Last week, LF Academy held its last conferences for 2017.
Legal Services Market Reform: ILF in Russia, Taxes and Insurance Fees
On December 7, LF Academy hosted a conference in Moscow titled Modernization of Qualified Legal Services Market: Priorities of the Reform. The event discussed a Concept of the reform suggested by the Ministry of Justice.
The first session, Reform of Qualified Legal Services Market: Main Trends, was moderated by Denis Novak, Deputy Minister of Justice of the Russian Federation. He pointed out that the Ministry of Justice gave priority to the interests of clients (citizens and organizations in need of legal assistance) when it developed the Concept. “One of the Concept’s priorities is ensuring better availability of legal practice and more lawyers”, Mr Novak said. “Besides keeping track of the number of lawyers and cost of their services, we are going to make sure that the Concept includes social studies to learn what Russians think about the availability and quality of the rendered legal assistance”.
Gennady Sharov, Vice-President of the Federal Chamber of Advocates of the Russian Federation, laid out his institution’s take on the draft Concept prepared by the Ministry of Justice. Recalling Article 48 of the Constitution of the Russian Federation that guarantees everyone's right to qualified legal assistance, Mr Sharov noted: “Professional legal assistance must be rendered by the lawyers who follow the law and a number of requirements aimed at increasing the quality of legal assistance”.
According to Mr Sharov, the reform will not increase legal fees and “only an exclusive right to legal representation can really attract those lawyers who currently see no reason in joining the bar. Achieving the desired result through other preferences is not possible”.
The second session, , International Law Firms’ Practice in the Russian Federation, sparked a lively discussion with international law firms (ILFs) present at the conference. Representatives of international law firms voiced a concern that the Concept in its current form would make their operation in Russia impossible. For instance, Oxana Balayan Managing Partner at Hogan Lovells CIS, suggested to move away from setting out the exact forms of legal practice of bar associations in the Concept, because the results of such a step would be hard to predict. “The Concept must include a provision allowing various forms of legal practice to choose from because right now we cannot say which one is better”, Ms Balayan stressed.
Law firms were not alone in disagreeing with the changes proposed by the Ministry of Justice: during the second session the floor was taken by corporate lawyers. Aleksey Andronov, General Counsel, Head of Legal and Compliance at JSC “TC MEGAPOLIS”, urged the Ministry to use a balanced approach taking into account opinions of all stakeholders. Corporate lawyers also expressed a concern that the reform might significantly influence the cost and availability of services: “What will happen if we are not able to do it in Russia? We will still sign contracts, only abroad”.
Alexandra Nesterenko, President of the Russian Corporate Counsel Association and moderator of the session, confirmed these concerns: “In every industry these costs will be placed upon the business and such burden is absolutely impossible”. Ms Nesterenko urged the Ministry of Justice “not to act rashly”, yet she supported the reform in general.
The third session, , Optimization of Tax Treatment of Lawyers and Bar Associations was moderated by Sergey Pepeliaev, Managing Partner at Pepeliaev Group. Alesya Khomitch, leading expert of the tax consulting department at FBK and speaker of the session, proposed a “transparency principle” as one of the possible tax regimes for bar associations. “In this case associates themselves are taxpayers, and not the association. This mechanism is successfully applied in common law jurisdictions and has a number of advantages both for law firms and for the regulator”, Ms Khomitch stated.
Aleksandr Smirnov, deputy director of the tax and customs policy department at the Ministry of Finance of the Russian Federation, invited representatives of the Ministry of Justice and the legal community to discuss the Concept at the Ministry of Finance. “The Concept states with regard to insurance fees that they are to be paid by the bar association, but at the expense of lawyers themselves. This mechanism is bad both for jurists and lawyers. This issue requires further work”, Mr Smirnov concluded.
In conclusion, Mr Novak once again encouraged members of the legal community to discuss the Concept of the reform and advised all stakeholders to submit their proposals for improvement to the Ministry. “We are counting on you being top-level legal experts”, the Deputy Minister of Justice of the Russian Federation concluded, while mentioning that the Ministry will develop the concept “in accordance with national interests”.