukraine” 68 3.2. Cooperation with state bodies 71 3.3. Regional webinars with the Ministry for Development of Economy, Trade and Agriculture 72 3.4. Knowledge webinars with ACC and UNBA 73 3.5. Public outreach and communications 75 The BOC and the Council are used interchangeably throughout the text to refer to the Business Ombudsman Council. 4 FOREWORD OF THE BUSINESS OMBUDSMAN DEAR FRIENDS, COLLEAGUES AND PARTNERS, Despite the fact that quarantine affected many Key business complaints trends in Q3 2020: aspects of entrepreneurial activity and forced to reduce its pace, the number of business • The number of complaints from entrepreneurs appeals to the Business Ombudsman Council concerning suspension of tax invoices registration regarding violations of state officials has not increased considerably (from 138 in Q2 2020 to decreased. In July-September 2020, we received 201 in Q3 2020): this is 46% more than in the 439 complaints — this is 14% more than in previous quarter and 118% more than in the Q2 2020 and 3% more than in Q3 2019. However, same quarter last year. in the reporting quarter we did not actually receive • At the same time the number of tax audit findings any complaints related to quarantine restrictions — appeals went down significantly (from 55 to 36) — business was obviously dissatisfied with some it is correlated with the moratorium on most limitations introduced at the time of the pandemic, inspections introduced by the Government in but did not consider them illegal. March this year. The number of complaints increased specifically • Compared to the previous quarter, entrepreneurs due to small and medium-sized enterprises (SMEs). complained more about procedural abuse of the In the reporting quarter, the share of appeals from Prosecutor's Office, but less about malpractice SMEs has reached a record level since launch of of the National Police and the State Security the BOC operations — 79%. We received 90% of Service of Ukraine. Therefore, the total number complaints from purely Ukrainian enterprises — it of complaints about law enforcement agencies has also been the highest figure since May 2015. remained flat at 48 complaints. 98% of complainants who responded to our inquiry for feedback were satisfied with our cooperation. • The number of entrepreneurs' appeals regarding During these three months, we helped entrepreneurs customs clearance delays has doubled (from 13 to recover and save UAH 299 mn. 22). Thus, customs issues hit TOP-3 list of business appeals with 22 complaints in total. • Entrepreneurs filed twice more (from 8 to 16) complaints against the Ministry of Justice actions: both against the Registration Department and the Enforcement Service. 5 Since launch of its operations, the BOC considered 2019 we issued 54 recommendations to state bodies 564 complaints related to court decisions on administrative appeal procedure and 38 on enforcement. Hence, the number of complaints tax administration in August 2020. We hope our has been increasing annually: from 56 in 2017 to developments will be transformed into certain legal 197 in 2019. During the first nine months of 2020 we acts soon. received 149 complaints on this subject. Non- We actively shared our practical experience and enforcement of court decisions by state bodies is professional expertise with business representatives indeed a serious issue for business, since coercive and legal professionals. Jointly with the Ministry mechanisms applicable to individuals and legal for Economic Development, Trade and Agriculture, entities are not working in the case of state bodies we held a series of regional webinars on the BOC responsible for court decisions execution. That is opportunities to protect interests of entrepreneurs. why we have chosen this issue for its more in-depth Together with the American Chamber of Commerce analysis and preparation of respective systemic and the National Bar Association of Ukraine we recommendations for state bodies in the upcoming discussed business issues at the customs, appealing systemic report to be published in early 2021. results of public procurement, non-enforcement of We have another positive performance indicator court decisions, Tax Police actions and pressing tax this quarter — state bodies implemented 89% of issues of entrepreneurs. individual recommendations. In addition, we would We continued working with stakeholders to enshrine like to note two systemic wins of the BOC: our institution’s status at the legal level. Independent • According to our recommendations on foreign experts from V.M.Koretsky Institute of State and economic trade in scrap metal, the Parliament Law of the National Academy of Sciences of Ukraine adopted the Law No.776-IX aimed at de-shading analyzed the Draft Law No. 3607 “On the Business of the market and increasing transparency of Ombudsman Institution in Ukraine” and supported scrap metal import and export. its key provisions. The document is currently in the Parliament and is awaiting the first reading at • The President signed the Law No.2698, which the plenary meeting. So far, three Verkhovna Rada aims to harmonize construction products Committees supported the bill: the Committee domestic market functioning with European on Economic Development, Committee on Anti- rules — exactly as we recommended in the Corruption Policy, and Committee on Ukraine's systemic report. Integration into the European Union. Such a small number of implemented As long as the draft law is extraordinary, it is recommendations, however, does not reflect a full challenging and brings up questions and sometimes scope of work on solving systemic business issues, hesitations. Therefore, we carefully consider all particularly as regards administrative appeal and tax comments, prepare responses to them and actively administration, as we cooperated with government raise awareness to maximize clarity and dispel any experts and Deputies of the Verkhovna Rada on doubts about fundamental provisions of the law. preparation of concrete legislative changes during the quarter. We would like to remind that in July 6 Q3 2020 AT A GLANCE +54 +11 appeals appeals 439 274 QOQ YOY COMPLAINTS CASES RECEIVED CLOSED DIRECT FINANCIAL IMPACT: UAH MN 98% 299 OF COMPLAINANTS WHO PROVIDED FEEDBACK WERE BLOCKS SATISFIED WITH OF COMPLAINTS WORKING WITH TOP-5 THE BOC Tax issues 68% Actions of law 11% enforcement bodies Customs 89% 5% issues OF CASE-BY-CASE Actions of state RECOMMENDATIONS 5% regulators WERE IMPLEMENTED Actions of the Ministry BY STATE BODIES 4% of Justice 7 42% Kyiv TOP-5 7% Kyiv Oblast Kharkiv Oblast MOST ACTIVE 8% REGIONS 9% Dnipropetrovsk Oblast 5% Zaporizhia Oblast TOP-5 INDUSTRIES 28% 13% 10% 10% 10% Wholesale and Agriculture and Real Estate Manufacturing Individual Distribution Mining and Construction Entrepreneur 10% Foreign 21% Large SIZE OF ORIGIN OF BUSINESS INVESTMENT 79% 90% Small/ Local Medium business 8 1. COMPLAINTS TRENDS 1.1. VOLUME AND NATURE OF COMPLAINTS RECEIVED (Clause 5.3.1 (а) of Rules of Procedure) In July-September 2020, VOLUME OF COMPLAINTS RECEIVED the BOC received Q1 Q2 Q3 Q4 439 appeals from entrepreneurs concerning malpractice 2015 of state bodies. 220 171 194 2016 211 242 275 139 14% 729 more as compared to Q2 2020 (QOQ) 2017 408 264 237 646 3% more as compared 2018 411 427 to Q3 2019 (YOY) 308 2019 408 398 428 412 TOTAL NUMBER OF COMPLAINTS 462 2020 385 439 RECEIVED SINCE MAY 2015: 7814 9 TOP-10 SUBJECTS OF COMPLAINTS IN Q3 2020 SUBJECT Q3 2020 Q2 2020 Q3 2019 TAX ISSUES 297 261 264 Complaints related to SMKOR operation: 201 138 92 VAT invoice suspension 102 53 16 VAT risky taxpayer 64 64 45 VAT invoice court decision 35 21 31 Tax inspections 36 55 99 Tax criminal cases 16 7 15 VAT electronic administration 12 17 17 VAT refund 4 1 2 Tax termination/renewal/refusal of VAT payers registration 1 2 0 Tax termination of agreement on recognition of electronic reporting 0 0 3 and Tax status 09 Tax other 27 41 36 ACTIONS OF THE NATIONAL POLICE 24 29 23 National Police procedural abuse 12 16 8 National Police inactivity 10 10 9 National Police criminal case initiated 1 0 3 National Police corruption allegations 1 0 1 National Police other 0 3 2 ACTIONS OF STATE REGULATORS 21 18 27