Arrest, take and sell as much as possible: How tax liens and assets of russian citizens are privatized

The state budget should receive UAH 6 billion from privatization in 2023. Taking into account that during the first "war" year of 2022, the State Property Fund of Ukraine (SPFU) sold assets totalling UAH 2.2 billion (of which the state budget actually received UAH 1.7 billion), the plan for 2023 does not seem fantastic.

The fact is that this year, for the first time, the SPFU will sell state and municipal property that is in a tax lien. Also, in addition to privatization revenues, the state budget will be able to receive funds from the sale of assets recovered from the citizens of the russian federation who have been sanctioned by Ukraine.

Mind looked into what kind of tax liens and sanctioned assets we could talk about and at what price they could be put up for sale.

What can the state do with tax liens? On November 3, 2022, the Verkhovna Rada adopted Draft Law No. 8045 (now Law No. 2719-IX). Its provisions allow the state and municipal property held in tax lien to be privatized without the consent of the supervisory authority.

At the same time, the property will remain in a tax lien until the debt is repaid. In this case, the new owner of the pledged assets will be obliged to direct any income received from their use (for example, from rent) to cover the debt.

What can the state do with sanctioned assets? The property that Ukraine collects from russian citizens is usually transferred to the National Agency of Ukraine for Finding, Tracing, and Management of Assets Derived From Corruption and Other Crimes (abbr. – Asset Recovery and Management Agency, or ARMA)

However, legally, ARMA is not the owner of these assets. It only manages them. Moreover, the court decisions on the basis of which the agency receives the property of russian citizens often stipulate that ARMA must find managers who will be engaged in the activities of the expropriated asset (a plant, a factory, etc.). The income received by the National Agency will be channelled to the state budget.

The State Property Fund has somewhat different powers in relation to such assets. They are spelled out in the law №4107-VI. The SPFU disposes of (manages) state or municipal property, including corporate rights of the state. The main instruments by which the SPFU fills the state budget are the privatization of property or its lease.

Accordingly, the Fund receives those sanctioned assets that, after passing the procedures prescribed by law and courts of all levels, have become the property of the state. After that, the Cabinet of Ministers transfers the nationalized property of russians to the State Property Fund, which will choose the most effective option for their monetization – sell or find a tenant.

What tax liens may fall under privatization? At the end of 2022, the SPFU has announced that it already has  41 objects that are in a tax lien. This is both state and municipal property. Its total starting value is estimated at UAH 1 billion. The amount of tax debts that will have to be repaid by the new owners of these assets (in case they are sold) is UAH 300 million.

Mind appealed to the SPFU with a request to name at least the key objects that could be sold under the provisions of Law No. 2719-IX. However, at the time of publication, representatives of the Fund did not answer the editorial questions.

• In February 2020, the State Fiscal Service (today it is the State Tax Service) tried to collect a debt of UAH 8.4 million in value-added tax (VAT) and excise tax, including fines, from the state-owned enterprise Sumy Oblavtodor automobile roads department through the court at the expense of property held as a tax lien.
• In June 2021, the State Tax Service also demanded in court that Zaporizhzhiaoblenergo PrJSC local energy company, 60.3% of whose shares were owned by the state at that time, repay the tax debt of UAH 106 million at the expense of the pledged property.
• The state-owned enterprise Lvivvugillia coal company is among the major debtors. And it is not the first year. Back in September 2015, fiscal authorities were able to collect UAH 281 million of tax debt from the company. In 2020, tax authorities in the courts sought to recover a tax debt of UAH 267 million. Moreover, the State Tax Service demanded to transfer the property to itself on account of this amount, since the company actually did not have the money to repay the debts. As of January 1, 2022, the amount of tax debt of Lvivvugillia together with fines has already reached UAH 431 million.
• In the summer of 2022, the tax service filed a lawsuit against the state-owned enterprise Melitopol Plant Hidromash. The reason is the same: the taxpayer owes a lot to the state budget – about UAH 5 million in taxes. Since he had no funds to pay the debt, the STS demanded to repay this amount at the expense of property from the tax lien.
• There are problematic taxpayers among utilities as well. For example, in March 2021, the communal enterprise Zelenbud, the founder of which is the city council of Kamyanske, Dnipropetrovsk Oblast, tried to appeal against the forced collection of UAH 5 million of tax debt (but in vain). This debt arose back in 2001. Thus, the utility company did not repay it for decades.

What sanctioned assets can the SPFU sell? The sale of russian citizens' property that was seized in favour of Ukraine, will become a precedent in case it does happen. At least since February 24, 2022, such assets have not yet been put up for sale.

• Electrozavod-VIT LLC (Zaporizhzhia); Yevtushenkov's share in the capital was 42.09% before nationalization. This enterprise was a subsidiary of Elektrozavod-VIT LLC located in moscow. The principal activity of Elektrozavod-VIT LLC (according to Industry Classification System code) is software development, repair, and maintenance of electrical equipment, production of electric motors, generators and transformers. According to YouControl, the company’s capital is UAH 40,000. Revenue of Elektrozavod-VIT for 2020 exceeded UAH 3.74 million, and liabilities at the beginning of 2021 amounted to UAH 169 million.
• ITM-Ukraine LLC (Kyiv); Yevtushenkov's share in the capital before nationalization was 59.2%. The activities of this LLC include software development, wholesale of electronic and telecommunications equipment, repair of computers and peripheral equipment, and consulting services in the field of computer technology. According to YouControl, the authorized capital of the company is UAH 140,000, revenue for 2021 is UAH 62.1 million, and liabilities at the beginning of 2022 are UAH 18 million. According to the registers of the State Tax Service, ITM-Ukraine LLC was included in the plan of documentary inspections in 2021.
• Smart Digital Solutions LLC (Kyiv); Yevtushenkov's share in the capital before nationalization was 59.2%. The main activity of the enterprise is computer equipment management. In addition, its NACE includes activities for the creation and broadcasting of TV programmes, activities for the publication of phonograms and music recordings, as well as advertising services. According to YouControl, the company's authorized capital is only UAH 1500. At the same time, its revenue for 2021 is more than UAH 77.5 million, and its liabilities as of the beginning of 2022 are UAH 21.3 million. According to the Opendatabot database, in December 2020, the SBU officers searched the company's office and seized some equipment – computers, smartphones, and digital data media.
• ZTZ-Service Scientific and Engineering Center LLC (Zaporizhzhia); Yevtushenkov's share in the capital before nationalization was 42.09%. The main activity of the company is the installation and maintenance of various equipment. Records on the company's Facebook page indicate that ZTZ-Service has been mainly engaged in the installation and repair of power transformers. At the end of December 2021, the company in Mongolia completed the reconstruction of a 200 MVA autotransformer, and in January 2022, ZTZ-Service began work on an instrumental inspection of transformers at the substations of the Northern Ore Mining and Processing Plant in Kryvy Rig. According to YouControl, the authorized capital of the enterprise is almost UAH 1.9 million, revenue for 2021 is UAH 16.5 million, and liabilities at the beginning of 2022 are UAH 4 million.
• JSC Ukrainian Research Design and Technological Institute of Transformer Construction (Zaporizhzhia); Yevtushenkov's share in the capital before nationalization was 34.21%. The company, which has the abbreviated name JSC VIT, is mainly engaged in the production of electric motors, generators, and transformers. The Joint Stock Company VIT was established by the decree of the Council of Ministers of the USSR in 1959. Since 2006, the company, as well as Elektrozavod-VIT, has been a part of the structure of the Elektrozavod holding company (moscow). One of the contenders for the takeover of JSC VIT in the early 2000s was also a Ukrainian businessman, Konstiantyn Grygoryshyn. According to YouControl, the company’s  authorized capital exceeds UAH 355,000. Revenue for 2020 amounted to UAH 35 million, and liabilities at the beginning of 2021 were UAH 13.2 million.

After the transfer of Yevtushenkov's assets to the SPFU, Rustem Umerov stated that the funds from their sale would be used to "...strengthen the defence capability and restoration of Ukraine."

What other assets can be sold? Potentially, the property managed by ARMA is also in the queue for privatization. The only nuance is that all legal proceedings to recover assets in favour of the state must be completed, after which they can be sold to new owners.

In September 2022, for example, the SBU seized and transferred to the ARMA assets of one of the enterprises in the Vinnytsia Oblast worth UAH 2 billion, which belonged to a russian businessman. However, law enforcement officers did not disclose the names of the companies and the businessman's name.

In December 2022, the DBR announced the transfer of assets of the russian Tatneft Group to ARMA. In particular, these were the equity rights of Tatneft-AZS-Ukraine, and the equity rights and property of Kharkiv-Capital and Poltava-Capital, which own more than 100 petrol stations in Kharkiv and Poltava oblasts. And in January 2023, the BEBU transferred to ARMA the assets of a russian citizen for UAH 350 million, who owned one of the largest enterprises for the production of frozen semi-finished products in Ukraine in Ukraine. The Interfax-Ukraine later reported that it was the Yermolino company.