08.04.2015

Recent Novelties in the Field of Legal Regulation Regarding the Regime of Occupied Territories

TOPICS OF THIS ISSUE:

  • Legal status of single areas in Donetsk and Lugansk regions
  • Taxation of real estate in the temporarily occupied territories
  • Situation in Crimea
  • Special Appendix: Specifics of peacekeeping operations

1.                       Temporarily occupied territories

The Parliament of Ukraine has recognized single districts, cities, towns and villages in Donetsk and Lugansk regions as temporarily occupied territories. These territories, in accordance with the Law of Ukraine "On Special Local Self-Government Procedure for Certain Areas in Donetsk and Lugansk Regions," shall be subject to special local self-government procedure (to which we referred in one of our previous newsletters). This procedure shall be effective until all illegal armed groups with their military equipment as well as militants and mercenaries withdraw from the territory of Ukraine and until Ukraine restores full control over its state border.

It should be recalled that the Law of Ukraine "On Special Local Self-Government Procedure for Certain Areas in Donetsk and Lugansk Regions" proper does not contain any substantial economic novelties. However, the above Law vests broad autonomous powers (including the right to enter into contractual relationships with administrative and territorial units of the Russian Federation) in local governments and territorial communities. As a result, the legal order on the occupied territories of Donetsk and Lugansk regions may turn out to be quite unpredictable and may differ from the legal order and given directions for reforms in the rest of the territory of Ukraine, as we pointed out earlier.

The temporarily occupied territories include districts or parts thereof, cities, towns and villages that are in the areas located between the state border of Ukraine and the Russian Federation, the water's edge of the Azov Sea and the line defined by the Appendix to the Order (more than 20 settlements altogether).

2.                       Taxation of real estate in the temporarily  occupied territories of Ukraine

The State Fiscal Service has explained how real estate other than land will be taxed in the temporarily occupied territories as well as in the area of the anti-terrorist operation.

Whereas Ukrainian state authorities and local self-governments are unable to perform their functions in the mentioned areas, the payment of property tax payable at the location of the object of taxation is reasonably impossible. However, the Fiscal Service’s position is that owners of real estate in the temporarily occupied territories shall not be exempt from the relevant tax.

According to the Clarification by the State Fiscal Service of Ukraine "Taxation of real estate in the temporarily occupied territory of Ukraine and in the area of the anti-terrorist operation" dated 18.03.2015, taxpayers are invited to pay real estate tax to the local budget at their location. They are also invited to submit their tax returns to the regulatory authorities of the State Fiscal Service of Ukraine at their location.

3.                      Situation in Crimea

Crimean authorities have issued a statement that inhabitants of the peninsula have the right not to repay loans to Ukrainian banks. It is also mentioned that such debts will be paid only after Ukraine and Russia reach appropriate understandings. However, this statement has no documentary background. Therefore, Crimean borrowers have no legal grounds for default on repayments to Ukrainian banks both under Ukrainian and under Russian legislation.

On 24 March 2015 Pechersk District Court of Kyiv arrested the vessel "KANTON" under the flag of Tuvalu due to its illegal stay in the port of Sevastopol. Violation of the procedure for entry into the temporarily occupied territory (Crimea) under the laws of Ukraine is an offence punishable in particular by forfeiture of vehicles that are subjects of violation. The only legal way to enter the temporarily occupied territory of Ukraine is to cross the administrative border between Ukraine and Crimea at special check points on the land border. Accordingly, the entry of any vessel into the ports of Crimea will be considered a violation of procedure for entry into the temporarily occupied territory, while such a vessel shall be subject to forfeiture. The vessel "KANTON" was arrested within criminal proceedings. Therefore, the legal rules (including international conventions) on forfeiture to secure maritime claims do not apply in this case. If the captain’s fault is proved, the vessel will be subject to forfeiture.

4.      Conclusions and recommendations

Though certain districts, cities, towns and villages in Donetsk and Lugansk regions have been recognized as occupied territories subject to the Law of Ukraine "On Special Local Self-Government Procedure for Certain Areas in Donetsk and Lugansk Regions" Ukraine's sovereignty is de facto ineffective in the area of the anti-terrorist operation occupied by illegal armed groups (as well as in Crimea). Accordingly, businesses that have not been evacuated to the territory controlled by Ukraine may encounter situations when remedies provided by the Ukrainian legislation have no effect. In this regard, the recent legislative innovations do not protect Ukrainian businesses remaining in the occupied territories from the existing risks.

Despite the fact that the payment of real estate tax for property located in the temporarily occupied territories (including some areas in Donetsk and Lugansk regions) is reasonably impossible, the State Fiscal Service of Ukraine invites taxpayers to pay such a tax at their actual location. Although this initiative is not reflected in the current tax legislation, taxpayers may face a situation where fiscal authorities will demand payment of the relevant at their actual location. It is possible that such an initiative will be further formalized in the appropriate legislation.

The arrest of the vessel "KANTON" for its entry into a closed Ukrainian port in Crimea confirms that the Department for Representing Citizens or the State in Court, Combating Crimes and Corruption in the Temporarily Occupied Territory of the Crimean Peninsula at the General Prosecutor's Office monitors illegal entries into Crimean ports and intends to put an end to such activities. Given the fact that violations of the procedure for entry into a temporarily occupied territory entail inter alia forfeiture of vehicles, vessel owners that carry out voyages to Crimean or Ukrainian mainland ports bear serious risks, as their vessels may be seized and confiscated.

SPECIAL APPENDIXSPECIFICS OF LEGAL REGULATION OF PEACEKEEPING OPERATIONS

On 17 March 2015 the Parliament of Ukraine adopted an appeal to the UN Security Council and the Council of the EU on bringing peacekeeping forces to Ukraine under the auspices of international organizations. The document was registered with the Parliament by the President of Ukraine Petro Poroshenko. It is proposed to deploy a peacekeeping operation to create conditions for settling the situation in the East of Ukraine. In addition, the document states that the peacekeeping mission will contribute to the implementation of the Minsk Agreements, as reported previously.

Peacekeeping operations under the UN auspices

UN peacekeeping forces are the armed contingent of UN Member States brought into the conflict zone to eliminate threats to peace and security. Peacekeepers are involved when the measures of political or economic nature taken to resolve the conflict have been ineffective. The initiator of peacekeeping operations is the UN Security Council. Peacekeepers create a buffer zone between the warring parties, while there are two types of operations: armed and observational ones. Decision on the deployment of a peacekeeping mission under the UN Charter requires the consent of all five permanent members of the UN Security Council (USA, France, Britain, China, and Russia). Taking account the position of the Russian Federation on the conflict in the East of Ukraine, a peacekeeping operation under the auspices of the UN in Ukraine is very unlikely. 

In turn, Ukrainian authorities have voiced the need to deploy a police mission in the uncontrolled territories. Police missions are normally carried out after the countries’ attempts to resolve the crisis or along with them. Their purpose is to support local governments in stabilizing the situation inside the country by forming and training capable law enforcement officers. This type of operations will not be effective, considering the current developments in Ukraine. Police mission is not strong enough to enforce the ceasefire.

Main powers of peacekeepers and peacekeeping operation regime

Transformation of international processes has led to a change in approaches to peacekeeping operations. Today, the main purpose of such operations is to overcome the effects of an armed conflict through a combination of military, police and civilian measures to implement the peacekeeping initiatives enshrined in the relevant peace agreement. However, some operations involve following the transfer of power to official state and municipal authorities of the country without any formal peace agreement.

Participants of traditional peacekeeping operations, depending on the mandate, are given the authority to carry out supervision and monitoring to ensure the ceasefire by using checkpoints, patrols, observation flights, and other technical means. For people staying the area of peacekeeping operations it may mean certain traveling limitations. Thus, inspections of vehicles and personal belongings to check for weapons, ammunition and other prohibited items may not be ruled out. Occupation of buildings and facilities to accommodate the equipment and personnel of the mission is also probable.

In recent years, as already noted, peacekeeping operations have been complex and systemic in nature. Therefore, peacekeepers are often involved in the protection of transport and social infrastructure as well as ensure the free movement of goods and people in order to prevent a humanitarian catastrophe. Thus, it may not be excluded that in case of a peacekeeping operation in eastern Ukraine the procedure for crossing the demarcation line with the territory controlled by illegal armed groups will be changed in accordance with the UN requirements, while the movement of goods and vehicles will be directly controlled by peacekeepers.

Finally, in areas where local authorities are able to perform law enforcement functions, peacekeeping forces can be used to strengthen the local law enforcement. In this case, the peacekeepers will be vested with the powers of law enforcement agencies in matters relating to law enforcement and crime prevention. However, in practice the peacekeepers do not perform regulatory and control functions and conduct no investigations.

Compensation for damage caused in connection with the peacekeeping operation

Since the inception of the United Nations, the organization enjoys immunity with respect to liability for damage caused by officials of the organization. The immunity largely extends to peacekeepers operating under UN auspices. The experience of peacekeeping missions carried out in other countries shows that the main causes of damage to people and their property in the areas of operations are accidents involving UN vehicles, the consequences of hostilities involving peacekeepers, carelessness or negligence causing damage. It should also be noted that the UN officials’ civil liability is normally insured.

Disputes involving the UN (including peacekeeping operations) should be resolved under the provisions of Article VIII of the Convention on the Privileges and Immunities of the United Nations adopted by Resolution 22 A of the UN General Assembly of 13.02.1946. In accordance with this rule, the UN should establish a provision for appropriate ways to settle disputes arising out of contracts or other disputes on private law matters, to which the United Nations is a party. The existing resolution mechanisms for disputes, to which the UN is a party, envisage that such disputes primarily be resolved informally by means of negotiations.

In response to the growing number of complaints to the UN, due to the increase in the number of peacekeeping operations conducted under the auspices of the United Nations the UN General Assembly adopted its Resolution 52/247 of 17.07.1998 "Third-party Liability: Temporal and Financial Limitations." The Resolution establishes the principles and restrictions applied in considering the issue of compensation for damages caused by peacekeepers operating under a UN mandate.

Thus, the UN is not liable for damage caused as a result of operational necessity. The period for filing a claim for damages relating to peacekeeping operations is limited to six months from the date of damage or from the date on which the claimant was supposed to become aware of such damage. In any case, the claim cannot be brought later than one year after the expiration of the mandate for the relevant operation. At the same time, only material damages (medical expenses and rehabilitation, lost income, lost financial support, transportation costs, legal costs, funeral expenses) shall be subject to compensation. It should also be borne in mind that the UN’s material liability is limited to USD 50 thousand.

In many cases the UN shifts the liability for damage to private property during the peacekeeping operation to the country at whose invitation the operation was deployed. It should also be taken into account that, in most cases, the UN actually claims immunity when considering claims relating to compensation for damage. In particular, in the civil action filed by the organization "Mothers of Srebrenica" against the Netherlands and the United Nations, women whose relatives were victims of genocide committed by Serb militants blamed Dutch peacekeepers who acted as part of the UN peacekeeping mission of inaction that caused the death of civilians. The Supreme Court of the Netherlands recognized the UN’s immunity, and the subsequent action filed by "Mothers of Srebrenica" with the European Court of Human Rights was dismissed.

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If Ukraine’ appeal to the UN Security Council is be satisfied and the latter decides on a peacekeeping operation in the territory of Ukraine, then a peacekeeping mission under the auspices of the UN with the assistance of the armed forces of the UN member countries may be deployed in some areas of Donetsk and Lugansk regions. The peacekeepers’ mandate will be approved by the UN Security Council. However, it can be assumed from the experience of peacekeeping operations in other countries that, in addition to its functions of ensuring the ceasefire, UN peacekeeping forces will carry out law enforcement, surveillance, ensure an uninterrupted supply of goods and protect infrastructure. Therefore, we may not exclude that people in the territories subject to peacekeeping operations  may face restrictions on their freedom of movement, while their personal property may be used for the purposes of the operation. In such circumstances, the risk of property damage increases. Moreover, in acute phases of the armed conflict the risk of harm to the life and health of civilians will increase as well.

In general, international law admits the UN’s responsibility for damage caused to people and property in the course of peacekeeping operations. However, the procedure of compensation contains a great number of reservations and exceptions. Besides, the UN tends to claim immunity in most cases involving liability of persons acting under its mandate for the damage caused during a peacekeeping operation. Nevertheless, we may not exclude that part of liability for such damage can be transferred to Ukraine as a party at whose invitation the peacekeeping mission is deployed.

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Lawyers of interindustry working group “Occupied Territories” of Arzinger Law Firm continue to review legislation and to search for the best solutions for clients, whose economic activity is related to Crimea, to help them to adapt to new conditions and protect their business.

Please do not hesitate to contact us in case of any questions regarding the information above.

Sincerely yours,

Andriy Selyutin

Counsel, Head of South Ukrainian Branch

Lana Sinichkina

Partner