Jeff Ace and Jeff Deal, Pacific Northwest National Laboratory

At the Wednesday afternoon workshop session, discussions were held for both Ukraine and Russia on

• the applicability of the value-added tax (VAT) to contractor transactions
• determining a fair price for host-country labor
• the technical aid customs clearance process.

Business and Financial Updates

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Applicability of the Value-Added Tax to Contractor Transactions. The VAT is applied to almost all goods imported into Russia and Ukraine at a standard rate of 20 percent of the sum of the goods' customs value. The declarer pays the tax before or during customs clearance at the customs office. Contractors are more frequently seeing the VAT as a line item in their price proposals from host-country institutions and organizations. Pacific Northwest National Laboratory commissioned Coopers & Lybrand to determine if the VAT is applicable to goods for cooperative nuclear safety projects under three types of transactions:

• to tangible items and goods (e.g., computers, valves) bought by contractors in-country
• to services being purchased by contractors that will be performed in-country and the product will be delivered to the United States
• to physical or capital improvements being done in-country.

Coopers & Lybrand concluded that the VAT applies to all three types of transactions in Ukraine and Russia and that no mechanism currently exists in Russia for an exemption to the tax. However, an exemption may be granted in Ukraine based on the nature of the U.S. Department of Energy's program, commonly called a politically tax-advantaged federal program. Coopers & Lybrand proposed a process and test case to seek an exemption modeled after the customs process in Ukraine. Currently, the Laboratory is testing this process on a case-by-case basis, and if successful, hopes to formalize it at the program level. The Laboratory's approach is to consider all proposal elements and determine a fair and reasonable cost for the value of the work being done.

Determining a Fair Price for Host-Country Labor. To determine a fair price for labor in Russia and Ukraine, Pacific Northwest National Laboratory subscribed to several salary surveys from both countries. Because both sources are no longer published, the Laboratory is currently using a salary survey published in June 1997 by a firm called Human Resources Specialists in Moscow as a baseline for Russian labor prices. The survey used by the Laboratory for Ukraine was published in January 1996 by Burns & Young in Kyiv. It is becoming increasingly hard to hold down the price of labor in both countries because prices are being ratcheted upward by industry in most proposals.

Customs Process Updates

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This information was current as of January 1998. Many procedures have been revised since then; check for the most current information.

Technical Aid Customs Clearance Process. The 1992 technical and bilateral agreement, agreed to by upper-level individuals in Russia and Ukraine, defines "technical" aid but does not provide a detailed process for shipping these types of goods to both countries. To reduce risks in technical aid shipments, U.S. Department of Energy, Minatom, Pacific Northwest National Laboratory, and Rosenergoatom have agreed to a customs clearance process for each country.

The process for Russia includes three phases:

• INSP Project Listing - Six months before shipment is scheduled, the contractor provides a list of all INSP projects that will be shipping goods to Russia to the host organization. The list includes all equipment being shipped for each project and when it will be shipped.

• Shipment Identification - The contractor prepares a request to ship two months before shipment date.

• Document Preparation - The contractor provides the following documents as part of the Documentation Package to obtain shipping approval:

• an invoice detailing each line item being shipped so customs inspectors can easily match items on the list with shipped items
• shipping documentation done by waybill listings of value, etc., and certificates of conformity certifying quality assurance and electrical systems

• Documentation Clearing Process – The documentation is approved by the Bureau for Humanitarian and Technical Aid (BIHATA), State Customs Committee, and Gosstandart. Documentation approval takes approximately two months.

• Documentation Approval/Shipping Notification - After receiving notification that the shipment has been cleared from REA, Pacific Northwest National Laboratory notifies the contractor that it is time to ship the goods.

• Shipment Clearing Process - The shipment must clear the port of entry (typically St. Petersburg or Moscow) and the local customs post (typically located at nuclear power plants).

• Equipment Delivery – The Laboratory receives notification that the equipment has been delivered.

This process is designed to handle general shipments. If a problem occurs during shipment, staff at the Laboratory can work with the contractor, project manager, and the host country to resolve the problem. The following tips will help ensure a smooth shipment:

• To avoid problems, closely follow the customs clearance process.
• When preparing a 6-month plan, be aware of the Russian summer vacation schedule (July and August) because it is physically impossible to push things through the Russian system during this period.
• Shipments containing more items than are listed on the invoice will not clear customs.
• Pacific Northwest National Laboratory has an informal agreement with Gosstandart (the Russian organization that ensures equipment imported into Russia meets certain safety requirements) that certificates of conformity for technical aid shipments are not necessary if we can show an equivalent certificate from the United States.
• When packaging information, clearly identify the shipment as "bilateral technical aid to [the host country], U.S. Department of Energy."
• Designated Russian subcontractors are often not authorized to receive duty-free goods, so shipments should go through the local customs post. The local customs post imposes a processing fee, about one percent of the value of the shipment, usually paid by the consignee.
• Please notify Pacific Northwest National Laboratory if you receive notification that equipment has been delivered.

The process for Ukraine is very similar to the Russian process except for an additional phase.

Phase 1, Program Definition

• Customs Protocol – At the beginning of the fiscal year, Ukrainian officials and the U.S. Department of Energy prepare a list of existing and new projects for that year.

• Certification Letter – The contractor prepares a certification letter showing the total value of all shipments by project. This letters helps Ukrainian officials ensure the cumulative total of all shipments does not supersede or exceed the value of the actual shipments. Project listings can be changed throughout the year without changing the protocol.

• Agreement on Terms of Reference – Pacific Northwest National Laboratory prepares a list of all contractors, subcontractors, and sub-subcontractors who will be shipping equipment. Ukrainian officials use this list to verify that companies are actually involved in the technical aid program.

• Both phases are similar to Phases 2 and 3 in the Russian customs clearance process.

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