Sales promotions COUNTRY Q&A: RUSSIA - Ekaterina Kuznetsova and Maria Savostianova for Thomson Reuters

22.08.2016

Regulatory framework

1. How does national law regulate sales promotions?

There is no specific legislation on sales promotion in Russia. There are, however, laws that govern certain areas of sales promotion: The Advertising Act sets out general requirements for advertising. Special restrictions are included with respect to certain types of goods and services, such as (Articles 21-30.1):

  • tobacco products;
  • alcohol and products containing alcohol;
  • medicinal products and services;
  • biologically active supplements, food additives and infant food;
  • military goods and weapons;
  • betting;
  • financial services, including services provided by banks, fiduciary management companies and investment funds;
  • shared-equity construction services; and
  • mediation services.
  • The Consumer Protection Act requires that a manufacturer (seller, contractor) must provide consumers with essential and fair information about its products (Article 10).
  • The Civil Code lists the main principles and regulations on contract conclusion and performance.
  • The Law on the fundamentals of state regulation of trade includes some specific requirements for foodstuff sales promotion.
  • The Personal Data Act specifies that the processing of personal data for the purposes of sales promotion is only allowed with consent of the personal data owner (Article 15).
  • The Lottery Act regulates the organisation of public lotteries.
  • The Administrative Offence Code, among other rules, provides sanctions for breaches of advertising rules.
  • The Competition Protection Act provides requirements with respect to price determination and restrictions for companies in a dominant position.
In addition, the Advertising Act imposes certain requirements in relation to the following means of advertising (Articles 14- 20):
  • TV and radio advertising.
  • Print media.
  • Movies and video advertising.
  • Telephone and internet advertising, which is subject to the consumer’s written consent in advance.
  • Outdoor advertising and installation of advertising constructions.
  • Advertising in transport.
  • Advertisers are also entitled to create self-regulated organisations, which may issue compulsory guidelines for their members (Articles 31 and 32, Advertising Act).

2. What obligations or standards do any national codes of practice for sales promotions impose upon promoters?

There are no specific standards imposed on promoters in relation to advertising.

Promoters must obey the general requirements of the Advertising Act (see Questions 5 and 8).

In general, advertisements must be fair and honest and must contain correct and truthful information (Article 5, Advertising Act).

3. What procedures exist for complaining against a sales promotion? What sanctions can be imposed for infringements of sales promotion laws and codes of practice?

The Federal Antitrust Service (FAS) is the supervising authority for advertising in the Russian Federation.

A company in breach of the requirements of the Advertising Act is liable to a fine of up to RUB500,000 (about EUR6,500 EURO or USD7,200 at the current exchange rate) (Article 14.3, Administrative Offence Code).

A failure to abide by the financial services advertising requirements may result in a fine of up to RUB800,000 (about EUR10,200 EURO or USD11,700) (Article 14.3, Administrative Offence Code).

Under the Law on the fundamentals of state regulation (see Question 1), retailers can only arrange the provision of promotional services for foodstuff for their suppliers by entering into a service contract (Article 9).

Any breach of these restrictions might result in a fine of up to RUB5 million (about EUR65,000 or USD75,000) for the promoter (Article 14.42, Administrative Offence Code) (see Question 20).

Lotteries, prize draws and competitions

4. Does national law permit the use of lotteries as a marketing tool?

On 1 July 2014 Russian law introduced a prohibition on private corporate entities on the use of lotteries as a marketing tool. Only all-Russian and public lotteries organised by a Russian Federal executive authority, as well as international lotteries may be held on the territory of Russia. They are regulated by the Lottery Act.

The reason underlying the restriction was the prevention of gambling, which was sometimes disguised as a lottery.

5. How does national law regulate prize competitions?

There is no legislation regulating prize competitions in Russia. However, there are two types of sales promotional prize competition under Russian law:

  • Promotional event (Article 9, Advertising Act).
  • Public competition (Chapter 57, Civil Code).

The essential condition for a promotional event is the purchasing of a product. There are strict requirements in relation to the advertising of promotional events (Article 9, Advertising Act).

Any advertisement of a promotional event must contain the following information:

  • Time of the event.
  • Information about the organiser, the dates and terms of the promotion, number of prizes, place and procedure for the distribution of the prizes.

A public competition, on the other hand, does not require the purchasing of a product.

Generally a public competition must be aimed at achieving some socially useful purposes.

A participant in a public competition must have some skills to perform the task in the best possible way ( Article 1057, Civil Code).

An announcement of a public competition must include a description of the task, period, and procedure and periods for the announcement of the results.

6. How does national law regulate prize draws?

If a prize draw depends on chance it may be qualified either as a lottery or gambling.

A prohibition on lotteries as marketing tools came into force in Russia on 1 of July 2014 (see Question 4).

Under the Law on gambling, gambling is subject to licence or permission, and is allowed only on certain territories of the Russian Federation.

A company in breach of this rule may be liable to a fine of up to RUB1 million (Article 14.1.1, Administrative offence Code). An inpidual may be subject to a prison term of up to two years for organising or carrying out gambling if it is does not comply with the law (Article 171.2, Criminal Code).

Therefore, if prize draws are similar in format to a lottery or gambling they will also be prohibited.

7. How does national law regulate the use of tie-breakers in a competition?

There are no rules on tie-breakers in a competition. Organisers can self-regulate, taking into account the general law requirements.

Price promotions and loss-leadership

8. How does national law control price displays and advertisements in connection with sales promotions?

All the information on price displays and advertisements must be fair and honest. Retailers should also provide uniform price tag holders, with clear information about the price of goods (Russian Government Regulation No. 55 dated 19.01.1998).

All prices of goods and services must be in Russian Rubles, and can additionally be displayed in foreign currency (Article 7.1, Advertising Act).

An advertisement will be regarded unfair if it (Article 5, Advertising Act):

  • Contains incorrect comparisons with goods of other manufacturers.
  • Discredits the integrity, dignity and business reputation of others, including competitors.
  • Advertises prohibited goods, or advertises goods in a way that is prohibited.
  • Constitutes an act of unfair trade.

A dishonest advertisement is one that includes a false statement.

Among other restrictions it is prohibited to:

  • Use foreign words or expressions in the advertisements without translating them into Russian.
  • Declare that goods are approved by the state authority.
  • Display smoking or alcohol consumption.
  • Use images of health care professionals (except for medical services and hygiene products).
  • Indicate therapeutic qualities (except for medicinal goods and services).

9. Does national law regulate the holding of sales events? Does national law regulate the amount of permissible price reductions in sales events?

There is no legislation regulating the holding of sales events or permissible price reduction. However, if a sales event involves the purchasing of goods it may be qualified as a promotional event. As such, it will be subject to special requirements with respect to advertising (see Question 5).

In addition, if an organisation is in a dominant position it must not set monopolistically low prices (Article 7, Competition Protection Act).

10. Can promotion prices be compared with genuine manufacturer’s recommended prices?

Manufacturers and sellers can set gambling maximum reselling prices (subsection 1, part 2, section 11, Competition Act). If this is the case, the promotional price should not exceed the maximum reselling price.

FAS has clarified that a manufacturer or seller can also set a recommended price, however this must not be fixed. It is also not permitted to offer cash incentives to encourage retailers to apply the recommended price or suggest sanctions for non-application breach.

11. How does national law regulate the operation of "introductory offers"?

There is no legislation regulating "introductory offers" in Russia.

A general rule is that they should be clear and fair. Usually, these offers are addressed by the internal documents of a company, for instance by a marketing policy.

12. How does national law regulate the use of "free offers", vouchers towards free products and money-off coupons? Does national law permit the practice of cross-couponing?

There is no legislation regarding "free offers", vouchers and cross-couponing in Russia. These promotional tools should be documented so that the company’s costs are tax deductible. It is also important to make all the terms clear to avoid any product liability claims.

13. How does national law regulate the use of currency note likenesses?

Russian law does not restrict or provide any liability for the use of photographs, drawings or designs of currency notes and coins in advertisements, unless their use has an illegal purpose (for example, forgery) which is prohibited by law.

14. How does national law regulate the giving of promotional gifts and product samples?

Although there is no legislation specifically regulating the giving of promotional gifts and product samples in Russia, the following issues should be taken into account when organising them:

  • Giving promotional gifts and product samples is generally qualified as a promotion tool and any advertisement should be in accordance with the requirements of the Advertising Act (see Question 5).
  • It is prohibited to distribute samples of alcoholic products anywhere (apart from a licensed shop) and samples of medicines containing narcotic drugs.
  • The terms and conditions must be clear as well as fair to avoid any product liability claims, and the event must not give rise to unfair competition.
  • It is essential from a tax perspective to document the event in writing.

15. How does national law regulate the use of value promotions?

There is no legislation regulating value promotions in Russia. However, the following issues should be taken into account when organising value promotions:

  • Value promotions are generally qualified as promotion tools and any advertisement should be in accordance with the requirements of the Advertising Act (see Question 5).
  • The terms and conditions must be clear as well as fair to avoid any product liability claims, and the event must not give rise to unfair competition.
  • It is essential from a tax prospective to document the event in writing.

16. How does national law regulate the operation of cashback schemes?

There is no legislation specifically regulating the operation of cashback schemes in Russia. Certain issues, however, should be taken into account when organising such schemes (see Question 15).

17. How does national law regulate the practice of loss-leading?

There is no legislation regulating the practice of loss-leading in Russia. However, if an organisation is in a dominant position, the practice will be deemed as an abuse of the company’s dominant position (Article 10, Competition Protection Act).

18. How does national competition or anti-trust legislation regulate pricing practices?

Generally, pricing practices are regulated by the Competition Protection Act.

There are certain restrictions in relation to pricing for organisations in a dominant position (Articles 6 and 7, Competition Protection Act):

  • To set high or low monopolistic prices.
  • To set economically unfounded price for similar goods.
In addition, there is a prohibition on agreements which ( Article 11, Competition Protection Act):
  • Fix or maintain prices.
  • Fix reselling prices except for maximum reselling prices (see Question 10).

Trading schemes and sales incentives

19. How does national law regulate pyramid-selling schemes?

It is illegal to organise and arrange pyramid-selling schemes in Russia (Article 14.62, Administrative Offences Code; Article 172.2, Criminal Code).

Any breach of this ban is liable to a fine of up to RUB1 million, or imprisonment for a term not exceeding four years, or both.

It is also unlawful to promote pyramid selling schemes in the media. The Administrative offence Code provides liability for breaches up to a RUB1 million fine.

20. How does national law regulate trade promotions which make incentive payments to retailers based on their sales of a particular product?

There are regulations in Russia addressing incentive payments for the purchase of foodstuffs.

Incentive payments are only permitted in the form of a purchase volume reward (bonus), currently limited to 5% (Article 9, Law on the fundamentals of state regulation of trade). This bonus incorporates fees for product promotion services, logistics services, preparation, processing and packaging of products and so on.

  • Product promotion services include (Clause 10, Article 2, Law on the fundamentals of state regulation of trade):
  • Product advertising.
  • Product display.
  • Consumer demand study.
  • Preparation of reports with information on such products and other activities.
Preparation of reports with information on such products and other activities.

There is no legislation regulating incentive payments for the sale or purchase of goods which are not foodstuffs. In practice these payments are possible unless they have the effect of preventing or restricting competition, in breach of the Competition Protection Act.

21. How does national law regulate trade promotions addressed to customers’ employees?

There is no legislation on trade promotions addressed to customers’ employees in Russia.

These campaigns cannot be treated as a promotional event under the Advertising Act since they are addressed to a specific category of inpiduals.

A company's expenses for trade promotions targeted at its employees are not tax deductible under Russian law.

If such promotions are intended to be a reward for the employees and to distribute gifts, they are recommended to be governed by internal motivational strategies. However, it is not compulsory for companies to adopt motivational strategies under Russian law.

Contractual issues

22. Can a sales promotion create a contract between the promoter and the participant in a promotion?

Promotions are regarded as invitations to make offers, and do not usually constitute a binding contract for a promoter, unless otherwise specified in the terms and conditions of the sales promotion (Article 437, Civil Code).

A sales promotion can be binding if it is recognised as an offer. To this effect, it must contain all the essential terms of a contract, and the intention of the promoter to enter into a contract with the other parties must be evident.

Tax issues

23. Are there any tax issues arising specifically in connection with sales promotions that a promoter should be aware of?

Generally, from a Russian tax law perspective deductions are allowed if the costs of sales promotions are documented and economically feasible.

Although the Tax Code does not specify which documents should be used to prove these costs, the tax law authorities usually require the relevant marketing contract, as well as a report covering the services provided during a marketing campaign, signed by a promoter and its customer. The Russian courts have confirmed this approach.

Types of deductible company costs for sales promotions are listed in Part II clause 4 of Article 264 of the Tax Code. The amount of such costs cannot exceed 1% of the sales revenue.

Contact details

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Ksenia Soboleva

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