Baltic Journal of Economic Studies

Baltic Journal of Economic Studies Vol. 4 (2018) No. 2 M ARCH

Riga 2018

Editorial Team Managing Editor Anita Jankovska, Publishing House “Baltija Publishing”, Latvia. Editorial Board Yuliya Bogoyavlenska, Zhytomyr State Technological University, Ukraine. Yuliana Dragalin, Free International University, Republic of Moldova. Meelis Kitsing, Centre for Free Economic Thought at the Estonian Business School, Estonia. Andrzej Pawlik, The Jan Kochanowski University in Kielce, Poland. Lina Pileliene, Vytautas Magnus University, Lithuania. Julius Ramanauskas, Klaipeda University, Lithuania. Kostyantyn Shaposhnykov, Black Sea Research Institute of Economy and Innovation, Ukraine. Jan Zukovskis, Aleksandras Stulginskis University, Lithuania.

Baltic Journal of Economic Studies, Volume 4 Number 2. Riga: Publishing House “Baltija Publishing”, 2018, 316 pages. The Baltic Journal of Economic Studies is an interdisciplinary scientific journal in the field of economics, business management, national economy, structural and social policies, innovation perspectives and institutional capability. The Baltic Journal of Economic Studies, a Scientific Journal of the Publishing House “Baltija Publishing”, is published four times per year. Latvia registered mass information mediums (MIM). Registration No. 000740259. Indexed in the following international databases: IndexCopernicus; Directory of Open Access Journals (DOAJ); (ESCI) by Web of Science; Research Papers in Economics (RePEc). Content of this publication should not be produced, stored in computerized system or published in any form or any manner, including electronic, mechanical, reprographic or photographic, without prior written permission from the publisher “Baltija Publishing”. The reference is mandatory in case of citation. Each author is responsible for content and formation of his/her chapter. The individual contribution in this publication and any liabilities arising from them remain the responsibility of the authors. Printed and bound in Riga by SIA “Izdevniecība “Baltija Publishing”. Journal is available: www.baltijapublishing.lv

ISSN 2256-0742 (PRINT) ISSN 2256-0963 (ONLINE)

© Article writers, Baltic Journal of Economic Studies, 2018 © All rights reserved, Publishing House “Baltija Publishing”, 2018

TABLE OF CONTENTS Yuliia Aleskerova, Tetiana Mulyk, Lidiia Fedoryshyna Improving credit protection analysis methods reports of main agricultural enterprises

1

Tetiana Aloshyna, Dmytro Kozenkov Innovation-driven growth model in the present context of business performance

8

Natalya Andryeyeva, Volodymyr Hotsuliak, Stanislav Gorbachenko Analysis of institutional risks of sustainable sea development in Ukraine

15

Roman Bezus, Ihor Bilotkach Development of organic farmers’ cooperatives: the USA, the EU, and Ukraine

24

Taisiia Bondaruk, Nataliia Melnychuk, Igor Bondaruk Instability and its government regulation

32

Nataliya Bondarchuk, Lesya Vasiljeva Impact of operating costs on economic phenomena and the possibility of their optimization at processors

40

Nadiya Bortnyk, Galyna Didkivska, Vyacheslav Tylchyk The impact of international labour migration on the development of states under globalization: economic and legal aspects

47

Iryna Honcharenko, Inna Servatynska Financial unity of the world as an organic part of globalization

53

Oleh Hubanov, Tamara Hubanova, Olena Yara Improvement of the activities of state authorities of Ukraine, which are responsible for adapting national legislation to EU legislation in the field of public service

58

Ivan Demchenko, Olena Iatsukh The problem of unprofitable activity of enterprises in Ukraine

64

Lesia Dmytryshyn, Olena Zvarych Innovations as a priority factor of the regional economic development

70

Pavlo Ilchuk, Іryna Mushenyk Influence of development of national innovation systems on the economic efficiency

78

Inna Irtysheva, Marianna Stehnei, Kostjantyn Zavhorodnij Innovative approaches to estimation of logistic potential and the purpose of logistic regional outsourcing development

86

iii

Оksana Karpenko, Olena Palyvoda, Olena Bondarenko Simulation modelling of strategic development of transport and logistics clusters in Ukraine

93

Vyacheslav Klochan, Iryna Klochan Improvement of the mechanism of state regulation of investment in the innovative development of the agrarian sector

99

Tetiana Kolomoets, Semen Stetsenko, Anna Sharaia Gifts for a public servant: whether it is worth to comply with the rules

106

Volodymyr Lipkan, Liudmyla Vasiutynska, Ihor Diorditsa Social discount rate: assessment methodology

114

Olena Liutak, Hanna Chepurda, Serhii Voitovych Features of institutional change in the context of accounting standardization and universalization of the regulatory mechanism for international tourist activities

119

Anatolii Mazur, Valerii Bondarenko, Serhii Mazur Organizational reformation of agribusiness entities in Ukraine

126

Mykhailo Medvid, Oleksander Komisarov, Olga Merdova Review of the tasks of formation and progress of human resources in the sustainable development strategy of Ukraine in the light of central place theory

134

Oleksandr Novikov, Maryna Dubinina, Vitalii Kuzoma Due diligence: essence and possible prospects of development

141

Anna Oleshko, Olena Tymoshenko, Оlena Trokhymets Formation of the cashless economy in Ukraine and in the world

147

Pavlo Pashko, Olga Tylchyk, Oleksandr Kotukha Ontology of scientific cognition of shadow economy and economic shading

151

Anna Pereverzieva, Volodymyr Volkov Impact of human resources’ “energy” on the development of business entities

159

Ruslana Pikus, Nataliia Prykaziuk, Nataliia Kudryavska Prospects of development of insurance mediation in Ukraine

169

Olga Poberezhets, Olena Kovalova, Maria Iorgachova Transformation processes of the IPO market: Ukrainian and world experience

178

Lyudmila Pronko, Tatyana Kolesnik, Oksana Samborska Activities of united territorial communities as a body of local government in the conditions of power decentralization in Ukraine

184

iv

Ekaterina Razumova, Oksana Ilienko, Viktoriia Ihnatiuk Implementation of the economic and mathematical model for the development of the complex of services for passengers in the railway sector

191

Yuliia Remyha, Oksana Pozniak A theoretical approach to the formation of subjects’ interaction in supply chains at risks conditions

198

Valeria Riadinska, Oleksandr Kozachenko, Oleh Ihnatiuk Prerequisites for the introduction of modern forms of self-employment of the population and their impact on the country’s economy

209

Maksym Sitnicki Franchising model of commercialization of scientific libraries’ services at research universities

214

Natalia Sirenko, Olga Melnyk, Nataliia Shyshpanova Prospects for implementing Participatory Budgeting as an effective instrument for implementing budgetary policy at the local level

222

Sergyi Smerichevskyi, Ihor Kryvoviaziuk, Larysa Raicheva Economic consequences of financial stability violation of world automotive corporations

229

Dmytro Solokha, Mariia Kovalоva The research of methodological ways for increasing the efficiency of use of the innovative potential of regional social and economic systems

235

Diana Fayvishenko Formation of brand positioning strategy

245

Olexandra Farat, Marianа Bets Formation of the information support for the entities of management by the development of innovation clusters

249

Viktor Yakimtsov Analytic overlook of the methodology of synergetics in postnonclassical science

254

Igor Yaremko, Tetiana Voskresenska Transaction costs of enterprises: the issue of accounting and analysis management

261

Dmytro Andreiev, Ruslan Bilokin, Elena Tikhonova Monetary allowance for law enforcement officials temporarily serving abroad: foreign experience

268

v

Oleksii Drozd, Oleg Basai, Hanna Churpita The specificities of using cryptocurrency in purchase and sale contracts

274

Petro Nemesh, Evgeniy Leyba, Vasil Fennych Damage compensation as the way of protection of authors’ property rights: the economic and legal aspect

282

Yuriy Zhornokui, Olha Burlaka, Valentyna Zhornokui Shareholders agreement: comparative and legal analysis of the legislation and legal doctrine of Ukraine, EU countries and USA

288

Anatolii Kislyi, Bohdan Stetsiuk, Inna Kovalenko Comparative analysis of foreign and national experience of Ukraine in administration of value added tax

301

vi

Baltic Journal of Economic Studies

Vol. 4, No. 2, 2018 DOI: https://doi.org/10.30525/2256-0742/2018-4-2-1-7

IMPROVING CREDIT PROTECTION ANALYSIS METHODS REPORTS OF MAIN AGRICULTURAL ENTERPRISES Yuliia Aleskerova1, Tetiana Mulyk2, Lidiia Fedoryshyna3 Vinnytsia National Agrarian University, Ukraine

Abstract. The purpose of the article is to improve the methodology for analysing credit support for the reproduction of fixed assets of agrarian enterprises. Various techniques have been developed to analyse the effectiveness of the formation of fixed assets and the process of their reproduction. Among them, the application of such types of analysis as horizontal and vertical (quantitative analysis of the structure of fixed assets and its changes), analysis of return on assets, capital intensity and profitability, indicators of extensive and intensive loading are widespread. Less applicable are calculations of various coefficients, such as the rate of retirement, renewal, increase in fixed assets.). Methodology. There are several approaches to analysing the effectiveness of the process of reproduction of fixed assets. A number of domestic scholars distribute such indicators to groups: natural and valuable. Natural includes all the technical and economic performance of engines, machines, performance indicators of cattle, etc. Among the highlights are indicators of economic, sectoral efficiency, and indicators of economic efficiency. Results. Determining the efficiency of the loan support for the reproduction process involves the creation of a system of indicators that, by the structure and in aggregate, reflect the degree of efficiency of the use of the loan. Indicators that are used today to assess the effectiveness of using credit support, have fundamental disadvantages, which makes it problematic for their practical application. Practical implications. Thus, some of them do not have a sufficiently significant theoretical justification, the same indicators have different names, are unsuccessful from the logical point of view, do not adequately reflect the needs of industry practices, others – when testing in the current accounting information, it is expedient to improve them. Value/originality. The application of the analysis of reproduction of fixed assets will allow receiving growth of economic indicators of activity of agricultural enterprises on the basis of ensuring the continuous process of financing production by economically grounded sources of working capital formation, one of which is short-term bank credit. Key words: methodology, analysis, credit support, fixed assets, agriculture, reproduction. JEL Classification: F65, G21, P34, Q12

1. Introduction In order to properly formulate recommendations for improving the methods and forms of credit support for the reproduction of fixed assets of agricultural enterprises, a detailed analysis is required. The method of analysis of credit support is quite a capacious concept and concerns the effectiveness of both credit support and the process of reproduction of fixed assets. Therefore, we can talk about the need for a double formulation of the problem and the allocation of its micro and macro levels. The specifics of credit and credit support are studied, as a rule, with the application of an integrated approach to studying their substance,

based on the dialectical method of cognition. This involves the use of various aspects of the analysis of the essence of the object under study and allows you to highlight the levels of study of the essence of the research object. In such aspects, we have identified the economic essence and content of credit, loan support, peculiarities of credit support for the reproduction of agricultural assets, which reveals the structure of the section. At present, the economy has identified a number of topical issues that are important for the sustainable functioning and development of the agrarian sector of the economy. Priority ones include theoretical and methodological issues related to improving

Corresponding author: 1 Department of Finance, Banking and Insurance, Vinnytsia National Agrarian University. E-mail: [email protected] 2 Department of Analysis and Statistics, Vinnytsia National Agrarian University. E-mail: [email protected] 3 Department of Analysis and Statistics, Vinnytsia National Agrarian University. E-mail: [email protected]

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the efficiency of the system of financial and credit relations in the industry, in particular, credit provision. The state of the problem under study has certain attainment and achievements. The results of research generalizations of world experience and national practice that allow determining the problems of different forms of participation of banks in financing the reproduction of resource potential, in particular, of fixed assets are relevant. In addition to traditional lending to the needs of the industry, there are used special investment projects, the participation of banks as investors, the formation of units for financing innovative activity, use of leasing and mortgage operations. The purpose of this work is the improvement of methods of analysis of credit supply of the reproduction of main agricultural enterprises. The basis of the research is the dialectic method of recognition, the principle of historicism, used to study the profit as an economic category in the course of the historical development of society. The following common scientific methods were used to determine the tasks: analysis, synthesis, induction, deduction, comparison, grouping, analogy, systematization.

2. Economic crisis effects on consumer behaviour For the analysis of the efficiency of forming the fixed assets and process of their recreation, different methodologies are presently worked out. Among them, there are widespread applications of such types of analysis as horizontal and vertical (quantitative analysis of the structure of the fixed assets and her changes), analysis of return on capital, capital intensity and profitability, indexes of the extensive and intensive loading. Settling of different coefficients belong to less applied, such as a coefficient of leaving, updating, increase of the fixed assets. In addition, efficiency of the use of the fixed assets is very exactly represented by the indexes of the use of technical equipment on the grouped descriptions that allow determining the influence of different factors on the indexes of efficiency (methods of analysis of factor: method of absolute differences, method of chain substitution and others like that) (Harrington, Wilson, 1989). The described methodologies are examined in different train aid from an economic analysis in the special literature. Problems in assessing the effectiveness of using financial and credit resources are first of all raised in their relationship with the financial performance of agricultural enterprises. Other important criteria include increasing the production potential, expanding the scope of the reproduction process, increasing the volume and quality of production.

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3. Differences in consumer spending behaviour among age groups According to researchers, it is precisely the inadequate quality of existing methods for analysing creditworthiness, the validity of approaches to calculating the parameters of financial security, making it difficult for a realistic assessment of the provision of credit resources by enterprises in the industry. It is emphasized that at the present stage of development of the economy of agriculture, it requires significant support for the processes of reproduction of resource potential. Among the basic factors of the economic growth of agriculture, an important place belongs to the state of resources of industry, in particular, to the fixed assets. From the great number of sources of their recreation important is the credit providing. The objective need to use a loan for the reproduction of fixed assets is due to the specifics of the reproductive process in the field, which has a seasonal nature. On this time, in terms of low profitability of agricultural enterprises, low investment attractiveness of industry, considerable downstream, harmony in work of most basic resources, the credit providing of recreation of the fixed assets is the real source of forming of material base of agricultural production. The credit providing of agricultural enterprises is the effective event of the exit of the economy from a crisis. It especially topically for a period when an economy of the industry is in a slump and stabilizing and development is broken over the lack of the clear foreground programs of their development. There are a few approaches to the analysis of the efficiency of the process of recreation of fixed assets. The row of domestic scientists distributes such indexes on groups: natural and cost. All techno-economic indexes of work of engines, machines behave to natural, indexes of the productivity of cattle and others like that. Among a cost distinguish the indexes of pertaining to the national economy, branch efficiency, and indexes of economic efficiency. As additional indicators, it is recommended to use the cost of production; the amount of gross and net income per unit of land; return on assets and productivity, calculated on the basis of gross income; the payback period of capital investments, etc. Determination of the efficiency of the credit providing of reproductive process envisages the creation of systems of indexes that by a structure and in totality represented the degree of efficiency of drawdown. On the modern stage of development of credit relations, there is a practically absent analysis of the efficiency of the drawdown from the point of view of its influence on the results of productive-financial activity of agricultural enterprises on the whole and recreation of the fixed assets in particular. The reason for this according, to researchers (Contino, 1996), is

Vol. 4, No. 2, 2018 the lack of comprehensive methodological approaches to determining the effectiveness of lending developed in the light of the specifics of financial and economic activity of agricultural borrowers. To improve the organization of the crediting process of reproduction of fixed assets, “it is necessary to find out the level of its efficiency, using the system of cost and physical indicators” (Contino, 1996). Indicators that are used today to assess the effectiveness of using credit support have fundamental disadvantages, which makes it problematic for their practical application. Thus, some of them don’t have sufficiently significant theoretical substantiation, the same indicators have different names, are unsuccessful from the logical point of view, do not adequately reflect the needs of industry practices, others – when testing in the current accounting information, they find expediency to improve them. The proposed methods contain an insufficient number of indicators with a weak link between them. They unilaterally and without proper completeness characterize the efficiency of using loans in the enterprise (Forgionne, 1986). That is, according to the research carried out, it is the systemic approach to the study that the validity and appropriateness of the practical application of the developed methods for determining the effectiveness of the use of credit support depend on. As it was investigated, the reduction of the solvency of agricultural producers led to the suspension of the investment process, the reduction of the funding, technical, and energy equipment production. Therefore, there is a need to determine the economic efficiency of ensuring the reproduction of fixed assets, including at the expense of credit resources (Contino, 1996). However, at the current stage, the development of scientifically substantiated proposals to improve the definition of credit support for reproduction of fixed assets of agricultural enterprises is not sufficient. For the achievement of the put aim, it is necessary to solve the next tasks: – to estimate the modern state of the credit providing of recreation of the fixed assets of industry; – to define tendencies and influence of factors that determine their development; – to generalize methodical principles of determination of credit potential of agricultural enterprises. Regarding credit potential, we have investigated and found that in this category (its interpretation) distinguish loan support bank – excess reserves of the bank or banking system and enterprises – the possibility of the additional attraction of credit resources (Aleskerova, 2016). Modern methods of assessing creditworthiness enable an assessment of the current financial situation of agricultural enterprises and their immediate future


(Aleskerova, 2016). However, most of the enterprises need to assess the amount of loans that are needed to finance costs and capital investments. As already noted by Russian researchers “developed a methodology for assessing the minimum requirement of the economic entity in working capital, as well as the need for reproduction of outside negotiable assets, adjusted to secure the loan agreement from the side of the potential borrower own property” (Todosіychuk, 2007). They also recognized that the assessment of needs of the enterprise in lending non-current assets is a priority in determining the credit potential and in general its value depends on the formed optimal structure of working capital. For this the following calculation is proposed: the additional need for sources of credit is calculated based on the recoverable value of fixed assets minus equity and long-term loans and loans. If the indicator is positive – there is a shortage of own funds for reproduction. Taking into account the current national practice of using the method developed by researchers (Forgionne, 1986), the following criteria are taken into account. Determining the effectiveness of using credit support requires the availability of indicators that would objectively reflect the degree of use of credit in the enterprise and the methodology for their calculation. In connection with our research, the methodology of efficiency involves also taking into account the efficiency of attracting credit resources for the formation of production capacity in fixed assets. For example, rather a detailed analysis of current methods of credit security efficiency was conducted by Wilson (Harrington, Wilson, 1989). It is established that “from the standpoint of the number of indicators, which determines the credit performance in the proposed methodological approaches, it is possible to distinguish two main directions. One group of scientists focuses on finding a single indicator of assessing the effectiveness of the loan; the other, on the contrary, proves the need for a system of indicators”.

4. Survey methodology Thus, it can be assumed that, at the present stage, a system of indicators has been formed that unites groups for analysing the efficiency of reproduction (use) of fixed assets and analysing the efficiency of credit sources. In the first case, the swingeing majority of researchers have stopped on the key elements of the methodology of determination of the efficiency of recreation of the use of the fixed assets after directions: 1) provision of fixed assets of enterprises; 2) state of fixed assets; 3) efficiency of the use of fixed assets. In the second case, the question is about the determination of project efficiency of sources of the credit providing, after directions:

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1) market of sources of credit support for reproduction of fixed assets; 2) availability of credit support for agricultural enterprises; 3) efficiency of programs and sources of credit provision. Given these groups, we have formed Table 1, which lists the typical indicators and their calculation formula for the efficiency of the process of reproduction of fixed assets. Thus, the efficiency of the use of fixed assets is determined by a set of closely interconnected indicators that quantitatively express the ability of an agricultural enterprise to make productive use of material resources

Vol. 4, No. 2, 2018 in terms of fixed assets in order to ensure the continuity of the reproduction process. Each individual indicator involved in the methodological approach characterizes one of the parties, according to a certain criterion, the influence of the use of fixed assets on the efficiency of production. According to the researchers, the generalized criterion of the efficiency of functioning and reproduction of basic productive assets is the expressed ratio of the gross domestic product to the average annual cost of the main productive assets. According to researches, in 1990 this indicator for Ukraine was 42.0%, in 1995 – 16.8%, in 1998 – 14.4%. That is, its reduction is observed.

Table 1 Methodology for analysing the effectiveness of credit support for the reproduction of fixed assets Index

Capacity

Fundamental arsenal

Technical armament

Calculation Ingredients Security by main means C – capacity C=F/V F – the average annual cost of the main productive assets V – volume of production F/a – fundamental arsenal F/a=F/R F – average annual cost of the fixed productive assets R – number of workers T/a – technical armament T/a=Рз/R F – a cost of the fixed productive assets is on an operation R – a number of workers is on an operation

State of fixed assets Wear factor

Coefficient of fitness

Coefficient of updating

Coefficient of leaving

Coefficient of increase

Index of height

Coefficient of stability

Return on assets

Profitability A sum of profit per 1 hryvnia of fixed assets

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Wf – wear factor Aw – amount of wear F– initial cost of fixed assets Ff – fitness factor Cf=Rv/ F Rv– residual value F– initial cost of fixed assets Rr – refresh rate Rr=Fr/ Ff Fr- – the cost of receiving fixed assets Ff – cost of funds at the end of the year Er- exit rate Er=Fd/Ff Fd– the cost of disposal of fixed assets Ff – the cost of fixed assets at the beginning of the year Gr – growth rate Gr=(Fr- Fd) Fr– the cost of receiving social funds Fd – pay the disposal of fixed assets Ih – index of height Ih=Ff/Ff (beginning of the year) Ff – cost of funds at the end of the year Ff – the cost of fixed assets at the beginning of the year Cs – coefficient of stability Cs= (Fa- Fd)/Fп Fa – the cost of fixed assets at the beginning of the year Fd – the cost of disposals of fixed assets Efficiency of the use of fixed assets f – return on assets Ra=V/F V – volume of products F – average annual cost of the fixed assets R – profitability R=P/F P – annual profit F – average annual cost of the fixed assets Роз – a sum of profit per 1 hryvnia of fixed assets Роз=P/F Р – annual profit F – average annual cost of fixed assets Wf=Aw/ F

Vol. 4, No. 2, 2018 It is this indicator that can objectively reflect the role of major productive assets in increasing the efficiency of social production. A methodological approach to determining the effectiveness of the use of fixed assets – a tool for financial and economic analysis, which is used to strengthen management functions. It quantitatively expresses the results of the influence of the use of fixed assets on the efficiency of the agricultural enterprise and, on this basis, provides an objective and complete information management system for a retrospective, operational, and prospective analysis and the adoption of economically sound management decisions. The application of the analysis of reproduction of fixed assets will allow receiving growth of economic indicators of activity of agricultural enterprises on the basis of ensuring the continuous process of financing production by economically grounded sources of working capital formation, one of which is short-term bank credit. To objectively assess the effectiveness of the use of fixed assets as a complex organizational and technical complex that has a defined socio-economic form, several groups of criteria have been identified that reflect this performance both in relation to the economy as a whole and at the level of the individual enterprise (Todosіychuk, 2007). When considering the relationship between investment and the reproduction of major productive assets, many researchers (Aleskerova, 2016) paid attention to the link between the level of inflation, the size of bank interest and the directions of flows of investment resources. They noted that “high borrowing interest limits or even eliminates the possibility of obtaining bank loans especially for the restoration of fixed assets. This is not the only negative finding of the influence that raises the costly credit for the sphere of material production. In this regard, it seems reasonable to propose the orientation of the NBU to the level of average profits in the production sector. Such an event, along with a reduction in tax pressure can play a significant role in replenishing the resources of production enterprises and will contribute not only to overcoming the crisis phenomena but also to further economic development” (Aleskerova, 2008). Considered criteria for evaluating the effectiveness of reproduction/functioning of the main productive assets along with the advantages and have certain disadvantages. First, not all of them are accurately displayed in quantitative terms. Second, each of them reflects only one aspect of the problem and does not give a complete picture of the state, change the efficiency of use and reproduction. Based on such a scheme, recommendations were developed to improve the methods and forms of


financial and credit support for innovative activities of small enterprises. On the basis of a comprehensive analysis of the directions of state financial support for the development of enterprises including their innovation activities in terms of providing the main means, and the need for indirect measures of financial support has been identified. In studies of another author (Contino, 1996) to assess the attractiveness of enterprises, the index of viability index (Іі) was proposed. This indicator takes into account the index of current activity (Іса) and the index of estimation of the innovative potential of the enterprise (Іір) and is their sum. The index of viability of current activities will vary according to a number of factors, which firstly will determine features of the enterprise operation, depending on the size, experience of its activities and the costs of implementing innovations; and secondly, they will be able to evaluate at different stages of its activity – from the very beginning to possible liquidation. The proposed index can be used to understand the logic of the main factors of enterprise development, to quantify their impact, to understand what factors and in what proportion it is necessary for the enterprise to mobilize to increase the efficiency of the activity. To reflect the activity of the innovation activity of the enterprise, the same author (Forgionne, 1986) provided an index of innovation potential (Іір), which is characterized by a share of the cost of innovation activities (Cin) in the total cost (Ci). The increase of this index testifies to the increase of innovative potential of the enterprise. It is established that this indicator should tend to one approach, which in modern conditions is due to the necessity not only to predict but also to increase the amount of resources that will be directed to innovative activity. The researchers also noted that the necessary condition for choosing the most effective lines of credit support for reproduction of fixed assets is the creation of a unified methodological and informational basis for the study of the state and prospects of innovative economic development. In the methodology, it is possible to predict the possibility of evaluating the effectiveness of the investment project. For this purpose, various authors suggest the following set of indicators (Table 2). Consequently, the method of the effectiveness of credit support for the reproduction of fixed assets should take into account the composition, sources of formation, perspective directions of use to increase production volumes. In economic research on the constancy of credit provision, it is important to study stochastic (correlation) relationships in economic analysis. Stochastic connections (Contino, 1996) are characterized by an approximation, uncertainty. They are detected only on average in a significant number of objects observed. Each value of the factor index

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Table 2 Estimation of the efficiency of the innovative project Indexes

Used name

Characteristic

Notes If NPV> 0, then the profitability of the project This indicator characterizes the excess of total is higher than the norm given by the discount cash receipts related to the implementation of factor. At NPV 0, will only in the case if xi > 0 for all i=1.2….. i

6. Modelling of the control system of the potential of the SES of the region The principle of interchangeability of the components of the aggregate potential of SES involves the ability to achieve a balanced equilibrium of potentials for resource sources ( xi ) (Solokha, 2011). The principle of interchangeability of the components of the aggregate potential of SES involves the ability to achieve a balanced equilibrium of potential for resource sources (xi ) (Solokha, 2011). This means that with growth, for example x1 , by reducing x2 , interchangeability will be optimal in the case when the production process uses more efficient ones. Another feature of interchangeability � xi is inductance, which is manifested in the fact that the replacement of one element in many cases creates the possibility for a number of other substitutions, or even makes them necessary. The determination of the interchangeability of potentials by resource sources is based on the ideas of boundary analysis. Consider the production function y = f ( x1,, x2 ) , where – y the volume of production of SES, which in some way depends on the potential for two sources of resources x1 and � x2 . (Denysenko, 2008). This approach allows, on the one hand, constructing the curves of the interchangeability of potentials by resource sources, and on the other hand, organizing and ranking the levels of use xi for their advantage in terms of maximizing production volumes. Partial derivative functions f on xi are called the marginal profitability of potentials by resource sources and determined by: f1 =

∂f ∂x1

f2 =

∂f ∂x2

.

(1)

At the same time, the direct quantitative description of proportions of the replacement of a limited volume of potentials gives the marginal rate of their substitution:

Thus if

n

∑a i =1

i

1 corresponds to increasing i =1

efficiency of successive costs. The production of products is often characterized by the impossibility of replacing of x1 with x2 through the valuation of resources, legal restrictions, etc. For example, in excess of the fleet of cars and the shortage of worker-drivers, there is no possibility of replacing a part of the machines with the corresponding wage fund and material incentives. Therefore, production is carried out in two ways: zero replacement elasticity of xi ; with non-zero replacement elasticity of xi . Provided the zero replacement elasticity of xi let the production is determined by the potential of the SES in accordance with the production function of the type “cost-issue”, so if the potential of the SES is defined as x = ( x1,..., xn ) then can be produced x x  y = min  1 ,..., n  an   a1

units of products.

If the volume of production can only be discrete, then

 x x  y = min E 1 ,..., E n  a a 1 n  

where E ( x ) – the whole part

of x. Determination of SES potential unit (r), as a set of minimum quantities of individual potentials for resource sources, which allows getting a unit of production, in this case, is especially simple r = ( r1,..., rn ) = (a1,..., an ) . At the same time, r corresponds to such many separate ones xi , for which ∀ i = 1,..., n xi = ai . If ∃i , that is xi > ai and ∃ j , that is xi = ai , then as before, only one unit of output will be produced, and the potential

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Vol. 4, No. 2, 2018 Let us use now homogeneity (in this case, the first order) of the function f ( x ) , then we get

will not be isolated at the same time. In this case, it will contain an incomplete part that cannot be used directly to achieve the purpose of the system. And in the general case, with the impossibility of replacement, the potential SES R can always be represented, in the form: (4) R = Nr + ∆R where N – number of units of SES potential; ∆R – incomplete part of the potential of SES. Investigate the situation when the production function of the system f ( x ) is characterized by a nonzero elasticity of substitution and homogeneity of the first order. To illustrate, we use the Cobb-Douglas function and the production function with “constant elasticity of the substitution.” In this case, each point of the surface f ( x1,..., xn ) = 1 is minimal in Pareto and, therefore, can be taken as a unit of SES potential. To select any one point and to compare different sets of xi , the additional criteria and restrictions must be used. 1. Often, technological constraints on the replacement of types of resources dictate the relation between the elements of the SES potential. These relations give us no limits to select a single point on the surface f ( x1,..., xn ) = 1 . Let the relationships look like this: x1 ÷ x2 ÷ ... ÷ xn = k1 ÷ k2 ÷ ... ÷ kn , (5) where k1, k2 ,..., kn – the indicated values. Modify these relationships in the form of (n – 1) equations and attach to them the equation of the surface: k1   x1 = xn k n   k2  x2 = xn kn   ...  k  xn −1 = xn n −1 kn   ,..., f x x ( 1 n) =1   

So, f  x1 

xn f ( k1, k2 ,..., kn ) = 1 ; kn

(7)

From here x1 = r1 =

k1 kn ,..., xn = rn = . f ( k1,.., kn ) f ( k1,.., kn )

(8)

2. If any restrictions on the values of elements of the unit of potential of the SES of the resource are not specified at all or if the restrictions are given but do not emit a single point on the surface f ( x ) = 1 , then there is a need to formulate some optimality criterion and, in accordance with it, make a choice, for example, the minimum size xi of the total unit cost of SES potential. The simplest task of determining xi the unit of SES potential of the minimum cost can be written as follows: (9)

c1 x1 + c2 x2 + ... + cn xn → min

provided that f ( x1,..., xn ) = 1 . (10) The requirement of nonconformity xi is not obligatory, because on a single surface, only points with positive coordinates lie. The optimal set is the solution of the system of equations: ∀ i = 1,..., n ∂f c = n i ∂xi ∑ ck x k

.

(11)

k =1

Let us give concrete examples of solutions of this system (Table 1). Suppose we have some set of potentials for resource sources R = ( R1,..., Rn ) , and the production function of the system has the form y = f ( x1,..., xn ) , then in order to determine the number of units of available SES potential, it is necessary to find f ( R ) . If f ( R ) = N then the value N will give (if not a whole issue) the number of units of SES potential and its unit can be represented as:

(6)

k1 k k  , ..., xn −1 n −1 , xn n  = 1 . kn kn kn 

r =

R  1 R R =  1 ,..., n  . N N N  

(12)

Table 1 Determination of components of the unit potential of the SES Functions

Criteria and restrictions

Cobb-Douglas function

( )

n

f x = a0 ∏ x i =1

ai i

∀ i = 1,..., n, αi ≥ 1 n

∑α i =1

i

 −α  1  ∑ Ai xi −  2 n

f ( x1,..., xn ) = A0  i =1

242

xi = ri =

=1

A0 ≥ 0, Function with “constant elasticity of replacement”

Decision

∀ i = 1,..., n, Ai ≥ 0,

α > −1

xi = ri =

α i ci f (α1 c1,..., α n cn )

( Ai

ci )

1 α +1

 α +1 α +1  f  ( A1 c1 ) ,..., ( An cn )      i = 1,..., n 1

1


Vol. 4, No. 2, 2018 In turn, f r = 1 , f ( R ) = 1 . () N In determining the number of units of socio-economic system potential, two cases are admissible: 1) The number of units can only be integral, and the production function involves the replacement. In this case, actually produced E (N ) units of production per unit of SES potential can be selected: 1 R, k N N where 2

(13)

r =

.

In this case, f ( r ) =

1 k

, f (R ) =

N N , and E   = 1 , k k  N with mandatory condition 1 ≤ < 2 . This suggests k that the choice of any value of k only one product unit

will be produced. 2) Per unit of potential СЕС r = ( r1,..., rn ) selected single (for example, the least cost) set of potentials by the resource sources represented by the dot of the surface of a single issue. Let us have a set of potentials for resource sources R = ( R1,..., Rn ) , moreover, f ( R ) = N . Then the point 1 R N

will lie on the surface of a single issue and formally

meet all the requirements for the unit of SES potential. If c = (c1,..., cn ) – the vector of prices of units of each type of potentials by resource sources, then from the optimality of the set r the solution of the problem is the existence of a vector x = ( x1,..., xn ) , which is the solution to the problem f ( x ) → max provided c1 x1 + ... + cn xn =

achieved release

1 (c1R1 + ... + cn Rn ) that it can be N 1 Ri . This f ( x )  1 , if ∃i , that is ri ↑ N

means that at the same price can be acquired a set of potentials from resource sources, which provides a larger amount of output than the given set. The considered case shows that if the level of R = (R1,..., Rn ) such that f (R ) = N

and, in addition, ∃i , ri =

1 Ri N

, then in the

set R contains more than N of SES potential units (optimal by value or by any other criterion). Thus, the proposed approach of interchangeability of resources made it possible to determine the variants of potential levels in the production of a certain amount of production, in order to manoeuvre the resources in the SES, which will ensure effective management of the potential in general.

7. Conclusions It is determined that the methodology of modelling the resource provision of efficient management of the

innovative potential of the SES of the regional level is the methods of system analysis and forecasting, the possibility of representing all processes occurring in the industrial sphere as a subsystem of economic development. This became possible due to the improvement of the apparatus of economicmathematical modelling and its use in the modelling of complex SES. It is proved that each SES in the course of its development can increase the production of the corresponding products in two ways – either by increasing the quantitative indicators of its potential (extensive way of development) or increasing the level of potential at the expense of qualitative indicators (an intensive way of development). Existing general definitions of the level of development of SES cannot be used to control the development of systems since they only capture the actual state of their development. In modern conditions, such a calculation model is needed that would allow determining the levels of development of the corresponding systems at any given time. The proposed economic-mathematical toolkit, which will determine the significance of the development of the innovative potential of the SES at the regional level at any given time, which, in turn, can be used to increase the effectiveness of planning and management of the socio-economic development of the region. It is determined that effective management of the development of the innovative potential of regional SES is carried out with the help of information support, which helps to obtain the synergy effect taking into account the following features: the complexity of the use of resources; complementarity of resources; interchangeability of resources. In connection with this, an interchangeability of resources has been proposed, which allows determining the variants of potential levels in the production of a certain volume of production in order to manoeuvre the resources in regional SES, which will ensure effective management of potential, in general, and innovative potential, in particular. Further research should focus primarily on the approbation of the proposed mathematical toolkit as a methodological basis for improving the management efficiency of the innovative potential of the SES of the region on specific statistical data and actual results of management. Secondly, on the construction of an economics and mathematical multivariate model, with which one can assess the level of efficiency of the existing SES potential of the region at each specific moment of time, identify reserves and replace certain components of the resource potential in order to provide innovative development of the regions in the long-term perspective.

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References: Balabanov, I.T. (2000). Innovation management. St.Petersburg. Russia: Piter [in Russian] Butnyk, O.O. (2011). Foreign experience of formation and development the state investment policy at the regional level. Kyiv.Ukraine [in Ukrainian] Goncharov, V.M., Derechynskiy, U.N. … Bieliakova, O.V. (2009). Formation of organizational mechanism of the system of innovative development of enterprises of the region. Donetsk. Ukraine: Kupriianov [in Ukrainian]. Denysenko, M.P., Myhailova, L.I. … Grechan, A.P. (2008). Investment and innovation activity: theory, practice, experience. Sumy. Ukraine: University book [in Ukrainian] Economic encyclopedia. (2000). (Vols.1-3). Kyiv.Ukraine. Zaharchenko, V.I. (2012). Innovation Management: theory and practice in conditions of economy transformation. Kyiv. Ukraine: Center for Educational Literature [in Ukrainian] Zaharchenko, V.I. (2004). Transformation processes in industrial territorial systems of Ukraine. Vinnytsia. Ukraine: Gipanis [in Ukrainian] Zang, V.B. (1999). Synergetic economy. Time and changes in nonlinear economic theory. Moscow. Russia: World [in Russian] Kovalova, M.L. (2014). Territorial organization of the forest industry of Ukraine: regional aspect. Donetsk. Ukraine: Dmytrenko [in Ukrainian] Kovalova, M.L. & Batchenko, L.V. (2011). Furniture market in Ukraine and its interaction with the world market. Donetsk. Ukraine: DonSUM [in Ukrainian] Matrosova, L.V., Ovechkina, O.A., Ivanova, K.V., Solokha, D.V. (2009). Management of the development of innovative potential of regions in the transitional economy of Ukraine. Donetsk. Ukraine: Donbass [in Ukrainian] Solokha, D.V., Bandyra, M.V., Savchenko, M.V., Moreva, V.V.(2011). Methodological bases of management of sustainable innovation development of potential of socio-economic systems of the region. Donetsk. Ukraine: Noulidzh [in Ukrainian] Solokha, D.V. (2007). Innovative development as a guarantee of economic growth. Donetsk. Ukraine [in Ukrainian]

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FORMATION OF BRAND POSITIONING STRATEGY Diana Fayvishenko1

Kyiv National University of Trade and Economics, Ukraine Abstract. The purpose of this article is defining the term of positioning, as well as creation and implementation of the success principles of the brand positioning strategies, discussed the process of creating a positional scheme. Methodology. Applied the principle of systems, comparative analysis, induction, deductive method and gnoseological analysis (analytical, synthesis, logical, comparison). Results from researching the principles of successful strategies for the development and positioning of a brand brought to the following conclusions: the brand positioning is a process of creating its own image, distinctive properties, positive associations and values in consumers’ mind in order to create a sustainable trademark image and ensure consumers’ attachment to this trademark. Development and implementation of the company strategy of positioning comprises nine basic stages: 1) analysis of the external and internal environment, goods analysis; 2) trademark design; 3) selection and reasoning of differential positioning features; 4) defining a strategy (positioning method description); 5) defining strategic and tactical targets, foresight for their achievement; 6) development of an implementation strategy plan; 7) strategy implementation; 8) the results evaluation and strategy implementation control; 9) corrective actions. Prospects for further research. More detailed analysis of the positioning concepts, the rationale for a systematic approach to positioning, their use in practice. Background. Marketing positioning presents an opportunity for the promotion of trademarks, market share expansion, sales increase. Value/originality. A positioning strategy is the paramount part of the general positioning concept. The brand success on the market depends largely on the quality of development and realization of the positioning strategy. Therefore, this issue is a key to developing an efficient positioning system. The rationale of the chosen subject has no contradictions because the brand positioning should be addressed not only as a marketing issue but an important general economic and even a social task for the company, the solution of which contributes to the goal of improving the quality of life for all its employees. Key words: brand, positioning, trademark, strategy of positioning, marketing. JEL Classification: M00, M10

1. Introduction Positioning is the most important stage in the asset management strategy of the trademark. Carefully considered positions provide development directions for the new products, market expansion, communication, pricing, selection of distribution channels. The brand positioning is a process of creating its own image, distinctive properties, positive associations and values in consumers’ mind in order to create a sustainable trademark image and ensure consumers’ attachment to this trademark (Fayvichenko, 2016). Today, based on the generalization (Stone, 1998, Davis, 2001, Trout, 2003), one can make a determination that brand positioning, as a process, begins with the design of a trademark position or, as is often seen in the literature, the concept of positioning. It is difficult to specify the essence of positioning when its ultimate goal is not clearly understood. To form a complete idea of the

essence of positioning, it is important to determine what the ideal position of the trademark is. A clear representation of the ideal position of a trademark is a prerequisite for researching positioning as a target process and developing a system for evaluating its effectiveness.

2. Principles of successful brand positioning In the aspect of the development of the rapid positioning of the brand, an attention is drawn to scientific developments by Kendukhov (2008) who believes that the problem is due to the lack of a clear understanding of what should be the ideal position of the trademark. A clear representation of the ideal position of a trademark is a prerequisite for researching positioning as a target process and developing a system for evaluating its effectiveness. Logically, the investigator proves that the initial premise in determining the ideal

Corresponding author: 1 Department of Marketing and Advertising, Kyiv National University of Trade and Economics. E-mail: [email protected]

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position of a trademark should serve the understanding of the ideal consumer (Aaker, Shansby, 1982). That is, the ideal position of the trademark: the perception of the trademark by the consumer, which forms the ideal consumer. The ideal position should be reduced to absolute, only then can the criterion basis for assessing the effectiveness of positioning as a level of approximation to the ideal be determined. Based on this premise, Kendukhov (2008) formulates the definition of the ideal position of the trademark – this is its perception by the consumer, in which he is absolutely sure of the unique advantages of the trademark over other brands, with this brand associated exclusively with positive associations, it is perceived as irreplaceable value and necessary attribute of life; the perception in which the consumer is a fanatical supporter of this brand is fully convinced that consumers who buy goods under other brands make the wrong choice, considers it their duty to recommend this brand to other consumers, and feels the spiritual unity with consumers who have chosen this brand. Thereby, the positioning of (Kendukhov, 2008) is a process of managing the perception of a trademark by a consumer whose purpose is: persuasion of the consumer in the unique advantages of this trademark over other brands; formation of the consumer’s exclusive affiliates with this trademark; formation of the consumer’s sense of the indispensability and vital necessity of the brand; formation of fanatical devotion to the brand; raising a sense of duty to recommend this brand to other consumers; forming a sense of spiritual unity with consumers who chose this brand; forming a belief in the consumer that other consumers who buy goods under other brands make the wrong choice. The key to developing brand positioning and ensuring the successful outcome is an adherence to certain principles. The brand positioning should be performed under scientific methods, process-based and systematic approaches. The understanding and performing the management decisions in this area not only shall be based on the knowledge of marketing theory and practice but also on psychology, sociology, and other sciences. The positioning is effective if it is done consistently and continuously. If in the absence of planning in the process of positioning elements will prevail chance, important aspects may be lost. Success, if achieved, must be consolidated and developed not through the weakening, but strengthening the effect on consumer’s mind. Implementation of the trademark positioning must be performed under the rules of fair competition and strict compliance with the legislation on protection of trademarks (Trout, 2003). A unique differentiating idea is a key to an effective brand positioning. Widely engage the company employees, existing and potential customers to work

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Vol. 4, No. 2, 2018 on the development of basic positioning systems. In addition to new ideas, such engagement has a positive effect on increasing the degree of attachment to the brand.

3. Stages of development and introduction of brand positioning Note that today neither the scientific literature nor marketing practice has a justification for the development of brand positioning. Positioning, as a process, begins with the design of a trademark position or, as is often seen in the literature, the concept of positioning. Crevens (2003) sees the concept of positioning as a formulation of the essence of the company’s offer, indicating the ability of the organization to meet the needs and preferences of consumers. The author quite rightly notes that the concept of positioning the company should be based on the reasons why customers prefer to deal with it, and not with its competitors, and to broadcast these reasons to the target audience. Extending the concept of positioning in marketing, J. Trout and S. Rivkin in “Differentiate or Die!” (2003) distinguish the following positioning tools: the championship in the category as a good differential idea; leadership as the most attractive and exciting idea; “Hot commodity” as a good, differential idea; differential idea of specialization; the latest development as a differential idea; the advantage is a differential idea; commodity as a good differential idea; possession of the attribute as a way of differentiation. Analysis of core studies on the subject (Keller, 2007, Mogileva 2010, Stone 1998) allows for picturing a generalized for development and implementation of the brand positioning that conditionally includes nine stages. The first stage implies a collection, processing, and analysis of the competitive environment data, competitors’ policy regarding their own trademarks, the influence of macro-environment factors, analysis of the company market capabilities, its strengths and weaknesses, analysis of goods being sold or to be sold under this trademark. A trademark model is developed at the second stage: its image, the target audience is being determined, attributes, selection of the brand strategy (monobrand for monomarket, monobrand for polymarket, polybrand for polymarket) (Kendukhov, 2008). Selection of and rationale for differentiating positioning features are taking place at the third stage. The positioning strategy development based on the selected differentiating features takes place at the fourth stage. Strategic (perspective) and tactical (upcoming) positioning goals are developed via foresight of the strategy implementation results at the fifth stage. They must comply with each other. Typically, the second follows from the first. Each goal must be achievable in practice. Strategy implementation plan is developed at the sixth stage. Decisions on the methods and means to achieve goals are being taken, as well as the planning

Vol. 4, No. 2, 2018 documents, plans and instructions are being brought to the performers. Each item of the plan must be drafted so that it is clear what kind of goal you achieve; what actions, measures, and works are to be made and to what deadline; who provides the resources, necessary to implement the decisions; what departments or persons are responsible for implementing the decision; who controls the implementation. Items of the plans must be rationalized, exposed clearly and correctly (contain a statement of action, parameters, etc., rather than calls to do something), easy for the performers to understand and connected with the general marketing plans of the company. It should be noted that at the stages 2-6 foresight has an extremely vital role – a scientifically proven foresight of the most plausible scenario for the trademark progress, alternative ways and plan implementation deadlines. It is based on identification and correct assessment of the market development trends, competitors’ trademarks, changes in consumers’ behaviour, and so on. Understanding the firm relations between different elements of the general positioning system, relations between the past, the present, and the future condition of the anticipated object. Not only the foresight rationalizes the development of the present trademark and the process of its positioning, but the trademarks anticipated to penetrate the market as well. Scientific analysis and calculation are not the only things determining the foresight success. It is also determined by imagination and the ability to foresee, which depends on the experience of corresponding specialists. In practice, foresight uses three complementary development tools for foresight development. Obtaining an image of the future development of the anticipated object based on the experience acquired during the analysis of similar objects that had taken place earlier. Extrapolation or interpolation, i.e. conditional prolongation of trends in the future, development patterns of which are well-known in the present and from the past. Modelling, i.e. building different models of the future condition, carried out in accordance with the expected or desired alterations of certain conditions, development perspectives of which are studied sufficiently. At the strategy implementation’s seventh stage, plans are brought to the performers, specific actions and measures are carried out. (Borgesi, Signori, Russo, 2005) reveals the strategic aspects of positioning in simple and double positioning. Under a simple positioning, researchers understand the element of marketing strategies associated with segmentation. In their view, this term should be considered as a part of consumer behaviour of the consumer, namely, as a part of the process of buying/ selling. This behaviour is divided into several stages. One of them is the “assessment of alternatives”. It is at this stage that the consumer will weigh the information received about the product he intends to purchase.


The information is “undergoing the purification process” during the manufacturer’s communication in order to create a specific, necessary for the consumer, vision of the product and its individual components, as well as a different view of the services in all possible variations. These elements, which will thus be obtained, will compare consumers with their vision of an ideal product and thus streamline demand. Based on this, the consumer goes further in choosing a product. Regarding double positioning, the authors propose the following provisions that are relevant to the behaviour that entrepreneurs and managers dealing with dual positioning strategies should have: positioning based on the “adviser” should be based on the benefits that can grow. Such advantages may have a “technical” nature, for example – the simplicity of installing a complex product or the availability of spare parts, or direct advantages such as discounts and bonuses; the method, which informs the dual positioning to the consumer, should be such that as much as possible avoids confusion of the consumer. More precisely, the means, by which contact with the “advisor” is established, should be different from that used to establish contact with the immediate consumer. This seems quite natural if one takes into account the fact that the number of people involved in the process is always different; the proliferation of international trade processes such as consumer and consumer management (CRM) makes it extremely easy to understand the nature of each individual consumer, and hence the people who are affected. It is possible even to distinguish the latter separately. This scenario makes the dual positioning strategies more effective. At the eighth stage, the results are evaluated and the strategy progress is monitored. Here, the comparison of actual efficiency indicators of the strategies’ implementation with specific milestones that characterize the established strategic and tactical objectives. These guidelines should be clearly defined, rationalized and convey the final results. Control must not be narrowed down to a formal registration of deviations of the actual results from the planned ones. If actual results are not up to the planned results, it is required to analyse the whole chain of the cause and effect relations, identify the causes, conditions of their occurrence. Control must be substantive, specific. Its objectives, parameters, and measures to be checked should be understood clearly. Monitoring of the implementation of plans and specific measures must be performed from the moment of their approval. During the monitoring, it is required to ensure the verification consistency of the corrective measure status, prevention of shortfalls, accumulation of positive experience. Monitoring must be done in a timely manner so that it is possible to correct the situation and take preventive measures. At the ninth stage, one must take, if necessary, corrective

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measures for the implementation of those stages, where the causes of actual results deviating from the planned results occurred. The linking chain of all stages is the process of specialists’ decision-making, who are responsible for development and implementation of the strategy. Approval of a decision always precedes the action, regardless of who performs the action – a decisionmaker or any other person. Each solution must include answers to the questions: what, when, and how to be done, who does.

4. Conclusions Results from researching the principles of positioning strategies in marketing bring to the following conclusions: the trademark positioning is a process of creating its own image, distinctive properties, positive associations and values in consumers’ mind in order to create a sustainable trademark image and ensure consumers’ attachment to this trademark; the basis for any positioning concept is an idea of differentiation

Vol. 4, No. 2, 2018 a trademark, goods according to some properties; decision making is a multi-staged process, which generally includes the following stages: determining the goal, for the achievement of which the decision is taken; collection and update of the output informational materials; specification of possible limitations (on the market, resources, potential consumer, etc.); development of possible scenarios; selecting a criteria for the evaluation of the decision’s rectitude and efficiency; comparison and evaluation of each scenario under the adopted criteria; selection of the best option; foresight of the consequences occurred from implementation of the decision made; adjustment of the decision taken due to the foresight results or choosing another scenario if the prediction implies serious risks or inefficiencies of the decisions made due to the assumptions adopted during the foresight; foresight of the second scenario results and its adjustment or selection of the third scenario. Prospects for further research: a more detailed analysis of the positioning concepts, analytical forecasts, the rationale for a systematic approach to positioning, their use in practice.

References: Aaker D., Shansby J. (1982) Positioning your product. Business Horizons, no. May-June, pp. 56-62. Balmer. J., Greyser S. (2003) Perspectives on Identity, Image, Reputation, Corporate Branding, and CorporateLevel Marketing. Revealing the Corporation, New York : Routledge, 363 p. (in English) Borgesi A. (2005) The Possibility of Strategic Double Positioning. Marketing in Ukraine, no. 6, pp. 66-69. Brand Valuation: The nancial value of brands. Retrieved from: http://www.brandchannel.com/ Davis S. (2001) Upravlenie aktivami torgovoj marki [Management of brand assets]. St. Peterburg: Peter, 272 p. (in Russian) Crevens D. (2003) Strategicheskiy marketing [6-е izd] per. s angl. SPb.: Peter, 752 p. (in Russian). Fayvichenko D. (2016) The concept of brand positioning. Mignarodnii naukovo-praktuchniy gurnal «Tovaru i runki», no. 1(21), pp. 25-32 (in Ukrainian) Keller K. (2007) Strategicheskij brand management: sozdanie, ocenka, upravlenie marochnim capitalom [Strategic brand management: creation, valuation, management of brand equity]. Moscow: Publishing house "Williams", 704 p. (in Russian) Kendyuhov V. (2008) Effectivnist vucorustannya marochnogo capital [Effectiveness of using branded capital]. Donetsk: Institute economy promislovist, pp. 96-103 (in Ukrainian) Mogileva A. (2010) Zmist ta osobluvosti posizionuvannya tovariv na rinku [The content and features of the positioning of goods on the market]. Odessa: TSEDR, 273 p. (in Ukrainian) Smith D., Park C. (1992). The effects of brand extensions are market share and advertising efficiency. Journal of Marketing Research, vol. 29 (3), pp. 296-313. Stone M. (1998) Prjamoe popadanie: factoru prjamogo marketinga [Direct hit: direct marketing factors]. Minsk: Amalfeya, 448 p. (in Russian) Tompson A. (1998) Stratehycheskyi menedzhment. Yskusstvo razrabotky y realyzatsyy stratehyy [Strategic management. The art of strategy development and implementation]. Moscow : Banky y byrzhy, YuNYTY, 578 p. (in Russian) Trout J. (2003) Differentiate or die! Survival in an era of fatal competition. St. Petersburg: Peter, 224 p. Trout J. (2003) Positioning. Battle for recognizability. St. Petersburg: Peter, 256 p. Wind J. Y. (1982) Product Policy: Concepts, Methods and Strategy. Reading, MA: Addison-Wesley, 505 p.

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FORMATION OF THE INFORMATION SUPPORT FOR THE ENTITIES OF MANAGEMENT BY THE DEVELOPMENT OF INNOVATION CLUSTERS Olexandra Farat1, Marianа Bets2

Lviv Polytechnic National University, Ukraine Abstract. In a context of rapid innovative economic development in the world, a particular importance gets the issue of creation and development of highly effective, the structured field of information, where all people, who are interested in developing of business innovation, are the entities of communication. Availability of reporting mechanisms for interested people by country and getting feedback of information with the proposals of territorial authorities and economic entities for the realization of investment and innovative projects in regions should be considered as one of the main stages in the process of synchronizing innovation development in the Ukrainian economy. The purpose of the researches in the article was to identify the main components of the formation of the information support for entities of management by innovation clusters development. The authors resolved the following tasks to achieve the goal: the genesis of domestic legislation with development of the information society in Ukraine was considered; Ukraine’s place in global rankings on development of information and communication technologies level during 2008–2016 was analysed, identification of information needs of participants in the process of creating and developing clusters was carried out, and communication strategy to stimulate the development of innovation clusters was developed. The genesis of the domestic legislation on the development of the information society in Ukraine demonstrated a lack of systematic approach to the organization and the process of integral development of the information society. These legislations are characterized more recommendatory, than functionally-structured content. In particular, they do not address clearly defined mechanisms for achieving objectives that were in line with the specific functional responsibilities on all levels of public administration. The analysis of Ukraine’s global rankings on development of information and communication technologies level during 2008–2016, evidences a significant passivity of all the participants in Ukrainian economic life not only in a development processes and dissemination of information technology, also on the formation of structured arrangements of the information management of the main economic process, including the processes of creating and developing innovative cluster associations. An important prerequisite for the efficient development of information management’s mechanisms for the economy in Ukraine is the identification of all actual information needs and connected entities of the business, research institutes, territorial authorities etc. The authors’ identification of information needs of participants in the process of creating and developing clusters will assess the significance of effects of casters associations on the country’s economy, in particular, the possibility of innovative development. The authors’ strategies to stimulate the development of innovative clusters will help improve creating information and clusters development depending on the purpose and sources of its simulating. Key words: innovative development, cluster business combinations, information support, information support system, entities of clusters development management. JEL Classification: L10, O19, O32

1. Introduction In a context of rapid innovative economic development in the world, a particular importance gets the issue of creation and development of highly effective, structured field of information, where all people, who are interested

in developing of business innovation, are the entities of communication. Availability of reporting mechanisms for interested people by country and getting feedback of information with the proposals of territorial authorities and economic entities for the realization of investment

Corresponding author: 1 Department of Enterprise and Ecological Examination of Goods, Lviv Polytechnic National University. E-mail: [email protected] 2 Department of Enterprise and Ecological Examination of Goods, Lviv Polytechnic National University. E-mail: [email protected]

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and innovative projects in regions should be considered as one of the main stages in the process of synchronizing innovation development in the Ukrainian economy in accordance with the world realities. Therefore, especially important is the issue of developing and harmonizing at the state level not only the mechanisms of direct and feedback between all participants in the innovation process (profile ministries, territorial authorities, independent economic entities and their associations), but also the legislative approval of the relevant methodology for evaluating the effectiveness of information state policy on stimulating the development of innovative business, in particular, cluster associations. Nowadays, the issue of cluster paradigm development not only in the domestic economy but also in the global economic environment is of particular relevance, which leads to a steady increase in the number of researchers who pay their attention to clusters. Among the domestic scientists who deal with research on the possibilities of cluster development and their impact on the growth of the economic competitiveness are: Z.S. Varnalii, L.I. Fedulova, I.O. Degtyareva, O.I. Zhabynets, Yu.V. Fedotova, and others. As for foreign scientists, the theme of clusters was especially explored by Michael Porter, G. Lindquist, S. Rozenfeld, E. Gleiser and others. The key attention in the works of these scholars was given to the study of the essence of the notion “cluster” as a subject of market relations and its impact on the potential growth of the economy’s competitiveness in particular by its achieving “synergy and scale effects.” Concerning the works devoted to the complex study of the information interaction between the entities of the cluster development management, such studies are rather superficial, especially from the side of domestic scientists. To achieve the goal, the authors solved the following tasks: the genesis of domestic legislation on information society development in Ukraine was considered, Ukraine’s place in global ranking of the level of information and communication technologies development during 2008–2016 was analysed, identification of the information needs of participants in the process of creating and developing of clusters was carried out, and a package of information support strategies to stimulate the development of innovative clusters was developed.

2. The genesis of domestic legislation on the information society development in Ukraine The process of creation and development of the information society in Ukraine began in 1998. A series of documents aimed at the formation of legal, organizational, scientific and technical, economic, financial, methodological, and humanitarian prerequisites for the development of informatisation was adopted.

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Vol. 4, No. 2, 2018 They are the following: 1. The Law of Ukraine “On the National Program of Informatisation”. According to this Law, the National Informatisation Program aims at the system developing of national information resources, increasing the efficiency of domestic production on the basis of a widespread use of information technologies, formation and support of the market for information products and services, etc. 2. Activities Program of the Cabinet of Ministers of Ukraine “Overcoming the Impact of the World Financial and Economic Crisis and Sustainable Development”, which envisaged the measures necessary to overcome the consequences of the global financial and economic crisis in the context of the development of the information society in Ukraine. 3. Decree of the President of Ukraine No. 47/2017 “On Decision of the National Security and Defence Council of Ukraine dated December 29, 2016 “On the Doctrine of Information Security of Ukraine”. The considered genesis of the domestic legislation on the development of the information society in Ukraine shows the absence of a systematic approach to the organization and implementation of the comprehensive development of the information society process in Ukraine. These legislative acts are characterized by more recommendatory than functionally-structured content. In particular, there aren’t considered well-defined mechanisms for achieving the objectives that would be consistent with specific functional responsibilities at all levels of government.

3. Analysis of Ukraine’s place in the global ranking of the level of information and communication technologies development The processes of information society development in modern Ukraine should be considered as one of the stages of the most qualitative reform of the national economy, which is intended to improve the paths of the key economic processes, such as: investment attraction, development infrastructure, deepening of international financial and economic cooperation, development of alternative paradigms of the economy functioning (ecologically oriented economy, cluster economy, etc.). Recent virus attacks by the modified version of the WannaCry virus – “cryptolocker” (May 2017 – July 2017) have shown a significant weakness of information security for domestic enterprises and organizations, which has led to a deeper concentration of state attention on information security of enterprises and organizations. For the realization of this task, it is necessary to establish clearly the mechanisms of information interaction between business entities, nonprofit organizations, state institutions on the exchange of various information products, including databases of signature of viruses.

Vol. 4, No. 2, 2018 This problem is reflected in the international ratings of Ukraine. In particular, according to the published Global Information Technology Development Report-2016 (The Global Information Technology Report), Ukraine has ranked 64th out of 139 countries in terms of the information and communication technologies development in 2016. More details about the dynamics of this indicator for 2008–2016 are presented in Table 1 (website of the Economic Discussion Club, 2016). Table 1 Ukraine’s place in the global ranking of the level of information and communication technologies development during 2008–2016 Years 2008 2009 2010 2011 2012 2013 2014 2015 2016

Place in Total number of Position change relative ranking evaluated countries to the previous year (+/-) 70 122 62 134 -8 82 133 +20 90 138 +8 75 142 -15 73 144 -2 81 148 +8 71 143 -10 64 139 -7

According to the data of Table 1, during the reviewed period, Ukraine has taken the mediated positions in this ranking, out of 9 positions in five, there was a decline in the level of information and communication technologies development according to the surveyed indicators relative to the previous year, and only in 2010, 2011, and 2014, an increase in the level of development of informational-communication technologies was observed. The data in Table 1 indicate a significant passivity of all participants in the economic life of Ukraine not only in the processes of development and dissemination of information technologies, but also in the formation of structured mechanisms for the systematic information provision of key economic processes (processes associated with the creation and development of innovative cluster associations).

4. Identification of information needs of participants in the process of creating and developing clusters One of the important prerequisites for the effective development of information support mechanisms in the development of the Ukrainian economy is the clear identification of all relevant information needs and related entities, in particular, business, research institutions, territorial authorities, etc. The experience of the advanced countries (The US, Germany, Sweden) shows that precisely progressive information policy is


one of the key elements of the development of highperformance innovative business in the state. In essence, the information need of an enterprise is the need for obtaining certain information, which manifests itself then, when a target for a particular consumer arises, the achievement of which is impossible without external information intervention (Witer, 2011). Exploring the peculiarities of the process of information provision of the cluster development management entities, we will identify them in the structure of the modern economy. Thus, according to (Dehtiarova, 2011), key players of the clusters development issues are: • vertically or horizontally connected companies, business associations, providers of specialized services (marketing, logistics, financial) that in aggregate form the private sector of the domestic economy; • profile ministries, state agencies, the other public authorities of local, regional, and national levels; • educational and research institutions, namely: research institutes, universities, vocational training centres. All of them form the so-called “triple spiral”, the key role of the entities of the innovative clusters development management belongs to the government sector (profile ministries, state agencies, state authorities of local, regional and national levels), since they have the most complete authority, have more access to state financial resources, and can have a significant impact on the economic and legal environment in the state. Identification of the information needs of participants in the process of creating and developing clusters is highlighted in Table 2. The important criteria to assess the feasibility of information dissemination on development opportunities and nurturing of clusters are that they qualify certain requirements. These claims include: • Municipal sector-based compatibility – provides conformity distributed in the information region for the possibility of creating and long-term development of clusters and their sectoral complexes. • Trend orientation – provides an orientation of the information dissemination on the world tendencies of economic, social, and environmental development of economic entities in order to facilitate their full competitiveness in the global economic area. • Programme coherence – provides the greatest possible to meet the needs of economic entities in access to resources offered by domestic, overseas, and joint development programs. The importance should be given to stimulating measures. The world practice shows that role of government in a process of organization stimulating measures are very considerable and can be manifested in different forms (target programmes, government grants, public-private partnership projects etc.) In particular, the most used stimulating measures that provide an

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Table 2 Identification of information needs of participants in the process of creating and developing clusters The entity of development administration of clusters

Business

The public authorities of local, regional, and national elections Education and research institutions

The information need

The content of needed information

1. The requirement for identifying available sources financial and material measures 2. Finding ways to ensure strategic development 3. Need to find ways of legal optimization the tax burden 1. Seeking for potential participants able to perfectly develop the economy 2. Maximum possible utilization of certain programmes for strategic development 1. Need for sources in the available production and developing potential intellectual capital. 2. Sourcing of diversification their funding.

1. Access to information for preferential loans scheme, the potential of marketing etc. 2. Access to information on the development opportunities through the amalgamation, cooperation with foreign partners etc. 3. Access to information for possible tax preferences conditional on the implementation of the systemic innovation, development of programmes for social responsibility etc.

opportunity to inform the potential participants, to unite them into clusters, and to perform other actions, are the following (Zhabynets, 2014): • Information platforms, platforms to search for partners, cooperation (for example, the regular distribution of marketing information and information connected to a technology development, events under the networks, work groups); • Supporting start-ups and innovations (for example, identifying interlocutors and sources of financing to support the common innovative/research projects that incubators initiate and thrusters, initiatives to strengthen linkages between science and industry); • Initiation of specialized of infrastructure projects (for example, the incubator concept, scientific and industrial parks);

1. Information on economic entities, research institutes, which are of sufficient human, financial, material capital, and willing to system of innovation development 1. Information about opportunities of its capacity of research institutions within the government programs, on request of the individual enterprise or groups.

• Cluster marketing (awareness-raising of cluster activities and its members at the regional, national, and international levels, for example, website, bulletin, cluster’s atlas).

5. Strategies to stimulate the development of innovative clusters Information management on the creation and stimulation of clusters must be ensured by clearly defined tools of strategic vision that is, having a package of policies of information management to stimulate the development of innovative clusters in Ukraine. Examples of such policy packages are given in Table 3. The proposed strategies of information support to stimulate the development of innovative clusters must

Table 3 Information support strategies to stimulate the development of innovative clusters Purpose Source Development of the existing innovative cluster of initial stimulation 1. The synchronous strategy of updating the functioning (transition to the government Initial stimulation from control for the production of new technologies or the government modernized product, in accordance with current requirements of the world market)

Initial stimulation from the side of economic entities

Combined initial stimulation

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Establishment of a new innovative cluster

4. The vertical strategy of association for integration (creation of a cluster happens for governmental initiatives, by combining state-owned enterprises with the possible contribution of contractual arrangements of the private entities of management, by its information about possible gains from participating in territorial clustering) 2. The strategy of smooth innovative development 5. The horizontal strategy of integration groupings (cluster (provides for the implementation to inform of creating happens by an independent initiative of economic the cluster’s members of relevant government entities, using reverse channels of communication with the institutions the need to give concessional loans, public authorities after relevant negotiation define the real relevant authorizations, which given the current economically desirable to create such a cluster (clusters), trends of industrial development systemically also mechanisms of government support for its (their) implementing in their progressive of innovative development solutions and gives a clear justification of usefulness of such action 3. Transformation strategy (full organizational 6. A common strategy of integration groupings (a cluster cluster transformation: replacement of (both internal and transboundary) is established by a central business, diversification of the cluster joint of initiative public authorities’ initiatives and local by separating it into smaller clustering, the companies, through their participation in the competition establishment of cross-border clustering) in the target government or regional programmes)

Vol. 4, No. 2, 2018 suffer an appropriate legal and regulatory basis, that is, a clearly regulated in the proper industry legislative instruments (regional development strategies, sectoral development programmes, etc.) in order to ensure all specific the industries concerned of the national economy in Ukraine. A certain strategic vision to stimulate the development of innovative clusters will improve the information establishment and development of clusters, depending on the purpose and source of its initial stimulation.

6. Conclusion The objectives were completely solved by the authors. The genesis of the domestic legislation on the development of the information society in Ukraine demonstrated a lack of systematic approach to the organization and the process of integral development of the information society. These legislations are characterized more recommendatory, than functionallystructured content.


The analysis of Ukraine’s global rankings on development of information and communication technologies level during 2008–2016, evidences a significant passivity of all the participants in Ukrainian economic life not only in a development processes and dissemination of information technology, also on the formation of structured arrangements of the information management the main economic process, including the processes of creating and developing innovative cluster associations. The authors’ identification of information needs of participants in the process of creating and developing clusters will assess the significance of effects of casters associations on the country’s economy, in particular, the possibility of innovative development. The authors’ strategies to stimulate the development of innovative clusters will help improve creating information and clusters development depending on the purpose and sources of its simulating.

References: Dehtiarova I. O. (2011) Naukovi ta praktychni aspekty zastosuvannia klasternoho pidkhodu v upravlinni konkurentospromozhnistiu rehioniv Ukrainy [Scientific and practical aspects of application of the cluster approach in the management of the competitiveness of the regions of Ukraine]. Derzhavne upravlinnia: teoriia ta praktyka [Public administration: theory and practice], no. 3. Retrieved from: http://www.academy.gov.ua/ej/ej13/txts/ Degtyaryova.pdf Fedotova Yu.V. (2015) Dosvid ta perspektyvy funktsionuvannia klasternykh struktur v ekonomitsi Ukrainy [Experience and prospects of functioning of cluster structures in the economy of Ukraine]. Efektyvna ekonomika [Effective economics] (electronic journal), no. 4. Retrieved from: http://www.economy.nayka.com. ua/?op=1&z=3961 Mazii N. H. (2011) Pryntsypy ta mekhanizmy derzhavnoho rehuliuvannia rozvytku pidpryiemnytstva [Principles and mechanisms of state regulation of enterprise development]. Demokratychne vriaduvannia [Democratic Governance], vol. 8. Retrieved from: http://nbuv.gov.ua/UJRN/DeVr_2011_8_8 Sait ekonomichnoho dyskusiinoho klubu [Website of the Economic Discussion Club]. Retrieved from: http://edclub.com.ua/analityka/reytyngovi-ocinky-ukrayiny-za-indeksom-merezhevoyi-gotovnosti-2016 Sait Nimetskoi konsultatyvnoi hrupy [Website of the German Advisory Group. Retrieved from: https://www.beratergruppe-ukraine.de/wordpress/wp-content/uploads/2016/01/PP_04_2015_ukr.pdf Voitko S.V. (2012) Upravlinnia rozvytkom naukomistkykh pidpryiemstv [Management of the development of high-tech enterprises]. – Kiev: NTUU «КPІ», pp. 280. Zhabynets O. (2014) Realizatsiia v Ukraini klasternykh initsiatyv za uchastiu strakhovykh kompanii: stan, dosvid, perspektyvy [Implementation of cluster initiatives in Ukraine with the participation of insurance companies: state, experience, prospects. Journal of European Economics]. Zhurnal yevropeiskoi ekonomiky [ Journal of the European economy], vol. 13, no. 2, pp. 205-213.

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DOI: https://doi.org/10.30525/2256-0742/2018-4-2-254-260

ANALYTIC OVERLOOK OF THE METHODOLOGY OF SYNERGETICS IN POSTNONCLASSICAL SCIENCE Viktor Yakimtsov1

Ukrainian National Forestry University, Ukraine Abstract. Purpose. This article reveals the main definitions of synergetics and methods that are being used in synergetic research. The differences-characteristics of classical, nonclassical, and postnonclassical science and their schematic illustration are described. There are criteria, by which the main methodological principles of synergetics are being chosen. The reasons that have caused an appearance of synergetics and its methodological apparatus and the framework of this apparatus are considered. The special aspects of nonlinearity of complicated systems, in our opinion, include the economic ones. Methodology. Such foreign and domestic scientists as Wiener N. (2003), Thom R. (1975, 1996), Prigogine I., Stengers I. (1986), Zang V.B. (1999), and Arnold V. (2004) have used methodological apparatus of synergetics in modern science. Methodologically synergetics is open for those new conceptions that are being formed in certain disciplines. Methodological principles of synergetics that cause the “colostral” principles are nonlinearity, nonclosure, and instability. The main principle – the rule of nonlinearity is a contravention of the principle of the super offer in the certain phenomenon (process): the result of adding the impacts on the system is not the adding these impacts’ results. The causes’ results cannot be added. This means that the result of adding the causes does not equal to the union of causes’ results. Results. For the synergy concept, the idea is typical that we see everything at once: the whole and its parts. It combines holism and elementarizm that are continuing each other. Synergetics, in fact, integrates deterministic and probabilistic styles of scientific thinking. Synergetics is the general theory of self-organization. It formulates the general principles of self-organization, valid for all levels of matter. A specific feature of the synergetic approach is to move from the study of simple to complex, from closed to open, from linear to nonlinear, from consideration of equilibrium and near-equilibrium processes to delocalization and instability, to the study of what happens far from equilibrium. Practical implications. The synergetic approach has a great advantage over others. Unlike cybernetics and systems engineering, research which focused on maintaining and preserving the existing state of dynamic equilibrium or order system, synergy, as logical extensions, studying systems in their dynamics and development. Accordingly, if the cybernetics principle operates mainly negative feedback aimed at the preservation of order in the system, synergistic implemented the principle of positive feedback, whereby the changes that occur in the system, not extinguished, and accumulate and amplified. Value/originality. As a result of the interaction of elements of the environment come to coordinated, cooperative behaviour, resulting in spontaneous, a new order, structure or dynamic mode. Key words: synergetics, postnonclassical science, methodology, paradigm, system. JEL Classification: A13, B41, N10, O10, O30, Q50

1. Introduction During the last decades, a dialectic method of thinking and investigating has given place to brand new – a synergetic approach that is based on the principles of global evolutionism – the combination of sciences about wild-life and inanimate nature, sciences about social development. In the field of economic research, this becomes a brand new level of cognition and provides a brand new decision, which, in its turn, provides the

optimization of economic processes’ development and the effectiveness of economic growth and, in the last analysis, human well-being. Effective development of Ukraine’s national economy is as of today extremely current and complicated task. Systematic-synergetic aspects and methods of analysis of interrelation between economic processes and phenomena intend to protect the country’s economy and increase social well-being. They also will allow considering the problem of effective development of

Corresponding author: 1 Department of Enterprise Economics, Ukrainian National Forestry University. Е-mail: [email protected]

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Vol. 4, No. 2, 2018 country’s economy not only as a relatively separate system but also as one that has synergetic relations with various subjects of the systematic hierarchy of the country (political, organizational etc.). There is a real opportunity for understanding and solving the tasks, which are connected to the processes of globalization and internationalization, given that synergetics studies the regularities of appearance, formation, development, and functioning of systems that are self-organized, nonlinear, and open, Economic synergetics, as of today, is on the upswing and ground nonlinear processes of social development.

2. Results 2.1. Development of synergetics in the 20th century From synergetics’ perspective, the economy is a selforganized, nonlinear, open, and dissipative system. This system is characterized by multilevel various interactions of its components, the combination of negative and positive feedbacks, interrelation of variability and selection of components, alternation of attractors and homeostasis. These systems are the real structures in open, nonlinear environments, which place the evolutionary processes. New science is an economic synergetics, which has appeared in the last decades, it forms its own methodology that is based on the laws of general synergetics and determines its categories and definitions. Based on the above, we have defined the main definitions of synergetics’ methodology and methods that are being used in synergetic research. However, our research would be incomplete without an analysis and estimation of scientists’ views on the synergetics as a picture of the world, on synergetics as a research methodology and on synergetics as a science. Such views have originated in different schools of synergetics’ scientists and, as it turned out to be, are a force and sense of their investigation and development. They complement the general picture and knowledge base about the synergetics – new postnonclassical research way of investigations of complicated phenomena and objects by dint of complicated modern means and methods etc. Synergetics as a quite young view of the world has originated due to the necessity of finding adequate, reasonable, calculated and forecasted by science answers to global challenges that civilizational human development makes. Methods of synergetics, as stated above, are based mostly on the regulations of “immortal” science – mathematics. Methodologically synergetics is open for those new conceptions that are being formed in certain disciplines. Synergetics is inheritable because it falls into interdisciplinary sciences and is based on the methodological framework of mathematics,


cybernetics, philosophy etc. In addition, synergetics is self-applicable, because it describes complicated processes and phenomena etc., basing on modern view and cognition of the world. The synergetic methodology is a methodology of interdisciplinary communication and modelling of modern reality, is open for new views, knowledge, methods of research and world cognition – the adaptive methodology of establishment and forecast of the most complicated processes and phenomena. As a rule, in the methodology of synergetics, scientists try to minimize a multivariable set of equations to a small number of significant equations that allows hereafter analysing nonlinear dynamics by significantly shortening (compacting) information. It can be understood by synergetics: 1. Developmental systems theory (by V.S. Stepin) (2003). 2. Theory of systems that are composed of many subsystems (by H. Haken) (1993, 2003, 2004). 3. Theory of systems that go through the condition of instability and imbalance (by D. Chernavskii) (2004). Anyway, mathematical methods of synergetics create a multitude that grows and is a base of the methodology of synergetics. At this date, synergetics is quite fast integrating in the field of liberal sciences, there are approaches of sociosynergetics and evolutionary economics. Methods of synergetics are being used in medicine, pedagogy, linguistics, psychology, history etc. According to I. Prigogine and I. Stengers’s ideas, right before our very eyes, the new worldview is being born – a dialogue of human and nature, where human has to realize his role and responsibility in his “community” with the natural laws (Prigogine and Stengers 1986). For the day, fundamental science pays more and more attention to supercomplex systems, directs its development path into the field of high technologies, economy, forecasts, risks, which forces it to become on the one hand interdisciplinary, on the other hand – extremely precise and supercomplex, this science is called postnonclassical. Postnonclassics as a science approach has originated at the end of ХХ century in tasks of the description of complicated, evolutionary systems and processes that evolve and self-organize, they can be quite differently interpreted. Thus, the one, who interpret these tasks, becomes a surveillance subject of the process or phenomenon etc. He is provided not only with surveillance devices, but also with the certain level of knowledge, with culture, psychology, and society (social aspect’s impact on his life perception and view of life). Humanity has travelled the way to such understanding over the last century. From Newton’s deterministic physics and Darwin’s idea in biology through the principles of relativity theory (A. Einstein) to surveillance facility in quantum physics and hereafter through the modelling of development of the Universe,

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the opening of the role of dynamic chaos and appearance of evolutionary natural science to modelling of historical systems that evolve. Quintessence (centre, core) of these processes is a synergetics. However, it does not mean that its methods can and have to be commonly used; the methods of synergetics do not work where; there is no development of the system (systems). Postnonclassics is mostly pronounced in tasks of optimal making decisions, ecologic tasks including human’s impact on nature, economic tasks of determining human needs considering his psychology and society’s possibilities. Let us briefly describe the differences-characteristics of classical, nonclassical, and postnonclassical science by the scheme of philosopher Stepin, V.S (2003). Classical paradigm lies in the fact that human raises a question to nature or any object and the object (nature) answers: The investigation revolves only around the object. The impact of level of researcher’s life perception does not count. Nonclassical paradigm – investigator raises the question to nature and receives an answer from it, but in that answers the object’s aspects and the ways that his question’s raising are considered. The principle of the ratio of experiment’s result to studying (surveillance) facility is emerging, i.e. there is an impact of surveillance act on the system (object), which cannot be neglected. It can be schematically illustrated in this way: An express condition of nonclassical paradigm is the consideration of ways and methods of posing the questions and object’s aspects. Postnonclassical paradigm lies in the fact that the investigator raises the question to nature, which gives an answer, but now the answer depends also on quality Subject

Vol. 4, No. 2, 2018 and characteristics of the investigator, object, ways of investigation, methods and level of understanding of the subject-investigator. As of today, such an approach is considered the newest, objective, and giving ample opportunities for studying the complicated phenomena and processes that are the object of synergetics’ studying. 2.2. Methodological principles of synergetics The modelling of complicated systems, which evolve, not only of natural and of technical but also of liberal and economic, becomes mainstream and interdisciplinary direction of science in ХХІ century. That is why it is necessary to distinctly present the principles and methods (technologies) of approaches to such systems’ modelling. The main methodological principles of synergetics are being chosen by several criteria: 1. The principles of the methodology of synergetics can and mostly have to be in such dependence that they could be expressed one in terms of another. For example, the definition of “gene” cannot be defined without such definition as “organism”, which part it is. 2. Systems of complicated phenomena and processes can be modelled and built in various coordinate systems of various measurements. Then the problem of conversion of such systems from one coordinate system to another appears. 3. The number of principles has to be enough, but not too big. A person, who uses them, will not have an opportunity to simultaneously keep track of their maintenance in real modelling. 4. Systemacity, systematic approach to the study of complicated processes, phenomena etc. This is an express condition (principle) of the methodology of synergetic investigations in any field of their use as of today.

Methods of study

Object (phenomenon, process)

Investigator Fig. 1. Schematic illustration of classical paradigm’s core

Subject

Methods of study (necessarily)


Investigator Fig. 2. Schematic representation of nonclassical paradigm’s core

Subject (features)

Methods of study (features)


Investigator Fig. 3. Schematic representation of postnonclassical paradigm’s core

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Vol. 4, No. 2, 2018 Professor Budanov, V.G. (2007) has studied the methodological principles of synergetics from a critical point of view of their really practical use in economic tasks of modernity. Any evolutionary process is presented by a range of changes in conventional conditions of order and chaos in systems that are linked by phases of transition to chaos (system’s destruction) and way out of chaos (self-organization). Only one of above said stages we call a homeostasis of the system. This is a stage of the table existence of complicated system as it was called Existence by prof. Budanov (2007). It, as a rule, is the longest and has stable characteristics, the rest of stages of existence of conditions of existence of complicated systems, phenomena, processes are called the colostral stages and crisis stages. Such a classification is somewhat conventional because even in steady state condition of system’s existence, there is an element of chaos and the element of order may be found in chaos (crisis). The problem is in the degree of their blend, i.e. correspondence of one small part to another. Nature, as a rule, evolves by “baby” steps, so the condition of Existence is inherent to it. The principles of this condition are: 1) homeostatic and 2) hierarchical pattern. They characterize the phase of order, the stability of system’s functioning, clarity and description’s simplicity. For example, in nature, it is a day-night biorhythm, the circle of seasons etc. Prof. Budanov has distinguished also other five principles of the colostral stage: 1) nonlinearity; 2) imbalance (instability); 3) nonclosure; 4) dynamic hierarchical pattern; 5) surveillance (observance) (2007). These principles characterize the transformation stage, system upgrade, passing successive steps by this system by old order’s destruction and chaos of change of alternatives and eventually the inception of the new order. Herewith first three principles are the principles of the methodology of synergetics that give birth to the colostral stage of the new system of order. And the last two of them are constructive, they provide the new system with its compilation of corresponding details and constructions (characteristics-aspects) and also give investigators an opportunity to understand, observe and describe “the new order” and they give him its coexistence with the environment. Let us have a closer look at above-said principles and estimate them from a perspective of using the economic systems in synergetic methodology. Ultrastability of the system is a phenomenon, which has to keep the system’s functioning within bounds – limits that allow it to have a sense of purpose (goal). According to N. Wiener, any system has a purpose (goal) of its existence, according to which the systems’ motion is being corrected (2003). Such a correction is being provided by corresponding signals,


characteristics, features, and aspects, which hold any negative impact from outside under. For example, this is exactly how homeothermal creatures behave in nature when for survival as a goal they maintain the stable body temperature despite any temperature variations in the environment. The purpose (goal) – the program of system’s behaviour in the condition of homeostasis (ultrastability) is called an attractor in synergetics. In space of system’s conditions, the attractor is a certain variety of characteristics of the phenomenon, process etc. which in due course the closest system’s conditions that are being drawn to. Area (field) of attractor’s attraction is called his basin. It is worthy of note, that attractors exist only in open dissipative systems, i.e. systems that dissipate the energy, material and information and describe the final behaviour (condition) of the system, which usually is simpler than transient process. Examples of simple attractors in mechanics are a pendulum that attenuates in the lowest point of motion or a ball at the bottom of the hole. These are the attractors of equilibrium. Nevertheless, more complicated attractors are possible too, for example, the flight of an eagle in the air blasts, the air, on the one hand, moves from the ground and on the other hand – downwind. If there is no such motion, then the eagle will not be able to hover (fly). Such structures that exist only until they contain the additional flows of energy or material are called dissipative (those, which dissipate the energy) – are far from equilibrium and stability. Living systems of existence are exactly such systemsstructures – they die without a constant inflow (flushing) of energy or material through them, i.e. without the metabolism. This principle unites the ideas of cybernetics, system analysis, and eventually – the synergetics. One more important principle is a hierarchical pattern of the systems-structures. The main hierarchy’s matter in nature is the fact that constitutive nature is the highest level in relation to lower ones that are a structureless element of chaos, i.e. just a construction material. For example, the hierarchical system “society” is the highest level, which consists of the lowest – people that form this society; atoms of material consist of cores, electrons etc. These are words, phrases, texts etc. in language; these are understanding, views, ideologies etc. in the world of ideas (science). These levels are hierarchical structures (ladders) that exist everywhere around us. Always, when elements are being united in structures, they pass them a part of their characteristics, which become the characteristics of the system itself. Such system’s characteristics are called “the order parameters” and their functioning nature is called the principles of submission, i.e. the variation of a parameter of the

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lowest order, by giving its characteristics to the general system, submits the generalized characteristics of the system (structure) of the highest order. The phenomenon of their specific, i.e. mutually agreed coexistence is called self-organization. It is worthy to lay emphasis on circular causality in phenomena of selforganization, interdependence and interconditionality of the behaviour of elements of two neighbouring orders. For example, in the stream (flashy flow), there is a water motion (main one) that sucks the small substances (sand, leaves etc.) in and forces them to move along with the water. These substances, in their turn, give their characteristics, in this case – pollutions, to the water. An important characteristic of such hierarchical systems is the impossibility of full reduction (junction of its components) – a reduction of characteristics of structures of more complicated orders to the language (motion, features) of structures of more simple (low) orders of the system. A specific role in systems’ hierarchy is time because the synergetic principle of submission if described and defined by H. Haken exactly in time – temporary system’s hierarchy (1993, 2003, 2004). Such closest levels in systems’ investigation are micro, macro and mega levels. Above said principles of existence need their supplement with colostral principles, which are the driving force of evolution. Methodological principles of synergetics that cause the “colostral” principles are nonlinearity, nonclosure, and instability. Main principle – the rule of nonlinearity is a contravention of the principle of the super offer in the certain phenomenon (process): the result of adding the impacts on the system is not the adding these impacts’ results. The causes’ results cannot be added. This means that the result of adding the causes does not equal to the union of causes’ results. Customary borshch can be an example, it consists of n-number of ingredients and in the same time, it is not a simple union of its components, but it is the new quality of these components under the influence of heat treatment of these ingredients. The principle of super offer does not extend to nonlinear systems when two factors’ effect on the situation causes an effect, which has nothing to do with the results of the certain effect of each factor. The development in nonlinear systems is by nonlinear laws that lead to the multivariance of ways of selecting and of alternatives of exit from the state of imbalance and instability. In nonlinear systems, the processes, phenomena etc. can be of deeply threshold nature, when there is their slip-and-stick transformation to another feature during the gradual change of external conditions. Herewith, the old structures are being damaged, sometimes there is their full destruction and they transform to qualitatively new structures.

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Vol. 4, No. 2, 2018 Unbalanced, open nonlinear systems constantly create and maintain the inhomogeneity in the environment. There some unexpected consequences can appear between the environment and the system, because there the relations of positive feedback appear, which strengthen system’s equilibrium deviation. In the processes of analysis and synthesis of nonlinear systems’ components that self-organize, the resulting deduction (the answer) can be determined not by simple adding of each component, but by synergetic method – generalized synthesizing impact not only of each component separately but also of their generalized effect in a greater degree. Such an approach in economic research is extremely necessary, but unfortunately, as of today, it is not commonly used even in scientific research. In actual fact, it is the newest approach to study the economic processes, which is debatable, but extremely necessary for modern insight and generalization of processes of society’s economic growth. 2.3. Prospects for synergetics Today, in conditions of accelerated and instable development of the world and economic processes, the synergetics and its methodological apparatus have, in our opinion, the defining role. This is an attempt to realize, describe, solve, and forecast the principles of evolution of economic systems, phenomena, processes etc., to consider the causes of economic recoveries and recessions. The overwhelming majority of macroeconomic models that were developed and described earlier and as of today are the axioms or close to them for one economic process or the other, contain assumptions and are based on the postulate that the economy is a closedloop system. However, it means that the processes that occur in the closed-loop systems according to the second law of thermodynamics are being drawn to the equilibrium and in due course, these processes attenuate and stop. Therefore, supposing that economic processes are being described by the closed-loop system, it is logical that these attenuating processes will lead to their edge state – the equilibrium. However, the economy and its processes are the closed-loop system that falls under influence of various external and internal factors. Professor V. Nusratulin (2006) has proved that the economy is instable and closed-loop by its core and nature. The special aspects of nonlinearity of complicated systems, which, in our opinion, contain the economic ones, lie in these facts: – nonlinearity causes indignations and agitations of the systems (fluctuations) and can strengthen or reduce them. For example, the investment in one economic process or the other, even quite insignificant increase of financial assets (financial investment volume) causes significantly bigger GDP growth;

Vol. 4, No. 2, 2018 – nonlinearity causes threshold sensitivity to the changes. For example, in the economy, the demand decreases when the production price raises and conversely; – nonlinearity provides the suddenness of changes in course of processes in the system because many various factors have a significant impact on it; – nonlinearity’s special aspect is the fact that under a certain number of changes in the environment, the transformation to another feature may not happen. True and reverse thesis – qualitative change of the environment causes the appearance of new opportunities – system’s components, which will lead to the change of the system itself. The impossibility to neglect the external and internal conditions’ impact on the system is a specific principle of the methodology of synergetics that is according to nonclosure (openness) of the system. All living systems, as well as society, are open systems; they consume the material and energy. It is the openness that allows such systems to evolve from simple to complicated one, to open a program of organism’s growth from cell-embryo to highly organized grown organism. This means that hierarchical level might develop and be complicated only during the exchange of material, energy, and information with other levels. Inanimate nature, dissipation (system’s transformation of energy, which is arriving at the system to thermal energy) can also lead to regulation of the structures. For example, the evolution of the solar system. The synergetics has originated of the description of such systems in chemistry, physics and theory of laser. The most interesting the homeostatic structures are – the structures that are not in equilibrium with the environment, in other words, such systems, which do not have maximally possible entropy. Of course, any process, when the system transforms from one condition to another, occurs that way that it is impossible for this process to be in a reversed direction for the system to experience identic intermediate states and in such event for the surrounding bodies not to experience any changes. Herewith the energy dissipation will certainly occur at the expense of emission, abrasion etc. Therefore, almost all processes (phenomena) in nature are inconvertible; a part of the energy is being lost in them. The concept entropy is being introduced for characterizing the energy dissipation. Therefore, the entropy is a function of system’s condition, when very insignificant changes in reversible process are equal to the ratio of the very small amount of heat that was added in this process to the temperature, which was there when this heat was added. The entropy can be constant only in closed-loop systems, i.e. such systems, where there is no energy exchange with external conditions (bodies). The


word “entropy” in Greek (entropia) means the turn, transformation. This concept was introduced to determine the measure of energy dissipation during the reversible processes in thermodynamics; this is a measure of the probability of any macroscopic state in physics, the measure of indeterminacy of certain research that can have various results – in information theory. Entropy as a sort of “measure of chaos degree” in systems is an extremely important characteristic in synergetic research about complicated open systems. The majority of objects that we are interested in and which are being investigated in this work are economic structures and processes, ecologic and natural phenomena, enterprises, social phenomena etc., are the open systems, instable, imbalanced, open and are being managed by nonlinear laws. The principle of nonclosure (openness) of the systems by hierarchical levels lays emphasis on two extremely important circumstances: 1. Processes’ self-organization becomes possible – the openness of processes, structures, and systems of the macro level will lead to the possibility of the existence of same phenomena on the micro level. 2. Analogous phenomena might also occur at the level of structures (systems) of the macro level and the mega level of managerial parameters of systems that change. During the transformation from one system’s condition to another, the system becomes in a mandatory manner open in point of imbalance (instability). One more methodological principle in research about synergetic systems is an instability, disequilibrium, imbalance. The system is instable if there are conditions that cause any small variations of its parameters, which change the system’s condition. Such systems’ characteristic was considered their disadvantage for a long time and bifurcation points – points of system’s transformation to another condition were considered the points that manage the systems. The significance of bifurcation points also lies in the fact that influence on the system’s behaviour, its further development and condition can be made only in them. It is also worthy of consideration that such circumstances as the unpredictability of bifurcation points’ impact on the behaviour and hereafter on the development of systems’ condition. R. Thom (1975, 1996) and V. Arnold’s (2004) catastrophe theory is sometimes called the bifurcation theory because it is able to forecast the process, which can occur in the future. There are two cross-functional pre-crisis symptoms of system’s behaviour, i.e. two “premonitory symptoms” of catastrophes. The first one is called “the lull before the storm” or the pre-crisis slowdown characteristic rhythms of the system. The second one is an increase of noise fluctuations in the system near the bifurcation point, i.e. increase of chaotic variation of system’s characteristics from their average values.

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3. Discussion and conclusions Synergetics can and even has to study such systems by constructive principles. Constructive principles are the principles that give the investigator the opportunities to unite, coordinate and accumulate the principles of synergetics. The development of interdisciplinary approaches turned out to be very close in form and substance to teaching or scientific popularization. In both cases, it is necessary to comprehend the way passed by researchers, highlight it in the key ideas and results, most important “for the uninitiated”, and also ruthlessly throw out many details “dear to the author.” This path may present

Vol. 4, No. 2, 2018 unexpected generalization and a new vision of problems to be solved. Nonlinear dynamics (synergetics) offers a basic model, new concepts and techniques, that can be applied in this situation, and that cannot be. They can be the basis of the building of a new nonlinear cognitive paradigm and may remain separate findings in various disciplines. Synergetics seems us to be no dogma or even no guide to action, but a way of looking at the problem, which is sometimes very useful, in fact. Although, of course, we cannot discount the form, fashion, and charm of the people involved with the synergy.

References: Arnold, V. I. (2004) Theory of catastrophes (in Russian), 4th ed. Moscow, Editorial-URSS. Budanov, V.G. (2007) Methodology of synergetics in the post-non-classical science and education, Institute of Philosophy. – M.: LCI Publising house, 240 p. Chernavskii, D.S. (2004) Synergetics and Information. Dynamical Theory of Information. URSS. Haken, H. (2004) Synergetics: Introduction and Advanced Topics (Springer, Berlin, Heidelberg) Haken, H. (1993) Advanced Synergetics: Instability Hierarchies of Self-Organizing Systems and Devices. New York: Springer-Verlag, 424 p. Haken, H. (2003) Secretes of Nature. Synergetics: the Learning about the Interaction, 320 p. Limited (2006) Chichester, 1983. Regular and Chaotic Dynamics, 136 p. N. Wiener (2003). The Creator and the Future, 732 p. Nusratullin V. K. (2006) Nonequilibrium economy. 2nd prod. additional M: Satellite company, 482 p. Prigogine, I. Stengers, I. (1986) Order out of Chaos. Man's new dialogue with nature, 432 p. Stepin, V.S. (2003) Self-developing systems and postnonclassical rationality. Moscow. Thom, R. (1975) Structural Stability and Morphogenesis: An Outline of a General Theory of Models. London. Thom, R (1996) Logos et Théorie des Catastrophes: à partir de l’oeuvre de René Thom, ed. Jean Petitot. Colloque de Cerisy-la-Salle 1982 (Patiño, Geneva 1996). Zang, Wei Bin (1999) Synergetic Economics. Time and Locusts in the Nonlinear Economic Theory / V. Zang, M. Ostrovsky (translated from English) – Moscow: Mir, 366 pp.

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TRANSACTION COSTS OF ENTERPRISES: THE ISSUE OF ACCOUNTING AND ANALYSIS MANAGEMENT Igor Yaremko1, Tetiana Voskresenska2 Lviv Polytechnic National University, Ukraine

Abstract. Major obstacles to securing rational organization of accounting and analytical support system of the enterprise transaction costs management are examined. Organizational and methodological peculiarities of accounting and analysis of economic entities’ transaction costs are defined. Characteristic aspects of official transaction cost reporting in accounting system as a part of administrative, marketing, and other operating expenses are analysed. Exclusively approximate estimate of most kinds of transaction costs is recorded. A significant impact of the amount and structure of transaction costs on the efficiency of managerial decisions regarding further enterprise activity and competitive performance is proved. Certain approaches to accounting and analytical reporting of the enterprise transaction costs are formed. The aim of the article is to investigate basic approaches to and methodological foundation of identifying, accounting, and analysis of economic entities’ transaction costs, as well as their compliance with modern economic realia. The subject of the article consists of the in-depth clarification of content and economic matter of transaction costs under the conditions of modern economy; definition and generalization of chief problems in adaptive accounting of transaction costs management; justification of accounting reporting of transaction costs with due regard to peculiarities of their formalized and unofficial component reporting in accounting system. Methods of studying into theoretical and methodological background of investigation there are general scientific methods of obtaining knowledge (analysis, theoretical generalization, comparison), which were basically applied while studying approaches to the identification, as well as accounting and analytical reporting of transaction costs; methods of systematization – in establishing preconditions and challenges of accounting and analytical reporting of transaction costs; systematic approach – in determining the scheme of transaction costs origin as far as national economic subjects are concerned; statistical methods – used while analysing the rates of transaction costs. The practical significance of the work consists in the investigation of current methodological aspects of identification, as well as accounting and analytical reporting of transaction costs, in order to work out adaptive mechanisms of their pegging, accounting, and analysis under unstable economic conditions, and what is more, analysis of significance of their influence on competitive capacity of enterprises under the conditions of disequilibrium national economy. Value/originality. The originality of the work consists in the practical reinforcement of scientists’ theoretical insights and formulation of improved mechanisms for the identification, accounting, and analysis of transaction costs. The theory of transaction costs introduced by R. Coase and adapted to unstable conditions of the national economic system development has been taken as a basic concept of identification, accounting and analytical reporting of enterprises’ transaction costs. Key words: accounting of transaction costs; transformational costs; official and unofficial transaction costs; identification and estimation of transaction costs; economic analysis of transaction costs. JEL Classification: D23, D61, M41, О17

1. Introduction The instability of the global economic situation has led to a shift in priorities and, as a consequence, approaches to evaluating the efficiency of enterprises. In hard-to-predict economic conditions of enterprise functioning, one of the dominant indicators of

evaluating the efficiency of their activities is the value and level of incurred costs. The current practice of management by both domestic and foreign business entities and analytical reviews of the activities of wellknown world companies show that under the current unstable economic conditions, the greatest problems

Corresponding author: 1 Department of Accounting and Analysis, Lviv Polytechnic National University. E-mail: [email protected] 2 Department of Accounting and Analysis, Lviv Polytechnic National University. E-mail: [email protected]

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arise in the information support for sound and efficient cost management, in particular, transaction costs. At the same time, along with the difficulties associated with the formation of qualitative information support for managing the transaction costs of an enterprise, there are problems with the choice of economic tools for their accounting and analytical reflection and analysis. This is due to the incapability of most economic tools to ensure a fair matching of the expediency and efficiency of transaction costs in current activities and their projections in the formation and maintenance of a satisfactory state of long-term conditions for the development of an entity. An important role in the study of the value, structure of transaction costs, and ensuring their proper accounting and analytical reflection is due to the fact that in the pre-crisis period, their management played a secondary role in the overall management process, which led to their unreasonable growth in certain sectors of the domestic and world economy. The lack of objective grounds for the excessive growth in the value and level of transaction costs of economic entities in practice led to a reduction in the working capital of the vast majority of both individual enterprises and countries as a whole. The shifting of the emphases of the evaluation of the enterprise efficiency through the prism of transaction costs requires the formation of adequate informational accounting and analytical support that can determine the expediency of costs, control their value, forecast the possible consequences of transaction costs incurred for the current and future activities of a company.

2. Preconditions of transaction costs’ accounting and analysis Volatility and variability of the world financial and economic situation caused the need to revaluate current approaches to the performance evaluation of economic entities’ activity. Under such economic conditions, enterprise efficiency evaluation on the basis of the amount of earned profit or its relative index (profitability) does not make it possible to make adequate conclusions to a high degree of accuracy regarding true perspectives of the enterprise concerning defining and following the selected business line. Under dynamically unstable conditions, overall costs or their certain components are considered to be significant, complex, and one of the key appraisal objects for the assessment of enterprise activity. In the economics literature, alongside with the research into transformational costs (associated with manufacturing), scholars bring forward numerous arguments on the necessity of accounting and analysis of transaction costs (for marketing mechanism functioning) that are of major importance under the conditions of disequilibrium economy. A closer attention to the research into transaction costs is due to dynamically uncontrolled and massive

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Vol. 4, No. 2, 2018 growth of their amount, which led to the expansion of world economic crisis in 2008–2018. Numerous current calculations made by foreign and national scholars have proven the influence of transaction costs on the violation of world economic stability. According to scholars’ calculations (based on scientifically grounded methods) that were recorded in the economics literature, a rapid increase in the amount of transaction costs of enterprises was fixed. Generalizing information from the sources (Lemeshchenko, 2010; Kolodnyaya, 2008; Shepelenko, 2008), it should be noted that at the beginning of the XIX century, the amount of transaction costs was about 20-25% from total expense amount and, in the XXI century, their amount in certain branches of economy is within 50-80%. The more developed the economy of the country is, the lower the transaction costs are (primarily off-the-books). Enterprises operating under the conditions of disequilibrium economic system and politically-oriented economy usually bear a considerable amount of both on-therecord and off-the-books transaction costs.

3. Applying macroeconomic indices to predict the level of transaction costs Having studied the value of certain macroeconomic indices, it is possible to define the trends of transaction costs quite clearly, though in some ways indirectly, on macro- and microlevels. For such purposes, it is suggested using and analysing the value of the Ease of Doing Business Index considering its structural and indicative components. This index is calculated and published annually in the appropriate report by the World Bank. Using the information on value and dynamics of this index, it is possible to characterize variations of transaction costs in view of different countries taking into consideration their rating defined on the basis of Ease of Doing Business Index. Studying the declared values of aggregative indicative components of the Ease of Doing Business Index (business registration, obtaining building permission, connection to energysaving systems, property registration, receiving a loan, protection of minority investors’ rights, taxation, international trade, contract performance security, solution to insolvency problems) in dynamics (Table 1), it can be noted that there is a moderate decrease in transaction costs, which shows the growth of index value within the country. The above-noted approach to trend analysis of changes in transaction costs is rather simplified because in the process of calculating the Ease of Doing Business Index, only a small number of factors, which have a great influence on the amount of transaction costs, is taken into consideration. At the same time, such factors as level of corruption in the country, infrastructure quality, exchange rate change, level of politicization


Vol. 4, No. 2, 2018 Table 1 Macroeconomic indices for determining trends of changes in the general level of transaction costs in Ukraine Index Ease of Doing Business Index (0-100)`* 189 countries Corruption Perception Index (0-100)**

2012 44,27 (152)

2013 48,87 (137)

2014 58,64 (112)

2015 61,72 (96)

26

25

26

27

Level of shadow economy***

34 %GDP

35% GDP

40 %GDP

43% GDP

2016

Note The lower the value is, the better, the 62,90 (83) fewer obstacles to doing business The closer the index value to 100 is, 29 the higher the country rating is Positive meaning of the decrease in 41 % GDP the share of the shadow economy in GDP

*the source of information is the website of the World Bank **the source of information is the website Transparency International *** the source of information is the website of the Ministry of Economic Development and Trade of Ukraine

of the economy and dependence on international credits/subsidies are not taken into consideration while calculating the Ease of Doing Business Index though it is advisable to consider these factors while analysing the level of transaction costs. However, in order to somehow compensate for inaccuracies (or to prove its reliability) of analysis of transaction costs level (low, average, high) carried out using the Ease of Doing Business Index, the analysis may be supplemented with such informative indices as the perception of corruption and the level of shadow economy (Table 1). If the Ease of Doing Business Index was determined for certain branches of the country’s economy, conclusions concerning the dynamics of transaction costs would be more accurate. This is due to the fact that the amount, constituents, and structure of transaction costs are different in various economic realms depending on the branch specificity. Some branches need various kinds of permissions and agreements for their current performance (for example, building industry, machinery manufacturing, etc.) so the amount of transaction costs at such enterprises will be larger in comparison with the enterprises that do not need a special permission documentation for their activity. Having analysed the information in Table 1, it may be noted that the level of transaction costs in Ukraine is high as indicated by the Level of Shadow Economy and Corruption Perception Index value. Growth dynamics of the level of shadow economy may prove the increase in the amount of an unofficial part of transaction costs. Thus, generalized analysis of the above-mentioned macroeconomic indices attests persistently high level of transaction costs in certain branches of domestic economy. The specified macroeconomic indices recommended for determining the level of transaction costs may be also used to carry out a comparative analysis of such costs level in various countries of the world, hence setting the trends for changes of macrolevel transaction costs in one or another country. Scholars pay more attention to the study of transaction costs because such costs are hard to predict, their value growth is uncontrolled, and due to prevailing negative influence on the competitive

performance of enterprise activity. Thus, optimization, usually by means of transaction costs minimization, is one of the crucial tasks of enterprises and governments. “It is clear that zero transaction costs are theoretical abstraction rather than reality description…, practical goal of economic policy should be to minimize transaction costs to the extent possible and not to entirely abolish them” (Vítek, 1998).

4. Analysis of the latest studies on identification, accounting, and analytical reporting of transaction costs In the economics literature, there are numerous theoretical and application-oriented publications regarding the definition and accounting of transaction costs. In certain academic papers, scholars pay a particular attention to the investigation of ontological aspects of transaction costs’ definition, formation and generalization of transaction costs classification, the practicability of reporting such costs in the enterprise accounting system. R. Coase (1993) was the first who officially claimed the presence of transaction costs in the economic system, highlighting their significant influence on the enterprise. H.V. Kolodnaia (2008) conducted a comprehensive study of the analysis of transaction costs’ role in the course of enterprise development. O.V. Shepelenko (2008) in her work analysed the theoretical and methodological background and set forward practical guidelines for transaction costs management designed to secure economic growth in Ukraine. Among other things, the author built up a concept of transaction costs controlling mechanism in the Ukrainian economy founded on institutional approach and principles of system development (Shepelenko, 2008). N.V. Hordopolova, V.Y. Hordopolov (10) disclosed prerequisites and sources of transaction costs origin, mechanism of their origin, study procedures, and information support of such procedures. M.V. Verhunenko (2008) analysed the level of transaction costs in the business sector of Ukraine in comparison with member countries of the European Union and defined trends of their change, as well as obstacles to the integration of Ukraine into

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the world economy. T.I. Kurylo, T.M. Sliozko (2016) studied the notion of transaction costs in relation to institutes and institutions in an institutional environment, as well as peculiarities of their formation in the agricultural sector. The influence of institutional environment sector on transaction costs formation was defined. O.M. Halytskyi (2013) set forward an approximate estimation procedure algorithm of transaction costs associated with agricultural goods sales. The algorithm is based both on accounting and reporting data usage and determining foregone earnings in order to estimate implicit transaction costs.

5. Approaches to the identification, accounting, and analytical reporting of transaction costs; their adaptation to disequilibrium economic conditions Taking into consideration an upward trend of transaction costs, it is worth mentioning that the necessity of their accounting and analysis is caused by determining the influence of transaction costs on competitive performance of certain enterprises, as well as states or their unions. Despite the urgent need of enterprises caused by current unstable economic realia to form accounting and analytical security of transaction costs. Here are the main obstacles to rational organization of accounting and analysis of transaction costs, provided in the economics literature (Lukichev, 2010; Verhunenko, 2011): – theoretical and methodological disagreements over the determination of subject-matter of transaction costs; – lack of efficient legal leverages over individual elements and the total amount of transaction costs;

Vol. 4, No. 2, 2018 – lack of detailed and reasoned classification of transaction costs because of their interrelation and complementarity with transformational costs; – the necessity for the development of efficient approaches to the identification and estimation procedure of transaction costs on macro- and microlevels; – indefinite (implicit) nature of certain types of transaction costs (lack of documenting of most of them); – time-based delimination of origin of certain transaction costs components; – the considerable proximity of transaction costs estimation, applying procedures suggested in the academic literature. Given the fact that transaction costs largely influence financial, economic, and business activity of enterprises, it is appropriate to determine peculiarities of their origin with due account for the nature of transaction costs. A simplified scheme of transaction costs origin in the process of economic entities’ cooperation is depicted in Fig. 1. Fig. 1 shows that transaction costs arise between enterprises when they are making agreements on cooperation (1). In particular, transaction costs arise before the conclusion of the agreement and they are connected with the search for clients, negotiations, and alignment of interests. Another part of transaction costs (2) arises when the agreement obligations between the parties are being fulfilled. These are costs associated with the control over fulfilment of the contract items, their alterations (adaptations) when there are changes in the market or in its particular segment. Besides, transaction costs External transaction costs

External transaction costs

Enterprise A

1.Making agreement on cooperation

internal transaction costs 3. Granting licenses, permissions, etc

2. Ownership transfer

STATE AND NONSTATE INSTITUTIONS

Enterprise B internal transaction costs 3. Granting licenses, permissions, etc

internal transaction costs 4. Cooperation


INTERNATIONAL ORGANIZATIONS AND FUNDS


Fig. 1. A simplified scheme of transaction costs origin within domestic economic entities

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Vol. 4, No. 2, 2018 associated with enterprise management and activity (3) arise in the process of its cooperation with state (fiscal service, government, deputy corps, customs, judicial authorities) and non-state (insurance company, notary office, and bank) institutions in the process of obtaining permissions for a certain activity, tax payment and non-tax payment, customs clearance of goods, etc. Transaction costs arising in the process of interaction between enterprises are microlevel costs having an impact on the activity of any given enterprise. Macrolevel transaction costs arising in the process of cooperation with international organizations and funds (4) are associated mainly with getting a loan or financial aid. They are defining for certain states. In the process of such cooperation, governments of countries implement the requirements they had in order to develop a closer cooperation with international organizations and funds and meet the requirements. In Fig. 1, it is noted that transaction costs may have internal and external forms of manifestation. Internal transaction costs may arise in the process of cooperation between shareholders (minority and majority), shareholders (owners) and enterprise management, enterprise and its employees. External transaction costs go beyond the enterprise and arise in the process of their cooperation with the other parties of the economic system. Range of problems associated with accounting and analysis management of transaction costs is caused by lack of structured informational background concerning their amount, level, and structure; certain components of transaction costs are reported as administrative costs (representational expenses, travel expenses, acquisition


of licenses), marketing expenses (advertising costs, warranty repairs), other operating costs, financial and investment costs. Separate mapping of transaction costs on individual accounts for operating costs accounting leads to underestimation of their overall impact on the economic entity performance (expenses, prime cost, profit, competitive capacity). Apart from that, only on-the-record part of transaction costs is reflected in accounting system while “off-the-books costs connected with overcoming bureaucratic barriers remain out of accounting records, constitute enterprise’s commercial secret and, in some cases, they may significantly outweigh on-the-record part” (Verhunenko, 2011). While on-therecord transaction costs are mapped in the accounting system, off-the-books costs can be usually estimated approximately applying heuristic methods (expert) or cannot be estimated at all due to the lack of evidence or facts of their realization. Enterprise management or owners often do not disclose information on the amount of off-the-books transaction costs because they are usually illegal so it makes sense to report such transaction costs in the system of managerial accounting.

6. Analysis of transaction costs dynamics as exemplified by machine-building enterprises In order to determine the trends of changes of the transaction costs amount as far as domestic economic entities are concerned, let us make their analysis (using on-the-record financial accounting) as exemplified by machine-building enterprises (Table 2). The amount of on-the-record transaction costs is provided in Table 2. The information on the trends of

Table 2 Trend data to analyse transaction costs of machine-building enterprises over a period of 2012–2016 Criteria, thousands hryvnias.

2012 2013 PJSC “Conveyer” Transaction costs as a part of operating expenses, thousands hryvnias 16320 6519 The amount of transaction costs (prime cost), % 123,17 53,83 The amount of transaction costs (net profit), % 109,71 50,30 PJSC “Korosten Machine Building Plant” Transaction costs as a part of operating expenses, thousands hryvnias 3246 2927 The amount of transaction costs (prime cost), % 19,27 18,96 The amount of transaction costs (net profit), % 16,49 16,82 PJSC “Beryslav Machine Building Plant” Transaction costs as a part of operating expenses, thousands hryvnias 15070 13055 The amount of transaction costs (prime cost), % 17,24 14,53 The amount of transaction costs (net profit), % 15,13 13,20 PJSC “Odesa Machine Building Plant” Transaction costs as a part of operating expenses, thousands hryvnias 29238 9466 The amount of transaction costs (prime cost), % 174,43 66,01 The amount of transaction costs (net profit), % 134,22 66,34 PJSC “Drohobych Machine Building Plant” Transaction costs as a part of operating expenses, thousands hryvnias 4636 4796 The amount of transaction costs (prime cost), % 37,43 67,44 The amount of transaction costs (net profit), % 24,39 45,41

2014

2015

2016

6614 49,69 45,11

7848 55,64 48,52

8734 46,78 39,32

3748 31,72 33,89

3261 24,49 23,92

2948 20,80 20,44

42374 47,36 43,59

65543 140,58 134,25

46318 52,04 47,58

11231 86,03 79,88

12990 66,30 72,07

16711 59,69 48,85

7199 82,44 62,37

5433 96,67 95,62

5010 54,30 41,18

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transaction costs is presented in Table 2 and it shows that transaction costs trend upward in a majority of enterprises under investigation as far as absolute value, prime cost, and net profit are concerned. Although the enterprises under investigation belong to the same branch, the amount of transaction costs as a part of their profit differs, due to specific operational peculiarities. As far as enterprises under investigation are concerned, an average value of transaction costs within these enterprises ranges from 20 to 80% in profit value. There is a need in their systematization and analysis because the on-the-record value of transaction costs influences final financial results of the enterprise activity. N.V. Hordopolova, V.Y. Hordopolov (2010) emphasize the necessity of well-ordered and constant accounting of transaction costs, “separating transaction costs in accounting and their analysis are necessary because such costs are scattered among various business and support units of the enterprise and their amount remains unknown for the managerial apparatus though their product costs in high-tech spheres may reach 20% and more”. That is why systematization of information on transaction costs and their detailed list are gaining significant importance as it allows adjusting the value of certain components of transaction costs in current mode helping to reduce the total value of transaction costs. The problem of measuring transaction costs lies in the fact that it is not always possible to determine their amount and rate their dynamics. Only the on-therecord constituent of transaction costs is subject to quantitative measurement of transaction costs, while off-the-books constituent is practically impossible to measure as a part of the traditional accounting system. Under such conditions, off-the-record transaction costs are measured applying qualitative methods establishing the direction of their change or determining the influence (positive, negative) on enterprise performance efficiency. At the same time, it should be pointed out that “nowadays there is no universal, worked out, quantitative method of transaction costs accounting, which is caused by difficulties in accounting and estimation of certain transaction costs categories, as well as a considerable amount of their classifications and definitions” (Halytskyi, 2013). Thus, in the process of accounting management, there are good reasons to group transaction costs typologically in view of certain transactions (exchange, administration, rationing, etc.) with the further specification, when transaction costs may arise, be modified and integrated into other types of enterprise expenses. Information on transaction costs grouped in such a manner will be used for their estimation and analysis. Such scholars as P.S. Lemeshchenko (2011) and H.V. Kolodnia (2008) emphasize in their works that transaction costs are irrational, noting that “the general conclusion that can be made on the basis of transaction costs theory is that division of labour and exchange

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Vol. 4, No. 2, 2018 transactions, on which economic activity is based within market model, lead to huge and irrational in terms of social usefulness expenses” (Lemeshchenko, 2011). Transaction costs have become the key factor of the enterprise natural selection, signalling the necessity for changes of organizational structure in order to ensure company’s strong position on the market (Kolodnia, 2008). In other words, transaction costs may be considered to be a kind of indicator of the necessity for changes in the enterprises’ inner structure, forms and methods of their cooperation with counterparts, directions of their activity, market segments, etc. Conclusions concerning total value of transaction costs regulation, the structure of their certain constituents and dynamics depend on the quality of accounting and analytical analysis of transaction costs. This is due to the fact that in order to conduct the analysis of transaction costs accounting records are used (70-80% out of all the information), and they do not fully reflect composition and structure of transaction costs and so “the problem of determining their composition still remains unsolved because of a large share of irregular, specific, uncontrolled expenses of probable or expected nature. This is the reason why it is impossible to gather information on their actual state within accounting system that deals with carried out business operation facts” (Kurylo, Slozko, 2016). Thus, a major part of transaction costs, basically associated with corruption element, cannot be measured directly. Consequently, the first priority goal of financial and economic services is to manage accounting procedures of transaction costs because accounting is a basic informational framework for the analysis and evaluation of transaction costs with a view to making management decisions concerning further enterprise performance. While using the information obtained in the process of transaction costs analysis, economic entities may need to manage and keep records of certain transaction costs constituents that have not been reflected in this information system. Necessity for accounting and analysing transaction costs is conditioned by the need of their minimization, and more precisely, optimization that requires qualitative information support, with the help of which it is possible to determine rational structure of transaction costs, predict their further dynamics, define macroand micro- economic factors of enterprise transaction costs’ changes. Given the fact that transaction costs result from the interaction between certain economic entities, between enterprises and public institutions, informational transparency of transactions is the basic and important factor of their optimization.

7. Conclusion Therefore, while managing accounting and analysis of transaction costs, it should be considered that their certain types may be of probable nature and for this

Vol. 4, No. 2, 2018 reason they cannot be reflected in the traditional accounting system. Efficient accounting of transaction costs allows making efficient decisions on optimization of their value and structure, as well as gives an opportunity to influence their dynamics in a certain way. Alongside with that, it should be pointed out that management of transaction costs accounting and analysis becomes difficult on account of certain factors associated with transaction costs origin and increase: constant increase in the number of transactions; overwhelming globalization of economic processes, their dynamism and the fact that they are hard-topredict; politicization of economic systems of countries, their unions and global economic system; asymmetry of information. Based on the results of the research conducted, it may be noted that basic suggestions of scholars regarding management of transaction costs accounting may be confined to the introduction of a separate account or a system of sub-accounts to expenditure accounts of operating activity. However, scholars’ advisory suggestions do not solve the


problem of the rational organization of accounting and reduction of off-the-record transaction costs of enterprises without documentary evidence, calling for the use of alternative accounting system for their recording and control. The dynamism of economic systems at the level of both enterprise and state has shifted managerial accents of company’s management from increase in profits to optimization of costs, and primarily transaction costs that have an overwhelming influence on the competitive capacity of an enterprise and in most cases on ensuring sufficient conditions of their existence and development. Information support, which is mainly formed within accounting system, is essential for the purpose of developing efficient managerial mechanisms for transaction costs. However, taking into consideration the existence of on-the-record and offthe-books constituents of transaction costs, qualitative information support necessary for management and control may be formed only when information from both bookkeeping and managerial accounting is used, which is the direction for further investigation.

References: Halytskyi O.M. (2013) Orhanizatsiino-ekonomichni pidkhody do obliku ta otsinky transaktsiinykh vytrat u silskohospodarskykh pidpryyemstvakh [Organizational and economic approaches to accounting and evaluation of transaction costs in agricultural enterprises], pp. 14-28. (in Ukrainian) Hordopolova N.V., Hordopolov V.Y. (2010) Oblikovo-analitychne zabezpechennia upravlinnia transaktsiinymy vytratamy [Accounting and analytical support for managing transaction costs]. Bulletin of ZhDTU, no 4(54), pp. 62-64. (in Ukrainian) Kolodnyaya G.V. (2008) Transaktsionnye izderzhki kak faktor evolyutsii firmy [Transaction costs as a factor in the evolution of the firm] (PhD Tesis), Moskva, 43 p. (in Russian) Kouz R. (1993) Priroda firmy [Nature of the firm]. Моscow: Delo, pp. 192. (in Russian) Kurylo T.I., Slozko T.M. (2016) Transaktsiini vytraty v instytutsionalnomu seredovyshchi ahrarnoho sektoru ekonomiky [Transaction costs in the institutional environment of the agrarian sector of the economy]. Ekonomichni studii, no 2 (10), pp. 71-75. (in Ukrainian). Lemeshchenko P.S. (2010) Institutsionalno-evolyutsionnaya teoriya novoy ekonomicheskoy reform [Institutionalevolutionary theory of new economic reforms.]. Ekonomicheskie nauki Vestnik Nizhegorodskogo universiteta im. N.I. Lobachevskogo, no 3 (2), pp. 619-624. (in Russian) Lukichev M.Y. (2011) Upravlenie transaktsionnymi izderzhkami stroitelnykh korporatsiy [Management of transaction costs of building corporations] (PhD Tesis), Moscow. – 23 p. (in Russian) Ofitsiinyi sait Ministerstva ekonomichnoho rozvytku i torhivli Ukrainy. Retrieved from: http://www.me.gov.ua/ Documents/List?lang=uk-UA&id=e384c5a7-6533-4ab6-b56f-50e5243eb15a&tag=TendentsiiTinovoi Ekonomiki. Ofitsiinyi sait Transparency international. Retrieved from: http://www. transparency.org/cpi2015#results-tableOfitsiinyi sait World Bank. Retrieved from: http://www.doingbusiness.org/Custom-Query Shepelenko O.V. (2008) Upravlinnia transaktsiinymy vytratamy v ekonomitsi Ukrainy [Management of transactional costs in the economy of Ukraine]. (PhD Tesis), Donetsk, 35 p. (in Ukrainian) Verhunenko M.V. (2008) Analiz transaktsiinykh vytrat rehuliatornykh vytrat v konteksti intehratsii Ukrainy v svitovu ekonomiku [Analysis of transaction costs of regulatory expenditures in the context of Ukraine's integration into the world economy]. Naukovi pratsi DonNTU. Seriia ekonomichna. Vol. 33, no 2, pp. 232-239. (in Ukrainian) Vítek L. (1998) Ronald H. Coase: Společenské náklady, teorie externalit a jejich řešení. In Externality a možnosti jejich řešení: Sborník referátů z teoretického semináře. [H. Coase: Social costs, theory of externalities and their solutions. In Externality and Possibilities of Their Solutions: Proceedings of the Theoretical Seminar]. Katedra veřejné ekonomie. Masarykova univerzita. Brno.

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Vol. 4, No. 2, 2018

DOI: https://doi.org/10.30525/2256-0742/2018-4-2-268-273

MONETARY ALLOWANCE FOR LAW ENFORCEMENT OFFICIALS TEMPORARILY SERVING ABROAD: FOREIGN EXPERIENCE Dmytro Andreiev1

National Academy of Internal Affairs, Ukraine

Ruslan Bilokin2

Higher Educational Institution of Ukoopspilka "Poltava University of Economics and Trade", Ukraine

Elena Tikhonova3

National Academy of Internal Affairs, Ukraine Abstract. The aim of the article is to analyse foreign experience in regulating the monetary allowance for law enforcement officers temporarily serving abroad, distinguish features of setting the rates and types of the monetary allowance for this category of workers in some foreign countries, and ascertain the order of the monetary allowance for police officers, who are temporarily serving outside Ukraine. The subject of the study is the foreign experience of the monetary allowance for law enforcement officers temporarily serving abroad. Methodology. The research is based on a comparison of the monetary allowance of law enforcement officers temporarily serving abroad in Ukraine and in foreign countries. Based on the analysis of the monetary allowance features for this category of law enforcement officers in Germany, France, Spain, the United States, Turkey, and in some other countries, the advantages and disadvantages of different conditions and procedure for the monetary allowance are determined. On the basis of a comparative legal study of certain provisions of Ukrainian legislation, the possibilities and limits of applying positive foreign experience in this area are determined. The results of the study revealed that the international experience of the labour remuneration of law enforcement officers temporarily serving abroad, as a rule, provides for the monetary allowance for employees based on the features of state regulation in this sphere and varies according to the source of funding and the principles for determining the rate of salary and compensatory payments, payments for moving to a new place of service and the quality of life of the state of a temporary service. Practical implications. The positive experience of the monetary allowance for law enforcement officers temporarily serving abroad proves that in order to increase the interest of law enforcement officials, including police officers temporarily serving outside Ukraine, higher legal and social protection of these persons and their family members should be ensured, including gradual approximation of the level of the monetary remuneration for the performance of official duties to the level of similar payments in the states of Central Europe. Relevance/originality. Conducting a comparative analysis of the monetary allowance for law enforcement officials temporarily serving abroad is the basis for developing the most promising directions for the development of domestic legislation in this area. Key words: law enforcement bodies, police, monetary allowance, service abroad. JEL Classification: K19, E42, E52

1. Introduction Over recent decades, there is a tendency in the world to intensify the interaction of police units of foreign countries at the international level. This issue was raised initially at the First International Congress of Judicial

Police, which took place at the initiative of Prince Albert I in Monaco in 1914. Already then, the head of the Congress, Professor A. Larnie (France), said that direct contact between the courts and police of different countries became increasingly necessary every year. Any

Corresponding author: 1 Educational and Research Institute №1, National Academy of Internal Affairs. Е-mail: [email protected] 2 Department of Law, Higher Educational Institution of Ukoopspilka "Poltava University of Economics and Trade". Е-mail: [email protected] 3 Department of Financial Security and Financial Investigation, Educational and Research Institute No. 1, National Academy of Internal Affairs. Е-mail: [email protected]

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Vol. 4, No. 2, 2018 delays in prosecuting and arresting criminals abroad must be eliminated (Gordienko, 2007). Nowadays, international police cooperation is carried out by international organizations, on a regional scale and between the police of several countries. It has an objective basis, close relationship, and sometimes the interdependence of states in the modern world, which, consequently, leads to the internationalization of crime. Growth and qualitative changes in crime cause the interest of various national police systems to seek cooperatively the most effective ways, means, and methods to counteract criminal manifestations (Gubanov, 2000). Such an interaction is carried out in several key directions, which include: providing legal assistance in criminal cases; conclusion and implementation of agreements on combating transnational crime; execution of decisions of foreign law enforcement bodies in criminal cases; regulation of legal issues and human rights in enforcing law and order; exchange of information of mutual interest to law enforcement bodies; joint investigation of counteraction to crime issues; exchange of experience in law enforcement work; assistance in training of personnel for foreign law enforcement agencies; provision of logistical and consultative assistance; organization of representative offices of law enforcement bodies in foreign states. International police cooperation develops within these directions. It can be defined as combined efforts of the police of different countries to increase the effectiveness of the strategy and tactics assigned to its competence in the prevention, termination and investigation of offenses, as well as measures for the management of police forces, personnel, scientific and methodological and technical support for their work. Therefore, the study of foreign experience in the monetary allowance for law enforcement officers temporarily serving abroad is becoming relevant and important since the financial support of the personnel, who performs such tasks, is not the last factor affecting the quality of law enforcement performance abroad, which determines the relevance of the chosen topic. A significant contribution to the study of the monetary allowance for law-enforcement bodies temporarily serving abroad was made by foreign and domestic scientists such as G. Vedel, V. V. Hordienko, A. V. Hubanov, V. H. Hritsenko, R. Drago, V.O. Zarosylo, J. Insiardy, K. Kenny, K. Marfy, M. V. Plugatyr, A. I. Subbot, Yu. I. Rymarenko, V. L. Filsthein, O. R. Shevchuk, and others. The aim of the article is to analyse the foreign experience of regulating the monetary allowance for law-enforcement bodies temporarily serving abroad, single out the features of setting the rates and types of the monetary allowance for this category of workers in some foreign countries, and clarify the procedure for the monetary allowance for police officers temporarily serving outside Ukraine.


The main material. At the UN General Assembly in September 1991, it was noted that the increase in crime, combined with its acquisition of a transnational character, endangered the internal security of states, impinged on the freedom of a person to live without fear, and might undermine international relations. All of this requires the creation of effective international mechanisms and closer cooperation between states. As a rule, international police cooperation is carried out in the following forms: exchange of information about persons (suspects in the commission of crimes, wanted, their relations, addresses, etc.), the facts of crimes; verification of suspects’ testimonies; identification of persons or stolen objects by photo or description; conducting interrogations or polls of citizens; obtaining data from foreign organizations, institutions, trade and industrial enterprises; forwarding documents. Some interagency agreements provide for the possibility of the presence of police officers of one state in another state in carrying out operational and investigative actions that are of interest to them, attracting foreign experts for conducting expert assessments and various types of strategic and tactical consultations. In order to ensure the efficiency of the departmental mutual assistance provision, some states include in their diplomatic and other representations abroad both individual police officers and entire units. For example, the FBI has its own official representatives in more than 30 countries, the Office of National Drug Control Policy in more than 40, and the Secret Service in almost 50 countries. In the UK, Germany, France, this form of cooperation with foreign police bodies is widely used. Established in the United Kingdom in April 1992, the National Criminal Intelligence Service had a branch office in 15 countries in a year, while personnel of the Federal Office of Criminal Police of Germany worked in 1996 at 25 embassies in West Germany. In the same year, French police had units in 20 states, the United States, Canada, Columbia, the Netherlands, Pakistan, Thailand and others (Gubanov, 2000). In addition, the activities of police officers of any state abroad should be clearly regulated by the legal acts of the host country. Otherwise, an imminent threat or a real violation of the principle of state sovereignty occurs. In general, the activities of the above-mentioned foreign police missions are carried out between most countries on the basis of relevant international treaties. In the world practice, there are the following forms of temporary service abroad by law enforcement officers: – service at the embassy of the state, as a police representative; – protection of diplomatic missions; – service in the UN peacekeeping contingent; – service within the framework of the interstate agreements on the assistance of the foreign police.

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A police officer, who serves at the Embassy of the state embassy as a police representative of his state, acts as a liaison officer, “a police attaché.” Each state sets legislative requirements for candidates for a position of a police representative abroad. The tasks of police attachés mainly include collecting, analysing, and transmitting the necessary information, preparing proposals for conducting joint operations and further coordinating with the law enforcement bodies of the host country, etc. (Zimin, Zubov, 1993). For example, in France, the international representation of law enforcement bodies is carried out in three directions: – The International Police Technical Cooperation Service (SCTIP) of the French Ministry of Interior; – Attaché on Internal Security (ASI); – Agencies for External Borders ЕС FRONTEX (Fronteks – Yevropeiskoie agentstvo po upravleniiu operativnym sotrudnichestvom na vneshnikh granitsakh gosudarstv-chlenov Yevropeiskogo Soiuza). For the support of French police officers abroad, the budget provides 1.98 billion euros, which is 8% of the total budget of the police (24.2 billion euros). At the same time, the amount spent on the material provision of police officers increases each year. In the United States, for candidates for service in the police station abroad, there are several criteria: age (in most states, more than 20 years); education (education of a specialty in law-enforcement activity, criminology, and psychology) and health status (Yak staty politseyskym atashe chy ofitserom zviazku). The remuneration of foreign police officers is mainly determined by funding from the Ministries of Foreign Affairs of the state or similar bodies dealing with international cooperation. In the United States, the rate of the monetary allowance for a police representative abroad corresponds to the rate of his/her position in his home country. For example, the initial rate ranges from 25 to 33 thousand dollars per annum, while the average amount of the monetary allowance is 52 thousand dollars. The average salary of the FBI legal attaché is 38,271 dollars. The final rate of the salary of a police officer abroad depends largely on the country where the police officer is being sent (Yak staty politseyskym atashe chy ofitserom zviazku). In Israel, the monetary allowance of a police attaché is paid by the budget of neither the police nor the Ministry of Internal Security, but the Ministry of Foreign Affairs. The foreign ministry has a strict division into ranks and, therefore, the police attaché cannot receive the same salary as a professional diplomat of a higher rank. Thus, according to Israeli law, a police attaché in Washington DC is provided for the salary of $27,800 per month regardless of the salary he/she has received in the Israeli police station (General politsii predpochel Vashingtonu Iudeiu i Samariiu).

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Vol. 4, No. 2, 2018 In Spain, the police have representatives in 68 countries. The salary of police attachés depends on the remoteness, quality of life, and risk to the life of a police officer, which is determined by the analysis of the political, social, and economic situation in the state where the embassy is located. These criteria are fixed as modules, set by the Ministry of Economy and Finance each year. Of the 68 diplomatic missions, a service in 51 (including Havana, Yemen, Islamabad, Algeria, Cairo, Mauritania, Istanbul, Buenos Aires, Morocco, Mexico, Lima, Caracas, etc.) is considered dangerous. For serving in the most dangerous country, the largest module is used, on which the basic salary for the police officers of Spain is multiplied. For example, the average monetary allowance provided for a commissioner in Spain is 3664 euros per month, while the representative of the diplomatic mission of the Spanish Ministry of Internal Affairs in Iraq, with the module, is approximately 29,700 euros. The rate of the monetary allowance is lower for a representative in Angola, the Democratic Republic of the Congo, the Republic of Korea, Hong Kong, Ukraine, Japan, and Norway (Yak staty politseiskym atashe chy ofitserom zviazku). Considering the service of police officers abroad, related to the protection of diplomatic missions, it should be noted that for these purposes employees are usually sent for 18 months. In the general procedure, as well as police attachés, mentioned persons receive the monetary allowance, which includes the salary and compensations related to travel expenses, the risk to life, etc. Furthermore, the rate of the salary also depends on the position occupied by a police officer. For example, the Spanish police inspector in Iraq receives about 19,500 euros a month, in Switzerland – about 7,900 euros, in Turkey – 3,800 dollars. In addition, the salary calculation procedure is maintained depending on the country of service. Contrasting service at embassies, the service within peacekeeping missions is funded by the United Nations, the monetary fund of which is formed by contributions from participating countries. Ukraine also does not stand aside this trend of international police cooperation. The peacekeeping activity is quite diverse, and over the last two decades, the deployment of peacekeeping forces has taken place within various configurations. At present, 17 UN peacekeeping operations varying in size, composition and range of tasks are deployed on four continents, and in six of the operations, representatives of the Ministry of Internal Affairs of Ukraine attend. Considering the prospects of developing cooperation with the UN, in 2011, the leadership of the Ministry of Internal Affairs of Ukraine took the principled decision to open a permanent representative office of Ukraine in the United Nations in New York as a representative of the Ministry of Internal Affairs of Ukraine, which

Vol. 4, No. 2, 2018 provided an additional impetus to cooperation of the Ministry of Internal Affairs with the UN Secretariat (Mizhnarodna myrotvorcha diialnist MVS Ukrainy. Perspektyvy rozvytku na 2015 rik). The financial support for peacekeeping personnel, a part of which is the Ukrainian police, plays an important role in the efficient implementation of peacekeeping activities. The strategy of the international peacekeeping activity of Ukraine provides for that in order to increase the interest of members of the armed forces, senior and ordinary staff of the internal affairs bodies and civilians in participating in international peacekeeping operations, a higher legal and social protection of participants in international peacekeeping operations and members of their families should be ensured, including a gradual approximation of the level of monetary remuneration for the performance of official duties in peacekeeping contingents or peacekeeping personnel to the level of similar payments in the states of Central Europe (Pro rishennia Rady natsionalnoi bezpeky i oborony Ukrainy vid 24 kvitnia 2009 roku). In accordance with the Law of Ukraine “On Participation in International Peacekeeping and Security Operations,” financing of expenses related to Ukraine’s participation in international peacekeeping operations can be: – either funded by the state budget provided the full or partial reimbursement of these expenses funded by funds allocated by the United Nations, NATO, the EU, the OSCE or other international organization for the financing of an international peacekeeping operation or within concluded international agreements of Ukraine; – either funded by the state budget; – either funded by the funds allocated by the United Nations, the OSCE or another international organization to finance an international peace-keeping and security operation (Pro uchast Ukrainy v mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Zakon Ukrainy vid 23.04.1999 r.). According to the Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for Material and Technical and Financial Support of the National Contingent and National Personnel of Ukraine participating in International Peacekeeping and Security Operations,” for persons, who are the part of the national contingent and national personnel of Ukraine, during the performance of official duties outside Ukraine, payments in national currency are kept in the amount of 100 percent of the official salary or average wage payment for the last place of service or work, salary for the military (special) rank, allowances for seniority, and other monthly supplemental allowances of a permanent nature. The expenses incurred in relocating of the national personnel of Ukraine of the OSCE mission to the location of the OSCE Secretariat and back to Ukraine are funded by expenditures approved by the central


government executive bodies that send this personnel to the OSCE mission under the relevant budget programs (Pro zatverdzhennia Poriadku materialnotekhnichnoho i finansovoho zabezpechennia natsionalnoho kontynhentu ta natsionalnoho personalu Ukrainy, yakyi bere uchast u mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Postanova Kabinetu Ministriv Ukrainy vid 11 lypnia 2002 r. № 963). The Ministry of Internal Affairs of Ukraine determines directly the procedure for providing the monetary allowance and monthly monetary compensation in foreign currency for police officers serving as a part of peacekeeping personnel. In particular, for social protection of the national personnel of the Ministry of Internal Affairs of Ukraine and members of their families during the stay in the international peacekeeping and security operation for the staff of the law enforcement bodies, the salary is maintained, and paid by the financial support and accounting department of the Ministry of Internal Affairs at the submission of financial units, where an employee has served before a referral to participate in peacekeeping and security operations. The amount of employee’s monthly salary is credited to his bank account, which can then be obtained by authorized persons. The monthly monetary payment in foreign currency for the national personnel of the Ministry of Internal Affairs of Ukraine, which is a part of the special units and canine peacekeeping units of the Ministry of Internal Affairs of Ukraine, is paid by the budget program, which ensures the activities of the Ministry of Internal Affairs of Ukraine for the maintenance of peace and security, if specified by the memorandum between Ukraine and the international organization that manages the mission. To provide immediate needs of national personnel of the Ministry of Internal Affairs of Ukraine, who is a part of special and canine units, an advance of USD 250 per person (at the request of a recipient), which is held during the calculation of the monthly monetary remuneration in a foreign currency for the current month, is paid one time before departure from Ukraine (Pro zatverdzhennia Instruktsii shchodo orhanizatsii prokhodzhennia sluzhby pratsivnykamy orhaniv vnutrishnikh sprav, viiskovosluzhbovtsiamy vnutrishnikh viisk MVS Ukrainy, yaki napravleni dlia uchasti v mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Nakaz MVS Ukrainy vid 07.12.2003 № 1490). With regard to the rate of the monetary remuneration, they are set by the Cabinet of Ministers of Ukraine. In particular, nowadays, the rate of the monthly monetary remuneration in foreign currency for the performance of official duties outside Ukraine by a police officer, included in the national staff for participation in international peacekeeping and security operations, funded by the state budget, are in US dollars:

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– a unit commander – 1020; – a deputy commander of the unit, a deputy commander of the unit and the chief of staff, a chief of staff – 1000; – a company commander, a staff officer, a personnel officer, a technician and armament officer, an officer dealing with planning and combat and special training, dealing with mission-link relations, logistics and technical support – 980; – a deputy commander of the company, a platoon commander, an interpreter on duty, an interpreter; – a deputy commander of the platoon, a deputy commander of the platoon and an interpreter, a head of the department – 940; – a deputy chief of the department, a commander of the department (group) – 920; – a senior inspector, a senior engineer, a specialist, a doctor, a veterinarian, an accountant, a psychologist, a lawyer – 900; – a driver, a driver of the armoured personnel carrier, a technician driver, a cynologist, an instructor, an explosive engineer, an inspector, an engineer – 880;

Vol. 4, No. 2, 2018 – a patrol, a cook, a nurse, a paramedic, a veterinary nurse – 860 (Deiaki pytannia finansovoho zabezpechennia viiskovosluzhbovtsiv Natsionalnoi hvardii ta politseiskykh, vkliuchenykh do skladu natsionalnoho personalu dlia uchasti v mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Postanova Kabinetu Ministriv Ukrainy vid 22 travnia 2013 r. № 358).

2. Conclusion Therefore, the international experience of the remuneration of law enforcement officers, who temporarily serve outside the territory of the state, as a rule, provides for the monetary allowance of employees based on the features of state regulation of this sphere and varies according to the source of financing and principles for determining the amount of the remuneration and compensatory payments, payments in connection with moving to a new place of service and quality of life of the state of a temporary service location.

References: Gordienko, V. V. (2007). Mezhdunarodnoie politseiskoie sotrudnichestvo v usloviiakh globalizatsii kriminalnykh protsessov [International police cooperation in the context of the globalization of criminal processes]. Trudy Akademii upravleniia MVD Rossii [Works of the Academy of Management of the Russian Ministry of Internal Affairs], 2, 8-12. (in Russian) Gubanov, A.V. (2000). Politsiia zarubezhnykh stran. Organizatsionno-pravovyie osnovy, strategiia i taktika deiatelnosti. [Police of foreign countries. Organizational and legal bases, strategy and tactics of activity]. Moscow: MAEP, 288 p. (in Russian) Zimin, V., Zubov, I. (1993). Mezhdunarodnoie sotrudnichestvo v oblasti borby s prestupnostiu i okhrany obshchestvennogo poriadka [International cooperation in the field of combating crime and protecting public order]. Moscow, 155 p. (in Russian) Fronteks – Yevropeiskoie agentstvo po upravleniiu operativnym sotrudnichestvom na vneshnikh granitsakh gosudarstv-chlenov Yevropeiskogo Soiuza [Frontex, the European Agency for the Management of Operational Cooperation on the External Borders of the Member States of the European Union]. Retrieved from http://soderkoping.org.ua/page19813.html. (in Russian) Yak staty politseyskym atashe chy ofitserom zviazku [How to become a police officer or a communications officer]. Retrieved from http://innerbody.com/wordpress3/careers-in-criminal-justice/how-to-become-an-attache-orpolice-liaison-officer.html. (in Ukrainian) General politsii predpochel Vashingtonu Iudeiu i Samariiu [The general of the police preferred Washington to Judea and Samaria]. Retrieved from http://сursorinfo.co.il/news/novosti. 2007. 5 june. (in Russian) Yak staty politseiskym atashe chy ofitserom zviazku [How to become a police officer or a communications officer]. Retrieved from http://еlconfidencial. 2010. 29 june. (in Ukrainian) Mizhnarodna myrotvorcha diialnist MVS Ukrainy. Perspektyvy rozvytku na 2015 rik [International Peacekeeping Activities of the Ministry of Internal Affairs of Ukraine. Development prospects for 2015]. Retrieved from http://www.naiau.kiev.ua/smc/images/stories/mmdu_2013.pdf. (in Ukrainian) Pro rishennia Rady natsionalnoi bezpeky i oborony Ukrainy vid 24 kvitnia 2009 roku ‘Pro Stratehiiu mizhnarodnoi myrotvorchoi diialnosti Ukrainy’: Ukaz Prezydenta Ukrainy vid 15.06.2009 №435/2009 [On the decision of the National Security and Defense Council of Ukraine dated April 24, 2009 ‘On the Strategy of International Peacekeeping Activity of Ukraine’: Decree of the President of Ukraine. ( June 15, 2009). No. 435/2009. (in Ukrainian) Retrieved from http://zakon5.rada.gov.ua/laws/show/435/2009. Pro uchast Ukrainy v mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Zakon Ukrainy vid 23.04.1999 r. [On Participation in International Peacekeeping and Security Operations: The Law of Ukraine]. (April 23, 1999). Retrieved from http://zakon3.rada.gov.ua/laws/show/613-14. (in Ukrainian) Pro zatverdzhennia Poriadku materialno-tekhnichnoho i finansovoho zabezpechennia natsionalnoho kontynhentu ta natsionalnoho personalu Ukrainy, yakyi bere uchast u mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Postanova Kabinetu Ministriv Ukrainy vid 11 lypnia 2002 r. № 963 [On Approval of the Procedure for Logistical and Financial Support of the National Contingent and National Personnel of Ukraine Participating

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Vol. 4, No. 2, 2018 in International Peacekeeping Operations: Resolution of the Cabinet of Ministers of Ukraine]. ( July 11, 2002). No. 963. Retrieved from http://zakon2.rada.gov.ua/laws/show/963-2002-%D0%BF. (in Ukrainian) Pro zatverdzhennia Instruktsii shchodo orhanizatsii prokhodzhennia sluzhby pratsivnykamy orhaniv vnutrishnikh sprav, viiskovosluzhbovtsiamy vnutrishnikh viisk MVS Ukrainy, yaki napravleni dlia uchasti v mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Nakaz MVS Ukrainy vid 07.12.2003 № 1490 [On approval of the Instruction on the organization of service of the personnel of the internal affairs bodies, servicemen of internal troops of the Ministry of Internal Affairs of Ukraine, which are sent to participate in international peace and security operations: The Order of the Ministry of Internal Affairs of Ukraine]. (December 07, 2003). No. 1490. Retrieved from http://zakon5.rada.gov.ua/laws/show/z0280-04. (in Ukrainian) Deiaki pytannia finansovoho zabezpechennia viiskovosluzhbovtsiv Natsionalnoi hvardii ta politseiskykh, vkliuchenykh do skladu natsionalnoho personalu dlia uchasti v mizhnarodnykh operatsiiakh z pidtrymannia myru i bezpeky: Postanova Kabinetu Ministriv Ukrainy vid 22 travnia 2013 r. № 358 [Some issues of financial support for National Guard soldiers and police officers included in national personnel for participation in international peace and security operations: Resolution of the Cabinet of Ministers of Ukraine]. (May 22, 2013). No. 358. Retrieved from http://zakon3.rada.gov.ua/laws/show/358-2013-%D0%BF. (in Ukrainian)

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Vol. 4, No. 2, 2018

DOI: https://doi.org/10.30525/2256-0742/2018-4-2-274-281

THE SPECIFICITIES OF USING CRYPTOCURRENCY IN PURCHASE AND SALE CONTRACTS Oleksii Drozd1, Oleg Basai2, Hanna Churpita3 National Academy of Internal Affairs, Ukraine

Abstract. The aim of the article is to study the theoretical and legal possibilities of using cryptocurrency in purchase and sale contracts, to determine the specificities of such a phenomenon as cryptocurrency (Bitcoin) from the perspective of jurisprudence, and to draw attention of legal scholars primarily to possible further scientific researches on the introduction of this phenomenon in the modern civilian legislation of Ukraine. The subject of the study is the specificities of using cryptocurrency in contracts of purchase and sale. Methodology. The research is based on an analysis of legal acts on the legal regulation of cryptocurrency in Ukraine. By means of the comparative legal method of investigation of certain provisions of Ukrainian legislation, the possibilities and limits of the use of cryptocurrency in contractual relations, in particular, contracts of purchase and sale are determined. The results of the study revealed that the cryptocurrency regime in Ukraine and in many countries is in a legal vacuum. Such a conclusion is based on the lack of clear legal clarification and consolidation of the concept and types of cryptocurrency in the relevant rules of the tax, banking, civil, and commercial law. In case of eliminating this gap, it is advisable to review the state policy on Bitcoin and its analogues. Practical implications. It is necessary and appropriate to introduce a corresponding license for cryptocurrency activities that can minimize the laundering of proceeds from crime or terrorism financing. It is suggested that eventually the relations concerning the digital currency will be regulated in Ukraine, but most likely, it will copy the experience of another state, which may have negative consequences. Relevance/originality. Analysis of a possible use of cryptocurrency in contracts of purchase and sale can become the basis for the development of the most promising directions of domestic civil law in contractual relations. Key words: cryptocurrency, purchase and sale, transaction, licensing, Bitcoin, cryptoexchange, cryptomarket. JEL Classification: E42, E44, F63

1. Problem statement The world is changing: former unusual dreams and ideas gradually become reality, many new and varied phenomena and processes arise. People of nowadays are faced with the requirement to adapt quickly and effectively to innovations. This is especially true in settlements and payments, as they are often used and directly related to the development of the economy, the state and well-being of the population. The circulation and creation of cryptocurrency require considering the issue of its legal regulation at the national and international levels. Many obstacles occur and need to be overcome in the future. Obviously, many people do not know and do not conceive the possible existence of cryptocurrencies. The next dilemma is the lack of discussion and elaboration of the essence of Bitcoin

and its analogues by the state authorities when adopting laws or other normative acts. The specific nature of cryptocurrency leads to the fact that the relevant issue is not a priority for resolution. Nevertheless, now the world tendencies and realities force to change the attitude to this problem (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). The more popularity Bitcoin gains, the more necessity to discuss it at the international level occurs, moreover, the governments of individual countries have to reckon with it. Some countries have even recognized Bitcoin as currency. For example, in Switzerland since 2013, Bitcoin is considered a foreign currency. However, the majority tends to recognize Bitcoin as a property asset, operations with which must be taxed (Bitkoin, blokchein i maininh. Komu potribna kryptovaliuta i yak

Corresponding author: 1 Department of Research Work Organization, National Academy of Internal Affairs. Е-mail: [email protected] 2 Department of Civil Law and Procedure, National Academy of Internal Affairs. Е-mail: [email protected] 3 Department of Civil Law and Procedure, National Academy of Internal Affairs. Е-mail: [email protected]

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Vol. 4, No. 2, 2018 derzhavy ii kontroliuiut). The United States, Germany, Japan, France, Finland, and other countries have not only allowed the circulation of the currency but also legislated or backed up the legal regime, clarified the notion of Bitcoin and analogues and formed the relevant judicial practice (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). Literature review. The study of the phenomenon of cryptocurrency (Bitcoin) is under consideration in the works of scientists such as Aiganym Y. Seitim, O.S. Badzym, Yu.V. Hava, B.V. Derevianko, A.R. Drevush, I.M. Doronin, O.O. Loviak., L.L. Neskorodzhena, O.O. Poplavskyi, N. Pantielieieva. Obviously, most of the researches of this issue are related to the scientific works of specialists in economics, although recently the attention of lawyers is also drawn to it. The aim of the article. To consider the theoretical and legal possibilities of using cryptocurrency in the contracts of purchase and sale. To determine the specificities of such a phenomenon as cryptocurrency (Bitcoin) from the perspective of jurisprudence and draw the attention of legal scholars primarily to possible further scientific researches on the introduction of this phenomenon in the modern legislation of Ukraine. The main material. The main problem faced by international financial organizations and the leadership of certain countries is the control over the circulation of cryptocurrency since uncontrolled it creates a large space for the development of the shadow economy (Bitkoin, blokchein i maininh. Komu potribna kryptovaliuta i yak derzhavy ii kontroliuiut). In addition, the unregulated sphere of cryptocurrency provides fraudsters with great opportunities, because intruders’ actions cannot be classified and, therefore, punished if relevant legislation is absent in the country. For example, if you bought a product for Bitcoin and you did not get it, then you came with it to law enforcement agencies, but neither the police nor the court would manage your case (Bitkoin, blokchein i maininh. Komu potribna kryptovaliuta i yak derzhavy ii kontroliuiut). However, according to an expert, the founder of the first Bitcoin agency in Ukraine, Mykhailo Chobanian, in Ukraine Bitcoin still does not have a definite legal status (Shcho take elektronna valiuta ‘Bitkoin’?). Chobanian notes that there are only a few countries in the world where the status is defined, the last country where the status has become a noteworthy case is the United States, where it is recognized as a commodity, financial instrument, it is now a full-value instrument in the financial market (Shcho take elektronna valiuta ‘Bitkoin’?). In Ukraine, the problem of legal regulation of cryptocurrency is ambiguous regulation of cryptocurrency in the world. Countries with a strong economy and currency introduce cryptocurrency as a means of payment or financial asset. Countries with a weak economy and an unstable monetary unit are


trying to support the national currency by restricting cryptocurrency as a means of payment but allowing cryptocurrency as a means of exchange (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). For example, in some states of the USA, cryptocurrency is the subject of money transfers in the payment system. In Germany, Bitcoin is recognized as a unit of account. In Japan, cryptocurrency is recognized as legal tender. In Europe, cryptocurrency is generally equated with electronic money but is not considered legal tender and is a means of exchange. In China, transactions with Bitcoin are prohibited for banks but allowed for individuals. In Canada, bitcoin is a means of account. In Spain, the Bitcoin system is recognized as an official payment system. Direct bans on cryptocurrency usage exist in Bolivia, Ecuador, Thailand, and Vietnam (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). Thus, the ambiguous approach to cryptocurrency in different countries of the world creates additional problems for determining the legal status of cryptocurrency. This means that Ukraine needs to develop its own approach to the legal regulation of cryptocurrencies, giving them a special legal status, based on the current state of law and economic development of the country (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). According to statistics, in 2016, the conversion of cryptocurrency into the national currency amounted to 775.2 million UAH, while the introduction of the national currency on the stock exchange of cryptocurrency was 856.8 million UAH. In 2016 only, the demand for cryptocurrency in Ukraine grew by 5 times, and by the number, for example, of Bitcoin-wallets, Ukraine is among the top 5 world leaders. (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). Therefore, the special regime for Bitcoin in Ukraine is not established, because the aforementioned question on cryptocurrency has not been aroused when discussing and adopting laws. According to the explanation in a letter from the NBU of December 8, 2014, defines Bitcoin as a “money surrogate” that has no real value and cannot be used by individuals and legal entities in Ukraine as a means of payment since it contradicts to the norms of Ukrainian legislation (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). To find out the legal nature of Bitcoin it is important to note that the law “On the National Bank of Ukraine” states that the money surrogate is any documents in the form of banknotes that are different from the monetary unit of Ukraine issued in circulation not by the NBU and made for payments in economic circulation. Meanwhile, specificities of cryptocurrency are not covered by the term “electronic document” since the latter refers to a document, which records information in the form of electronic data, taking into account the required details

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of the document. Thus, a money surrogate does not consider the concept of cryptocurrency. On the one hand, Bitcoin can be seen as a set of information. It is based on a blockchain-encrypted array of data about all operations that have been conducted in a distributed network during its entire existence. On the other hand, Bitcoin is close to the product, because the national legislation does not provide for a clear definition of the product as such, but denotes only a part of this concept for specific legal relationships. Another positive aspect is that cryptocurrency is a subject to barter (commodity exchange) transactions as perceived by the Tax, Civil, and Commercial Codes of Ukraine. Nevertheless, judicial practice goes the opposite way. For example, in the decision of the Darnytskyi District Court of Kyiv No. 753/599/16-ts, Bitcoin was not recognized as a commodity (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). Therefore, it is the most expedient to find out the essence of cryptocurrency, discuss it and receive relevant explanations from the state body before making appropriate changes to Ukrainian legislation (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). Obviously, nowadays, the main problem of regulating legal relations with cryptocurrency is the lack of relevant legislative rules that can be applied to cryptocurrency. Another problem of cryptocurrency legal regulation in Ukraine is ambiguous regulation of cryptocurrency in the world. Countries with a strong economy and currency unit introduce cryptocurrency as a means of payment or as a financial asset. Countries with a weak economy and an unstable monetary unit try to support the national currency by restricting cryptocurrency as a means of payment, but allow cryptocurrency as a means of exchange. For example, nowadays, the EU legislation categorizes Bitcoin as a digital representation of value, not confirmed by a central bank or government body and not attached to legally established exchange rates, and can be used as a means of exchange for the purchase of goods and services, their transfer and storage, and can be acquired electronically. Moreover, the exchange of traditional currencies per Bitcoin unit is exempt from paying valueadded tax. In Israel, Bitcoin is not provided for with the legal definition of currency, either as a financial security or as a taxable asset. Each time Bitcoin is sold, the seller must pay a capital gains tax. The People’s Bank of China considers Bitcoin to be a virtual commodity, not currency, and its sale may be subject to VAT. Its sales are taxed by the Japanese VAT counterpart. In Australia, Bitcoin is considered a property, and transactions with it are barter. In Canada, Bitcoin is generally defined as an intangible asset, and transactions with it are also barter. Thus, in different countries, Bitcoin is classified differently, for example, as virtual currency, money surrogate, intangible value, virtual goods, etc. For its

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Vol. 4, No. 2, 2018 part, the National Bank of Ukraine currently officially does not support any of the abovementioned definitions (Komentar zastupnyka Holovy NBU Oleha Churiia shchodo statusu Bitcoin v Ukraini). Thus, an ambiguous approach to cryptocurrency in different countries of the world creates additional problems for determining the legal status of cryptocurrency. Consequently, Ukraine needs to develop its own approach to the legal regulation of cryptocurrency, providing it a special legal status, based on the current state of legislation and economic development of the country. According to statistics, in 2016, the withdrawal of cryptocurrency into the national currency amounted to 775.2 million UAH, while the introduction of the national currency on the stock exchange of cryptocurrency was 856.8 million UAH. In 2016 only, the demand for cryptocurrency in Ukraine grew by 5 times, and by the number, for example, of Bitcoin-wallets, Ukraine is among the top 5 world leaders (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). It is roughly estimated that today there are more than 2,000 types of cryptocurrencies, the most popular is Bitcoin. The total market capitalization of the Bitcoin market is estimated at 130 billion US dollars, and the aggregate volume of trading in such digital assets reaches 2.6 billion US dollars. Thus, it seems rather strange that cryptocurrency has become an indispensable part of social relations, financial instruments, business, but under no legal regulation. Considering the world practice, cryptocurrency is gaining popularity all over the world, its development is impossible to prohibit technically, moreover, it is economically inexpedient, and therefore, the legal regulation of cryptocurrency is now only a matter of time (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). In the decision of October 22, 2015, the European Court determined that Bitcoin should be considered a currency (means of payment), and not a commodity. The rationale for this was some difficulties with the taxation of cryptocurrency. The corresponding decision established that all transactions related to Bitcoin exchange would be taxed in the same way as transactions with traditional currencies. Actually, European jurisprudence has equated cryptocurrency with legal means of payment, and the exchange of funds with “a currency exchange transaction.” Nevertheless, according to the current legislation of the EU, digital currency is considered to be a commodity and is regulated by the Civil Law and the EU Directive on the PIT as a commodity, and the contract of purchase and sale of cryptocurrency is a contract of purchase and sale of goods (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). In the trial of Antonio Murdjio of Coin.mx, Judge Alison Natean claimed that dictionaries, courts, as well as legal history, confirmed that Bitcoin is money. This

Vol. 4, No. 2, 2018 point of view of American judges was confirmed by the department dealing with financial and criminal offenses, which in 2013 categorized Bitcoin as “a form of money.” However, another influential American tax authority (Internal Revenue Service (IRS)) emphasized that for the purposes of federal taxation, cryptocurrency should be interpreted not as “a form of money” but as a property (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). In Ukraine, some favourable for Bitcoin judicial practice is being formed. For example, the decision of October 13, 2016, by the Kharkiv Administrative Court of Appeal equated all transactions conducted in E-Dinar Coin with ordinary money transactions (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). In Ukraine, cryptocurrency transactions are subject to standard taxation. The question of the value added tax is rather controversial because cryptocurrency is not defined as goods at the legislative level (Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia). Therefore, cryptocurrency as an object of civil legal relations can be considered: Article 177 of the Civil Code classifies types of civil rights objects, indicating that they include: • things, including money and securities (according to Article 179 of the Central Committee, a thing is an object of the material world, in relation to which civil rights and obligations may arise); • other property (according to Article 190 of the Central Committee, a property as a special object is a separate thing, a set of things, as well as property rights and obligations; property rights are non-consumable; property rights are recognized as real rights); • the results of work (Chapter 61, 63 of the Central Committee); • services (Chapter 63 of the Central Committee); • the results of intellectual, creative activity (according to Article 199 of the Civil Code, the results of intellectual, creative activity and other objects of intellectual property rights create civil rights and obligations in accordance with book IV of the Central Committee (intellectual property right). • information (according to Part 1 of Article 200 of the Central Committee, the information is any facts and/or data that can be stored on tangible media or displayed electronically. The legal status of information is determined by special laws, in particular, the Law of Ukraine “On Information” No. 2657-XII of October 2, 1992); • other tangible and intangible benefits (such as personal intangible goods protected by civil law. In particular, according to Part 1 of Article 201 of the Civil Code, such are life and health, honour, dignity and business reputation, the name (denomination), authorship, freedom of literary, artistic, scientific and technical creativity, as well as other goods protected by civil law).


Therefore, cryptocurrency is difficult to attribute to any type of objects of civil and legal relations, and consequently, such a situation means a gap in the law: to the legal relationship with cryptocurrency, it is impossible to apply directly this or that rule of the current legislation. Thus, in current conditions, the only way to apply the analogy of law or analogy of legality is as follows: if civil relations are not regulated by this Code, other acts of civil law or the contract, they are governed by the legal rules of this Code, other acts of civil law governing civil relations of similar content (analogy of law). In case of impossibility to use the analogy of law for regulating civil relations, they are regulated in accordance with the general principles of civil law (analogy of legality) (Article 8 of the Civil Code). However, it is still unresolved, what kind of legal relations can be applied by analogy to cryptocurrency? Nowadays, according to Part 1 of Article 99 of the Constitution of Ukraine, the monetary unit of Ukraine is hryvnia. According to Clause 3.3 of Article 3 of the Law of Ukraine of April 5, 2001 No. 2346-III “On Payment Systems and Transfer of Funds in Ukraine,” Part 1 of Article 3 of the Decree of the Cabinet of Ministers of Ukraine “On the System of Currency Regulation and Currency Control” No. 15-93 of February 19, 1993, hryvnia as the monetary unit of Ukraine (the national currency) is the only legal means of payment in Ukraine accepted by all individuals and legal entities without any restrictions on the entire territory of Ukraine for transfers. According to Clause 14.1.93 of the Tax Code of Ukraine, funds mean hryvnia or foreign currency. According to Part 1 of Article 2 of the above-mentioned Decree of the Cabinet of Ministers of Ukraine “On System of Currency Regulation and Currency Control,” residents and non-residents have the right to be owners of currency values located on the territory of Ukraine. Residents also have the right to be owners of currency values outside Ukraine, except for cases provided for by the legislative acts of Ukraine. The list of currency values is indicated in Article 1 of the abovementioned Decree, including the currency of Ukraine, payment documents and other securities, denominated in the currency of Ukraine; foreign currency, payment documents and other securities denominated in foreign currency or banking metals; banking metals. Therefore, cryptocurrency according to Ukrainian legislation cannot be equated with either a means of payment or currency value. In this regard, the National Bank noted that the issuance of the virtual currency Bitcoin has neither security nor legal binds on individuals, is not controlled by the state authorities of any country. Thus, Bitcoin is a money surrogate that does not provide real value (the Letter of the National Bank “On the assignment of operations with virtual currency/cryptocurrency Bitcoin to foreign exchange transactions, as well as the availability of grounds for enrolment on a current

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account in foreign currency of a physical person foreign currency received from the sale of Bitcoin” No. 29-208/72889 December 8, 2014). In addition, in another Letter, the NBU emphasized that the issue and circulation of other monetary units in the territory of Ukraine and the use of money surrogates as a means of payment are prohibited (Part 2 of Article 32 of the Law of Ukraine “On the National Bank of Ukraine”). Taking into account the above, the National Bank of Ukraine considers virtual currency/ cryptocurrency Bitcoin as a money surrogate, which has no real value and cannot be used by individuals and legal entities in the territory of Ukraine as a means of payment, because this contradicts to the rules of Ukrainian legislation. Moreover, currency/cryptocurrency Bitcoin usage is accompanied with a high risk factor in this service, transaction or delivery channel, such as the anonymity of transactions (which may include cash), decentralization of operations (Clarification of the National Bank of Ukraine “Clarification on the legality of the use of virtual currency/cryptocurrency Bitcoin in Ukraine” of November 10, 2014). Furthermore, the NBU claimed that the sale of Bitcoin for US dollars or other foreign currency has signs of the functioning of the so-called “financial pyramids” and may indicate potential involvement in the implementation of dubious transactions in accordance with the legislation on counteraction to legalization (laundering) of proceeds obtained from crime and terrorism financing (the Letter of the National Bank “On the assignment of operations with virtual currency/cryptocurrency Bitcoin to foreign exchange transactions, as well as the availability of grounds for enrolment on a current account in foreign currency of a physical person foreign currency received from the sale of Bitcoin” No. 29-208/72889 on December 8, 2014). Perhaps, cryptocurrency is electronic money? In Article 15 of the Law of Ukraine of April 5, 2001 No. 2346-III “On Payment Systems and Transfer of Funds in Ukraine,” electronic money is defined as units of value stored on an electronic device, accepted as a means of payment by other persons than the person issuing them, and monetary obligation of this person, executed in cash or in non-cash form. The issue of electronic money can be carried out exclusively by the bank. The bank issuing electronic money undertakes the obligation to repay it (also regulated by the Regulation on electronic money in Ukraine, approved by the Resolution of the Board of the National Bank of Ukraine on November 4, 2010, No. 481 “On Amendments to Certain Regulatory and Legal Acts of the National Bank of Ukraine on Regulation of Issuance and Circulation of Electronic Money”). The main differences between cryptocurrency and electronic money are: • cryptocurrency does not mean the debt obligations of its holder, owner or issuer (as noted above, the issuer of cryptocurrency does not exist at all);

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Vol. 4, No. 2, 2018 • in the system of cryptocurrency, there is no single emission centre or central administrator; • payments within the system of certain cryptocurrency can be carried out absolutely anonymously, so taxpayers and recipients of cryptocurrency are not controlled completely by any third parties, including state bodies (because the electronic keys used when identifying the parties to settlements with cryptocurrency do not contain any personal data of such participants of settlements and, therefore, it is impossible to define and identify such parties of settlements); • the process of creation of new types of cryptocurrency or increase of the volume of cryptocurrency within a single cryptocurrency system (the process of mining) is possible, therefore, the number of units of cryptocurrency may increase exorbitantly without additional binding to any liability for such cryptocurrency, and may be carried out based on mathematical algorithms using computational power of computers belonging to individuals who extract (mine) additional cryptocurrency units. Accordingly, the lower rate of generation of new cryptocurrency units, the higher total mass of cryptocurrency is, along with the generation of additional cryptocurrency units, in case of reaching a certain total number of units, will become technically impossible (for example, in case of reaching 21 million bitcoin units); • electronic money has an obligatory attaching to a certain national currency and the issuer, while cryptocurrency cannot be equated with any currency of the world, being a kind of independent currency. Therefore, cryptocurrency is not electronic money and cannot be equated with it yet (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). Let us equate cryptocurrency with a financial asset or a financial service object: According to Article 1 of the Law of Ukraine “On Financial Services and State Regulation of Financial Services Markets” No. 2664-III of July 12, 2001, financial services are defined as transactions with financial assets carried out in the interests of third parties at their own expense or at the expense of those persons, and in cases provided by law, due to borrowed from other persons financial assets, in order to profit or maintain the real value of financial assets. In this case, financial assets are means, securities, debentures and debt claims that are not attributed to securities. The list of financial services is defined in Article 4 of the abovementioned Law (the subject of financial services must necessarily be a financial asset). Each type of financial assets is regulated by the general and special legislation. With regard to the legal regulation of cryptocurrency as money (means of payment) or currency values, this is already discussed above. Regarding the legal regime of securities, the legal circulation of securities and their exhaustive list is

Vol. 4, No. 2, 2018 established by Articles 194-198 of the Civil Code, as well as by the special Law of Ukraine “On Securities and the Stock Market” No. 3480-IV of February 23, 2006. The obligatory feature of a security is the presence of the issuer of the security (issuing person) and the certificate of monetary or other property rights between the person having the rights to the security and its issuer. Therefore, based on the specificities of the functioning and issuance of cryptocurrency, in particular, the lack of an issuer, as well as the absence of debt obligations for the cryptocurrency, as noted above, the legal regime of securities and debt obligations for cryptocurrency cannot be applied (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). Is cryptocurrency a program code and an object of intellectual property rights? Cryptocurrency is a set of program code, the accounting and operation of which are based on the encryption and application of various cryptographic methods of protection, so the rights to such program code are often equated with the rights to software with the appropriate legal regulation. However, the main problem with this approach is the absence of the author of such a code since the issue of cryptocurrency is decentralized and automated, the single issuer of cryptocurrency is absent. Thus, it is not correct to assert that cryptocurrency is a software or object of intellectual property rights (for example, the according to Articles 418, 420, 421 of the Civil Code, Articles 1, 8, 11, 18 of the Law of Ukraine “On Copyright and Related Rights”). Accordingly, over the lack of an author on such a program code, it will be impossible to regulate cryptocurrency as an object of intellectual property rights (in particular, as a program), and therefore, the legislation on the transfer of rights to intellectual property rights cannot be applied to cryptocurrency rights transfer operations (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). Currently, two Draft Laws are registered in the Verkhovna Rada concerning the legal status and circulation of cryptocurrency: • the Draft Law of Ukraine on October 10, 2017 No. 7133-1 “On Stimulation of the Market for Cryptocurrency and Their Derivatives in Ukraine" (Author of the legislative initiative S. Rybalka); • the Draft Law of Ukraine on October 10, 2017 №7133 “On Circulation of Cryptocurrency in Ukraine” (Authors of the legislative initiative: I. Efremov, L. Denisov, I. Kotvitskyi, I. Rybak, and S. Voitsekhovska). The Draft Law of Ukraine on October 10, 2017 No. 7133-1 “On Stimulation of the Market for Cryptocurrency and Their Derivatives in Ukraine” defines cryptocurrency as a decentralized digital value measurement that can be denominated in numerical form and functions as a means of exchange, a store of value or a unit of account, based on mathematical calculations being their result and has cryptographic


protection of accounting. For legal regulation, cryptocurrency is considered a financial asset. The Draft provides for the introduction of a 2% tax for compulsory state pension insurance for each crypto-exchange transaction, which will result in additional revenues to the State Budget of Ukraine (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). The Draft Law No. 7133 “On Circulation of Cryptocurrency in Ukraine” provides for that cryptocurrency is a program code (a set of characters, numbers, and letters) that is the subject of a property right that may act as a means of exchange, the information of which are entered and stored in the blockchain system as accounting units of the current block system as data (program code). Moreover, the Draft states that the general rules, provided for to private ownership, can be applied to cryptocurrency, while to cryptocurrency transactions the general provisions of the contract of exchange are applied in accordance with the legislation of Ukraine. In addition, the Draft provides for the distribution of tax legal relations to operations on mining and exchange of cryptocurrency, in accordance with the current legislation of Ukraine (i.e. cryptocurrency will be the subject of taxation) (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). Both Draft Laws need to be further elaborated, first of all, in view of the necessity to amend the other legislative acts regulating the related legal relations (in particular, the Civil Code of Ukraine) in parallel, by providing the definition and legal status of cryptocurrency as a special object of civil law relationships. Moreover, at the state level, it is necessary to develop programs for the introduction of special software, which will allow the circulation of cryptocurrency, for example, as a subject of exchange. In addition, definitely, cryptocurrencies should be subject to taxation, which will create additional revenues for the State Budget of Ukraine (Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia). However, the regulator, the National Securities and Stock Market Commission refused to support these Draft Laws in their initially filed form. The Commission draws attention to the inadmissibility of the use of the term “cryptocurrency” since in essence this concept is the result of financial engineering, not “currency” (Bitcoin v Ukraini: NBU ta inshi rehuliatory vyznachylysia zi statusom kryptovaliut). According to the State Agency for e-Government, in Ukraine, for the first time in the world, an electronic transatlantic exchange agreement was signed in cryptocurrency Ethereum with the use of the Ethereum Blockchain smart contract. Eizvestia. com informs that the amount of the transaction is equated with USD 60,000. Apartment owner Mark Ginzburg (lives in New York) sold an apartment in Kyiv through his representative. The Propy Startup in the Silicon Valley became the platform for the transaction.

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According to The Wall Street Journal, the buyer was Michael Arrington, a founder of TechCrunch (and also an advisor at Propy) (Vpershe v Ukraini ofitsiino prodaly kvartyru za kryptovaliutu). Before concluding a deal through Blockchain, the parties signed a smart contract. The address of the smart contract is shown in the contract, which is submitted directly to the property register and in the blockchain Etherеum (Vpershe v Ukraini ofitsiino prodaly kvartyru za kryptovaliutu). On the Propy platform, the seller and the buyer have contracted intention, on the basis of which cryptocurrency was transferred into a deposit. Subsequently, the lawyers prepared the necessary documents for the transaction of sale and purchase, property valuation acts were ordered, power of attorney was issued to the parties, and also a notarial agreement was made. After entering changes of rights of the ownership to the register, an extract from it was received. In turn, the extract was immersed in the system, which enabled to unlock the smart contract and remit the required amount to the seller (Vpershe v Ukraini ofitsiino prodaly kvartyru za kryptovaliutu).

2. Conclusions To sum up, it should be emphasized that the regime of cryptocurrency in Ukraine and in many countries is in a legal vacuum. Consequently, every consumer and legislator should have had open information about the

Vol. 4, No. 2, 2018 issuer, the order of issue and cryptocurrency transactions. Then reviewing of the state policy on Bitcoin and analogues would be possible. In addition, a question of legislative clarification and consolidation of this concept through the adoption of relevant rules in tax, banking, civil and commercial law occurs. Moreover, it is necessary and expedient to introduce the appropriate license for cryptocurrency activities that would minimize money laundering or terrorism financing. Someday, relations with respect to the digital currency will be resolved, but most likely it will be an inappropriate and unjustified copying of the experience of another state, which may have negative consequences. That is why it should be considered that the legal regime of cryptocurrency ought to be adapted to the actual world events and the real situation in the state (Lozova, Loviak, 2018; Dudko, Loviak, 2017; Motyl, Loviak, 2018). Further scientific research: - the possibility of the occurrence and implementation of material liability. Labour relations develop quite quickly; possibly, in the future, freelance workers will receive wages in cryptocurrency or compensate for damage to the enterprise, taking into account the cost of Bitcoin. By no means, reflections, presented in the article, put the end in the study of problems of cryptocurrency relations. The problems outlined need further study, while scientific achievements should be implemented in the social and legal life.

References: Kryptovaliuta: ii pravovyi rezhym, problemy zastosuvannia [Cryptocurrency: its legal regime, application problems]. Retrieved from http://ukrainepravo.com/legal_publications/essay-on-it-law/it_law_plyta_% D1%81ryptocurrency/ Bitkoin, blokchein i maininh. Komu potribna kryptovaliuta i yak derzhavy ii kontroliuiut [Bitcoin, blockchain and mining. [Who needs cryptocurrency and in what manner the states monitor it]. Retrieved from https://tsn.ua/groshi/bitkoyin-blokcheyn-i-mayning-komu-potribna-kriptovalyuta-i-yak-derzhavi-yiyikontrolyuyut-1016475.html Shcho take elektronna valiuta ‘Bitkoin’? [What is it Bitcoin currency?] Retrieved from https://www.radiosvoboda.org/a/27271364.html Kryptovaliuty v Ukraini. Problemy ta perspektyvy pravovoho rehuliuvannia [Cryptocurrency in Ukraine. Problems and prospects of legal regulation]. Retrieved from http://yur-gazeta.com/publications/practice/informaciynepravo-telekomunikaciyi/kriptovalyuti-v-ukrayini-.html Vpershe v Ukraini ofitsiino prodaly kvartyru za kryptovaliutu [For the first time in Ukraine officially an apartment was sold for cryptocurrency]. Retrieved from http://eizvestia.com/uk/news_economy-ukr/full/2709-vpershe-vukraini-oficijno-prodali-kvartiru-za-kriptovalyutu Shchodo vidnesennia operatsii z ‘virtualnoiu valiutoiu/kryptovaliutoiu Bitcoin’ do operatsii z torhivli inozemnoiu valiutoiu, a takozh naiavnosti pidstav dlia zarakhuvannia na potochnyi rakhunok v inozemnii valyuti fizychnoi osoby inozemnoi valiuty, otrymanoi vid prodazhu Bitcoin: Lyst Natsionalnoho banku Ukrainy vid 08.12.2014 № 29-208/72889 [On classification the transactions with ‘virtual currency / cryptocurrency Bitcoin’ in transactions with foreign currency trade, as well as the grounds for enrolment on a current account in foreign currency of an individual foreign currency obtained from the sale of Bitcoin: Letter of the National Bank of Ukraine of August 12, 2014 No. 29-208/72889]. Biznes-Bukhhalteriia-Pravo. Podatky. Konsultatsii. [Business-Accounting-Law. Taxes. Consultation]. (2015). 37, 26. Roziasnennia shchodo pravomirnosti vykorystannia v Ukraini ‘virtualnoi valiuty /kryptovaliuty’ Bitcoin: Roziasnennia NBU vid 10.11.2014 [Clarification on the legality of using ‘virtual currency / cryptocurrency’ Bitcoin in Ukraine: Clarification of the NBU]. (November 10, 2014). Retrieved from http://zakon.rada.gov.ua/ laws/show/n0435500-14/card6#Public

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Vol. 4, No. 2, 2018 Pro obih kryptovaliuty v Ukraini: Zakonoproekt №7183 vid 06.10.2017 [On the Circulation of Cryptocurrency in Ukraine: Draft Law No. 7183]. (October 06, 2017) Retrieved from http://w1.c1.rada.gov.ua/pls/zweb/ webproc4_1?pf3511=62684 Komentar zastupnyka Holovy NBU Oleha Churiia shchodo statusu Bitcoin v Ukraini [Commentary of the Deputy Chairman of the National Bank of Ukraine Oleg Churii on the status of Bitcoin in Ukraine]. Retrieved from https://bank.gov.ua/control/uk/publish/article?art_id=53411806&cat_id=55838 Bitcoin v Ukraini: NBU ta inshi rehuliatory vyznachylysia zi statusom kryptovaliut [Bitcoin in Ukraine: the NBU and other regulators have defined the status of cryptocurrency]. Retrieved from http://biz.nv.ua/ukr/finance/ bitcoin-v-ukrajini-nbu-i-inshi-reguljatori-viznachilisja-zi-statusom-kriptovaljuta-2293048.html Lozova, T.I., Loviak, O.O. (February, 2018). Okremi aspekty obihu kryptovaliuty v Ukraini (tsyvilno-pravovyi aspekt) [Some aspects of the cryptocurrency circulation in Ukraine (civil and legal aspect)]. Jurnalul juridic național: teorie și practică [National Legal Journal: theory and practice]. (Moldova), 1(1), 104-108. Dudko, A.H., Loviak, O.O. (2017). Bitcoin – obiekt tsyvilnykh prav chy innovatsiina posluha u sferi rozrakhunkiv (tsyvilno-pravove ese) [Bitcoin is an object of civil rights or an innovative service in the field of settlements (civil law essay)] Naukovyi visnyk publichnoho ta pryvatnoho prava: Zbirnyk naukovykh prats [Scientific Bulletin of Public and Private Law: Collection of Scientific Papers], 5(1). K.: Naukovo-doslidnyi instytut publichnoho prava [Research Institute of Public Law], 97-101. Motyl, V.I., Loviak O.O. (2018). Okremyi pohliad na pravovyi rezhym kryptovaliuty v Ukraini A point of view on the legal regime of cryptocurrency in Ukraine In S.V. Hubariev, I.S. Timush (Eds.), Suchasni pohliady na aktualni pytannia pravovykh nauk: materialy mizhnarodnoi naukovo-praktychnoi konferentsii (23 lyutoho 2018 r.) [Current views on topical issues in the legal sciences: materials of the international scientific and practical conference (February 23, 2018)]. K: FOP Kandyba, 20-26.

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Vol. 4, No. 2, 2018

DOI: https://doi.org/10.30525/2256-0742/2018-4-2-282-287

DAMAGE COMPENSATION AS THE WAY OF PROTECTION OF AUTHORS’ PROPERTY RIGHTS: THE ECONOMIC AND LEGAL ASPECT Petro Nemesh1

Transcarpathian Qualification and Disciplinary Commission of the Bar (QDCB), Ukraine

Evgeniy Leyba2, Vasil Fennych3 Uzhhorod National University, Ukraine

Abstract. The objective of the article is to determine the economic and legal aspects of compensation for damages caused by the violation of the authors’ property rights in conformity with the national evaluation standards in the field of intellectual property, the legislation of Ukraine and its application. The subject of the study is the domestic experience of property reimbursement to authors in case of violation of their property rights to works. Methodology. The study is based on the analysis of Ukrainian legislation on ways to reimburse authors for property rights for works, including compensation for damages, and determination of their advantages and disadvantages. The peculiarity of three economic approaches – cost, comparative and profit, as well as their use in a certain situation for determination of the amount of damage inflicted to the author, is defined on the basis of economic analysis. The results of the study point out that the reimbursement of damages is the main way of property compensation for violation of property rights of the author. And in comparison with other methods, the reimbursement of real losses and lost profits is designed to a greater extent to protect the property interests of the author. It is concluded that over the weak development of the intellectual property market in Ukraine, commercial secret under contract terms in the field of intellectual property, a clear advantage is given to the profit approach. The approach, by means of various methods, will enable the most reasonable determination of the amount of damage. Practical implications. The development of reimbursement for the caused losses as a means to protect the property interests of authors in Ukraine demonstrates that the intellectual property market should be properly developed in line with European standards. This will allow authors to effectively use other methods of property compensation for violating property interests. In turn, this will allow choosing new methods of economic calculation of property compensation for a committed offense in the sphere of copyright. Originality. The comparative analysis of the ways of property compensation for the violation of authors’ property rights is the basis for domestic legislation development in the field of intellectual property in accordance with European standards. Key words: copyright, damages reimbursement, approaches and methods of calculating, amount of losses. JEL Classification: P26

Exposition of the problem and its connection with important scientific and practical tasks. The development of civilization implies not only the recognition of certain subjects’ civil rights but also the provision of their proper legal protection and, therefore, the problem of the protection of civil rights becomes extremely relevant. Taking into account the importance of this problem, legislation of Ukraine (in the constitutional norm) provides everybody with a right of any not forbidden by a law facility to protect the rights and freedoms from violations and wrongful

encroachments (Part 4 of Article 55 of the Constitution of Ukraine) (Prytyka, 2004).Today when it comes to property rights for copyright objects, this problem is of particular relevance. The significance of the protection of rights is established in the Constitution of Ukraine: every citizen has a right to the results of the intellectual, creative activity; nobody can use or diffuse them without his consent, after the exceptions set by a law (Article 54 of the Constitution of Ukraine) (The Constitution of Ukraine: Law of Ukraine № 254k-96/VR from June 28, 1996).

Corresponding author: 1 Transcarpathian Qualification and Disciplinary Commission of the Bar (QDCB). 2 Uzhhorod National University. 3 Department of Civil Law and Process, Uzhhorod National University.

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Vol. 4, No. 2, 2018 Ukraine ratified the Association Agreement between Ukraine and the European Union and its member states in September 2014, from now on, all the authorities with powers in the field of European integration must ensure the effective implementation of the international legal obligations (Hnydiuk, Pavliuk, 2016). One of the realms of European integration of Ukraine is the creation of an effective mechanism for the protection of property rights of authors and other right holders in accordance with the standards of the European Union (hereinafter – the EU) from offenses. That is why the analysis of domestic legislation that regulates the protection of property rights of authors by means of reimbursement of damages will be relevant. However, since their extent is determined by economic approaches and methods, it will be important to analyse the economic aspect of the application of damages as means of protecting the authors’ property rights. Analysis of the latest research and publications. The issues of protecting the authors’ property rights by way of reimbursement of losses incurred from a legal and economic point of view were the subject of a scientific study by such scholars as O. Butnik-Siversjkyj, K. Kovtunenko, O.I. Kosarenko, I.Ju. Polishhuk, Ju.D. Prytyka, L. Shackova, and many others. Statement of the article’s task. The objective of the article is to determine the economic and legal aspects of compensation for damages caused by the violation of the authors’ property rights in conformity with the national evaluation standards in the field of intellectual property, the legislation of Ukraine and its application. Presentation of the main research material with a new substantiation of the scientific results obtained. Upon creating a work, the author has two distinct goals: satisfying the intellectual needs and satisfying the material interests. This precisely causes the origin of non-property rights and proprietary rights regarding the created work. Legal competences of property character, which form the property right of the author allow him to carry out economic exploitation, usage of his work or give permission for usage to third parties, obtaining a monetary reward for it. According to Part 3 of Article 15 of the Law of Ukraine “On Copyright and Related Rights” the exclusive right of an author (or another copyright holder) to allow or prohibit the use of a work by other persons shall entitle him to allow or prohibit: 1) reproduction of works; 2) public performance and broadcast of works; 3) public demonstration and public display of works; 4) any repeated promulgation of works, if carried out by an organization other than the one that carried out the first promulgation; 5) translations of works; 6) versions, adaptations, arrangements, and other similar alterations to works; 7) inclusion of works as components into collections, databases, anthologies, encyclopaedias, etc.; 8) distribution of originals of works and their


specimens by first sale or alienation by another method or by transferring for property lease or rental, and by other transfer prior to the first sale of specimens of a work; 9) general notification of the public of his works in such a manner that its representatives can access the works at any place and at any time at their own discretion; 10) transfer for property lease and (or) commercial rental after the first sale, alienation by another method of the original or specimens of audiovisual works, computer software, databases, musical works as sheet music, as well as of works fixed on a phonogram or videogram or in a computer-readable form; 11) import of specimens of a work. Thus, the list of property rights of the author is not exhaustive but they all point to the possibility of commercialization of works, the purpose of which is to generate profits. This opportunity exclusively serves as the main reason for the unauthorized use of works. General ways of protecting property rights of individuals and legal entities, including in the field of copyright, are defined in Article 16 of the Civil Code of Ukraine, the second part gives the method of compensation of damages and other methods of compensation for property damage (paragraph 8) (Civil Code of Ukraine: Law of Ukraine № 435IV of January 16, 2003). However, the legal status of intellectual property objects is determined not only by general but by special legislation of Ukraine. Regarding copyright objects, there is a number of laws of Ukraine, in particular, “On Copyright and Related Rights” (On Copyright and Related Rights: Law of Ukraine № 3792-XII from December 23, 1993), “On Distribution of Copies of Audiovisual Works, Phonograms, Videograms, Computer Programs, Databases” (On Distribution of Copies of Audiovisual Works, Phonograms, Videograms, Computer Programs, Databases: Law of Ukraine № 1587-ІІІ of March 23, 2000), “On Publishing” (On the Publishing Business: Law of Ukraine №318 / 97-VR of June 5, 1997), “On Cinematography” (On Cinematography: Law of Ukraine № 9/98-VR of January 13, 1998) etc. According to Article 52 of the Law of Ukraine “On Copyright and Related Rights” methods of protection author’s property rights may be used on the basis of violation by any person the copyright, non-observance of the conditions for using works stipulated by contract, the use of works in circumvention of technical means of protection or by the forging of rights-management information and (or) documents, or for the creation of a threat of unlawful use of objects of copyright, and for other infringements of proprietary rights of the persons holding copyright. In this case, persons holding copyright have the right: a) to require the recognition and renewal of their rights; b) to lodge claims with a court of law requiring renewal of the infringed rights and (or) the termination of actions infringing copyright or posing a threat of their violation;

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c) to lodge claims requiring reimbursement of moral (non-proprietary) losses; d) to lodge claims requiring reimbursement of losses (material damage), including lost profit, or collection of the income derived by the infringer as a result of his violation of copyright and (or) related rights, or payment of compensation; e) to require the termination of preparations for an infringement of copyright, including the suspension of customs procedures, if there is a suspicion that counterfeit specimens of works, phonograms, videograms or means of circumvention might be allowed into or from the customs territory of Ukraine, in compliance with the procedure stipulated in the Customs Code of Ukraine; f) to participate in the inspection of the production premises, storage facilities, technological processes and business operations relating to the production of specimens of works, phonograms and videograms with respect to which there are grounds to suspect violation or threat of violation of copyright, in compliance with the procedure established by the Cabinet of Ministers of Ukraine; g) to require, including by court procedure, the publication in the mass media of information about infringements of copyright rights and of court judgments with respect to infringements; h) to require the provision, by the persons infringing the claimant’s copyright of information about third parties involved in the manufacture and distribution of counterfeit specimens of works and objects of related rights or means of circumvention, and the relevant distribution channels; i) to require other measures envisioned by legislation, concerning the protection of copyright; j) to protect the copyright in the prescribed by Article 52¹ way of the Law of Ukraine “On Copyright and Related Rights” (in the commission of offenses through the Internet – added by author). So, reimbursement in violation of the property rights of the author, including loss of profits, is one of the ways of protection in the result of property damage. However, the court of law may use such means of protection as the payment of compensation, to be prescribed by the court, in an amount from 10 to 50,000 minimum salaries (Part 2, Article 52 of the Law of Ukraine “On Copyright Right and Related Rights”). Hence, the payment of compensation is used here in lieu of damage reimbursement or income collection. Each means of property compensation, which the author or another copyright holder will choose, has its certain peculiarity. Reimbursement is the easiest way of property compensation if the person wants promptly stop the illegal use of the work. According to paragraph 42 of the Resolution of the Plenum of the Supreme Court of Ukraine “On Application of Legislation in the Case of Protection of Copyright and Related Rights,” compensation is payable in the event of proving the violation of the property rights of the subject of copyright and (or) related rights, and not the amount

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Vol. 4, No. 2, 2018 of the damages caused (On Application of the Norms of Legislation in Cases on the Protection of Copyright and Related Rights: Resolution of the Plenum of the Supreme Court of Ukraine № 5 from June 4, 2010). In this case, the minimum monetary compensation in the amount of 10 minimum wages is paid to the plaintiff and the activity violating his rights terminates. However, if a person wants to receive substantial monetary compensation (up to 50 thousand minimum wages, that is 186 million 150 thousand Ukrainian hryvnias (as of 2018)), the plaintiff will have to prove much more evidence of the circumstances of the case. In particular, the kind of violation of property rights was allowed; objective criteria that can approximately specify amount of damage (not precise – added by author) caused by the wrongful use of individual object of copyright; the duration and extent of violations (one-time or multiple use of disputed objects); the amount of income received as a result of the offense; number of persons whose right is violated; the intentions of the defendant; the restoration possibility of the previous state and the efforts necessary for this purpose, etc. (Paragraph 42 of the Resolution of the Plenum of the Supreme Court of Ukraine “On Application of Legislation in the Case of Protection of Copyright and Related Rights”). Consequently, a clear algorithm of calculation with the help of such a method of property compensation as reimbursement is not established. Litigation proves the difficulty of achievement of the monetary compensation with help of such a method of protection. As in one of the economic cases, the plaintiff demanded the maximum amount of compensation for unauthorized use collections of the assignments. The court of the first instance has satisfied the claim partially (in the amount of 555 thousand hryvnias), on the basis of the circulation of collections, where controversial assignments were published (300 thousand copies). However, the court of appeal ceded the case for a reconsideration, stating that “the amount of compensation should not exactly correspond to the amount of damage that has been incurred but must correlate to it in a certain way,” and the court of first instance did not investigate by means of evidence “the possible remuneration for similar use on the terms of the license agreement, which is either established by this right holder under previous agreements, or is an established practice in this field; profit from the sale of copies of the collection of assignments, which was predicted, but was not realized due to the spread of counterfeit products” (Resolution of the High Economic Court of Ukraine in the economic affairs № 16 / 430-03 from July 18, 2006). Reimbursement from the copyright infringer of income derived from the violation of property rights of the authors also serves a fairly simple way of property compensation. On the other hand, the amount of such a penalty will not always satisfy the plaintiff since the income already received is unlikely to correspond to

Vol. 4, No. 2, 2018 the damage actually caused by violation of the author's rights or may be caused in the future (Kosarenko, 2011). Therefore, while causing damage to property rights of authors, plaintiffs often turn to such a method of protection as reimbursement. Loss compensation is the main way of reimbursing property damage inflicted on the author. But, according to Part 2 of Article 22 of the Civil Code, the damage is the loss suffered by a person in connection with the destruction or damage to the thing, as well as the expenses that the person should do to restore his violated right (actual losses) and the income that a person could actually receive under normal circumstances, when his/her right was not violated (lost profit). In accordance with Part 2 of Article 52 of the Law of Ukraine “On Copyright and Related Rights” in determining the amount of damages to be reimbursed to a person whose rights have been violated, the court must proceed from the merits of the violation, property damage inflicted on the person having the copyright, as well as from the possible the income that a person could receive. The amount of damages inflicted on a person whose rights have been violated may additionally include court costs incurred by this person, as well as expenses related to the payment of a lawyer’s assistance. As practitioners point out, the actual damages caused by copyright infringement is rarely used in practice since this type of damage is difficult to prove. It is much easier to prove in the court the lost profits, that is, revenues that the author could obtain from the offender for the legitimate use of his work. However, in a well-established business based on commercialized products, it is possible to claim reimbursement of both real losses and lost profits (Novytskyi). And this is where the economic aspect of property compensation occurs: the right choice of approaches and methods for calculating the amount of the damage. As soon as occurs the possibility of practical use of protected results of creative activity in the economic sphere, that is, their commercialization, immediately arises the problem of estimating the value of objects of intellectual property, including works. The complexity of works’ evaluation is due to the fact that it is fundamentally impossible to develop its unique universal methodology. Not only every work is original (by definition) but also the conditions for the practical use of the results of creative activity at different enterprises, too, usually, differ significantly from each other. Almost in each individual case while refinement of the purpose of assessments an individual methodology for calculations for each particular object is developed. That would the most fully allow taking into account all pricing factors that affect its market value. This methodology may take into account past costs for the creation and acquisition of an object, market conditions and, moreover, may be based on the ability


of the intellectual property to bring additional revenue to the enterprise (Husakovska, 2014). To assess the value of works and, consequently, the losses caused by their illegal use, three basic approaches were used: cost, comparative, and profit (Udovychenko, Trusevych, 2007). The cost approach is most often used to measure intangible assets that do not participate in generating hereafter earnings and do not bring profits at this time. For example, when intangible assets are rated to be socially significant or participate in defence programs of state or regional security. This approach to the calculation of value suits to the buyer because he/she can documentary track the costs of creating an intellectual property object and, therefore, make sure that this value is justified. But it is not profitable for the seller since he/she will receive an amount equal only to the incurred costs of creating an object of intellectual property, that is, without profit (Kovtunenko, Shatskova, 2012). The cost approach involves the use of various techniques: direct playback method, the replacement cost method, initial cost method. However, since a cost approach involves evaluation of works based on costing associated with their creation or acquisition, it accurately reflects the cost of the work prior to its commercialization (for example, the budget of a blockbuster movie before it’s rolled out). Obviously, this approach cannot be used to compensate for the damage caused to the author’s property rights, since it does not apply when the business with the object of copyright begins. That is why it is proposed to use an alternative approach – comparative. Comparative approach is a comparison of the object being evaluated with a similar type, sphere (scope) of application, sale time, suitability for commercial use, the existence of exclusive rights, similarity of markets and other functional or economic characteristics (paragraph 22 of the National Standard No. 4 “Evaluation of Intellectual Property Proprietary Rights”) (On Approval of the National Standard № 4 "Appraisal of Intellectual Property Rights": Resolution of the Cabinet of Ministers of Ukraine №. 1185 October 3, 2007). This approach requires the use of a sales comparison method. In order to apply a comparative approach, one must have information on treaties that sold property rights to similar products. The market price of a product, more precisely, generated by it the property rights, formed by economic indicators, will give an idea of the market value of the estimated work. It is possible to take into consideration the prices of already concluded contracts or the price of works that are only offered for sale. A comparative approach requires careful application, as far as its incorrect application during transferring the parameters of one object to another may give false results. Appraisers, who are invited to carry out in court cases assess of the value of damages caused by violation

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of property rights to works, use comparative method extremely rarely. The fact is that in Ukraine, due to the weak development of the intellectual property market, commercial secret under intellectual property contract terms, comparative approach can be used effectively, only for the assessment of the violation of property rights to computer programs (due to their rapid aging) and a number of other objects of copyright, the study of which is freely possible in the market. If a person does not have the information about the price of selling such a product or has some doubts about it, this fact should be reflected to what extent this has influenced the authenticity of the conclusion about the market value of the object of valuation (paragraph 16 of National Standard No. 1 “General Principles of Valuation of Property and Property Rights”) (On Approval of the National Steel Works № 1 "General principles of valuation of property and property rights": Resolution of the Cabinet of Ministers of Ukraine № 1440 September 10, 2003). In addition, the person that will assess the damage caused is required to initially perform interim calculations, which then will be adjusted, taking into account the notable features of the sales object, which may affect the reliability of the results. That is why the advantage in determining the amount of damages in violation of property rights to the work is given to the profit approach. The profit approach is the main approach when evaluating intellectual property objects. It assumes that nobody will invest its capital in the acquisition of an immaterial object, if the same income can be obtained in another way, in the same predicted period of time. Benefits from the use of evaluated intellectual property are determined on the basis of direct comparison of the magnitude, risk and time of obtaining money flow from the use of intellectual property. Forecast of hereafter money flows is based primarily on the actual funds received, that is, based on the money flows of the year preceding the valuation date. The main drawback of the profit approach is the complexity of obtaining the necessary initial information for calculations. In conditions of an unstable economy, the accurate prediction of hereafter income, costs, and risks is a complex task that requires high qualifications of appraisers (Husakovska, 2014). The versatility of the profit approach makes it attractive because it allows seeing the value of an

Vol. 4, No. 2, 2018 intangible asset that should have been shown by the appropriate type of licensing agreement for the legal sale of property rights to works. The National Standard No. 4 “Evaluation of Intellectual Property Proprietary Rights” also recommends using this approach indicating that this approach should be chosen if “it is possible to determine the amount of income received or may be received by a legal or natural person who owns such rights” (paragraph 9). Moreover, an attention is drawn to such basic methods of income approach as a method of indirect capitalization (discounting of money flow) and the method of direct capitalization of income. The application of indirect capitalization methods (discounting of money flow) and direct capitalization methods of income to assess the proprietary rights of intellectual property implies the determination of the size of the part of the income received as result with the presence of such rights in a legal or natural person (Paragraph 11 of the National Standard No. 4 “Evaluation of Intellectual Property Proprietary Rights”). Hence, the methods of income approach will most effectively be able to determine the size of losses from the presence of counterfeit products. Conclusions of the study and prospects for further exploration in this direction. The reimbursement of damages is the main way of property compensation for violation of property rights of the author. And in comparison with other methods, the reimbursement of real losses and lost profits is designed to a greater extent to protect the property interests of the author. Taking into account the intangible nature of works, determination of the damage amount is not associated with traditional approaches. This transforms the issue of the value of compensation into a complex problem, both theoretical and practical. There is a variety of approaches and methods for assessing damages connected to the violation of property rights to works, where a clear advantage is given to the income approach. The approach, by means of various methods, will enable the most reasonable determination of the amount of the damage caused. However, the approaches and methods above described by the author are not unique in the determination of the amount of damages for violation of property rights to works. Their description and comparison with the basic approaches and methods may be the subject of independent scientific research.

References: Prytyka Ju.D. (2004). Ponjattja i dyferenciacija sposobiv zakhystu cyviljnykh prav ta interesiv. Visnyk Kyjivsjkogho nacionaljnogho universytetu imeni Tarasa Shevchenka. Jurydychni nauky. Vyp. 60-62. p. 16-19. The Constitution of Ukraine: Law of Ukraine № 254k-96/VR from June 28, 1996. Vidomosti Verkhovnoji Rady Ukrajiny. 1996. №30. Art. 141. Hnydiuk N., Pavliuk S. (2016). Nablyzhennia zakonodavstva Ukrainy do prava YeS vidpovidno do Uhody pro asotsiatsiiu: mizh pravovymy zoboviazanniamy ta analizom polityky? Kyiv, 40 p. Civil Code of Ukraine: Law of Ukraine № 435-IV of January 16, 2003. Vidomosti Verkhovnoji Rady Ukrajiny. 2003. №40-44. Art. 356. On Copyright and Related Rights: Law of Ukraine № 3792-XII from December 23, 1993. Vidomosti Verkhovnoji Rady Ukrajiny. 1994. №13. Art. 64

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Vol. 4, No. 2, 2018 On Distribution of Copies of Audiovisual Works, Phonograms, Videograms, Computer Programs, Databases: Law of Ukraine № 1587-ІІІ of March 23, 2000. Vidomosti Verkhovnoji Rady Ukrajiny. 2000. №24. Art. 183 On the Publishing Business: Law of Ukraine №318 / 97-VR of June 5, 1997. Vidomosti Verkhovnoji Rady Ukrajiny. 1997. №32. Art. 206 On Cinematography: Law of Ukraine № 9/98-VR of January 13, 1998 Vidomosti Verkhovnoji Rady Ukrajiny. 1998. №22. Art. 114 On Application of the Norms of Legislation in Cases on the Protection of Copyright and Related Rights: Resolution of the Plenum of the Supreme Court of Ukraine № 5 from June 4, 2010. URL: http://zakon2.rada.gov.ua/laws/ show/v0005700-10 /print1509742376245137 (date: 15/06/2018) Resolution of the High Economic Court of Ukraine in the economic affairs № 16 / 430-03 from July 18, 2006. URL: http://vgsu.arbitr.gov.ua/docs/28_1304232.html (date: 15/06/2018) Kosarenko O.I. (2011). Problema vyznachennia rozmiru zbytkiv v spravakh pro porushennia avtorskykh prav. Chasopys Akademii advokatury Ukrainy. №3(12). Tom 4. URL: http://e-pub.aau.edu.ua/index.php/chasopys/ article/view/438/459 (datе: 15/06/2018) Novytskyi O. Vidshkoduvannia zbytkiv vs kompensatsiia. Zakhyst avtorskykh prav. URL: http://blog.liga.net/ user/onovinskiy/article/21822 (datе: 15/06/2018) Husakovska T.O. (2014). Pidkhody do vyznachennia rozmiru zbytkiv vid nepravomirnoho vykorystannia obiektiv intelektualnoi vlasnosti. Naukovyi visnyk Poltavskoho universytetu ekonomiky i torhivli. №3 (65). P. 86-91. Udovychenko S., Trusevych V. (2007). Osoblyvosti litsenzuvannia prav na obiekty intelektualnoi vlasnosti. Ekonomika Ukrainy. №5. p. 60-66. Kovtunenko K., Shatskova L. (2012). Osoblyvosti otsinky vartosti obiektiv intelektualnoi vlasnosti v Ukraini. Ekonomichnyi analiz. Vyp. 10. Сhastyna 2. p. 270-273. On Approval of the National Standard № 4 "Appraisal of Intellectual Property Rights": Resolution of the Cabinet of Ministers of Ukraine №. 1185 October 3, 2007. URL: http://zakon3.rada.gov.ua/laws/show/1185-2007%D0%BF (datе: 15/06/2018) On Approval of the National Steel Works № 1 "General principles of valuation of property and property rights": Resolution of the Cabinet of Ministers of Ukraine № 1440 September 10, 2003. URL: http://zakon3.rada.gov.ua/ laws/show/1440-2003-%D0%BF (datе: 15/06/2018)

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Vol. 4, No. 2, 2018

DOI: https://doi.org/10.30525/2256-0742/2018-4-2-288-300

SHAREHOLDERS AGREEMENT: COMPARATIVE AND LEGAL ANALYSIS OF THE LEGISLATION AND LEGAL DOCTRINE OF UKRAINE, EU COUNTRIES AND USA Yuriy Zhornokui1

Kharkiv National University of Internal Affairs, Ukraine

Olha Burlaka2

National Academy of Internal Affairs, Ukraine

Valentyna Zhornokui3

Kharkiv National University of Internal Affairs, Ukraine Abstract. The aim of article is to conduct comparative-legal research of legislative acts establishing legal background of shareholders’ agreement conclusion and execution in certain foreign states and Ukraine along with presentation of ways to improve the relevant Ukrainian legislation. Subject of research is the experience in area of legal regulation of shareholders’ agreement conclusion and execution in certain foreign states and Ukraine. Меthodology. Research is based on comparison of shareholders’ agreement conclusion and execution in Ukraine, USA, Russia and Western Europe (Italy, Switzerland and Germany). Author defines advantages and deficiencies of shareholders’ agreement conclusion and execution methodology and opportunities to implement relevant foreign practices (on the basis of comparative-legal analysis of specific provisions of civil legislation of Ukraine). Results of this research proved that in order to implement foreign experience related to legal support of shareholders’ agreement conclusion and execution strict civil law sanctions must be imposed. These measures are applied in the case if there are violations of shareholders’ agreement provisions. We consider that reimbursement is the most efficient and appropriate sanction for commitments deriving from the shareholders’ agreements including voting procedure at general meetings, approval of voting format by other shareholders, coordination of actions related to management, key activities, JSC reorganization and liquidation due to the fact that reimbursement amount is defined by the parties and does not depend on damage inflicted, is not reduced according to the court ruling and may be applied along with other civil law sanctions. Practical implementation. Positive experience of development of legal background for shareholders’ agreement conclusion and execution in certain foreign states proves that law enforcement procedures require identification of relevant agreement legal nature as for quite a long time these documents have been used by corporate relations parties. Сorrelation/originality. Comparative analysis of Ukrainian, European and American legislative acts regulating shareholders’ agreement conclusion and execution has become a foundation for presentation of certain amendments. Кey words: foreign experience, analysis, agreement, legal doctrine, shareholders, EU states. JEL Classification: F53, O52

1. Introduction Analysis of the legislation and practice of foreign countries has demonstrated that shareholders agreements as a tool for individual and legal regulation of the relations between shareholders are admitted in

many legal systems. There is a certain imbalance in the legislation of European countries. Legal acts of Italy and Russia contain provisions on the procedure for making, executing and conditions of the researched agreements. But in Germany, France and Switzerland there are no

Corresponding author: 1 Department of Civil Law and Procedure of Faculty № 6. Kharkiv National University of Internal Affairs. Е-mail: [email protected] 2 Department of Civil Law and Procedure, National Academy of Internal Affairs. Е-mail: [email protected] 3 Department of Legal Support for Economic Activity of Faculty № 6. Kharkiv National University of Internal Affairs. Е-mail: [email protected]

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Vol. 4, No. 2, 2018 special provisions for regulating the relations between shareholders through agreements. This is fully applied to Ukraine. However, legislative and regulatory compliance practices needs to clarify the legal nature of the relevant agreements, since they have long been used by the members of corporate relations. However, the legislation in many countries does not provide a clear answer both to the question about the parties, the content, the object of a shareholders agreement and its legal nature. At the current stage of state formation Ukrainian integration to EU is acknowledged as prerequisite of further successful democratization and strengthening of civil society position (Medvedev, 2014). Тhat is why radical social and economic transformations of the last decade led both to positive and negative outcomes for Ukraine (Pavlenko et al., 2017). Therefore, American and European experience is so important and valuable as regulation of shareholders’ relations gradually becomes a matter of great interest in the light of international cooperation and trade facilitation and orientation towards state prosperity and security. Аnalysis of latest research and publications. Significant contribution to research of problems related to comparative analysis of legislative acts and legal doctrine of Ukraine, USA, Russia and EU states was made by numerous scholars: Е. Sukhanov, V. Vasiliieva, E. Haymann, R. Müller, I. SpasiboFateieva, М. Sibilev, V. Yarotskyi, I. Hewitt, V. Chionna, G. Cian; Alberto Trabucchi, О. Kibenko, V. Belov, N. Кuznetsova, R. Маydanik, Y. Kokhanovskaya, Т. Abova, D. Mayer, G. Stedman, J. Jones, D. Lomakin, V. Gureiev, N. Karzhavina, D. Stepanov, V. Litovkina, K. Yaroshenko, Y. Romanova, Y. Petrova, I. Venediktova. The aim of article is to conduct comparative-legal research of legislative acts establishing legal background of shareholders’ agreement conclusion and execution in certain foreign states and Ukraine. In this regard Resolution of Plenum of the Supreme Court of Ukraine dated from October 24, 2008 No. 13 “On the practice of corporate disputes reviewed by the courts” provides that the activities of joint-stock companies (hereinafter - JSC), the relationships between the founders (shareholders), as well as issues of corporate management are regulated by laws and other legal acts of Ukraine, in particular, mandatory norms, disregard of which violates public order (p. 8-9). However, despite the opposition expressed by some experts concerning the application of the researched legal category within joint-stock relations, we have to note that the concept of “joint-stock transactions” was first legalized by the Law of Ukraine “On JointStock Companies” (we use the term of “transactions between shareholders”) (On Joint-Stock Companies, 2008). Such an allocation of the group of contractual obligations by the national legislator borrowed from


the Anglo-American legal system, where the joint-stock transactions they understand agreements between shareholders on the management of corporation, voting procedure, contains restrictions on expression of will and other use of the corporate vote (Vasylieva, 2008). Shareholders agreements are known to German law, which is close to Ukrainian law. The German law allows the concert between shareholders to vote at the general meeting by concluding the agreement (stimmbindungsvereinbarung) (Spasybo-Fateeva et al., 2014). Analyzing the German, French and Italian professional literature on the formation of doctrines on shareholders agreements we may observe in each case that the emergence of such contractual relationships is the result of the formation of the doctrinal foundations of their appropriateness and legality. It mainly concerns such an aspect of corporate relations, as the issue of voting compared to the demand on the freedom of exercising the rights in one’s sole discretion. Certain German experts in the middle of the XX-th century maintained their points of view of the admissibility to disclaim and limit own will and interest of the rights that is derived from participation in a business entity. It is stated that the coherence of a member of a company, in case of concluding the agreement on a certain way of voting, shall not be considered during the voting at the general meeting as more than a contradiction of his freedom to vote by any way, but rather it is an expression of his freedom (Fischer, 1953; Weber, 2000). Shareholders agreements are common in the corporate practice in Switzerland. Their legality and admissibility is admitted by most scholars and court practice. Analysis of doctrinal and practical research in this country leads to the conclusion that over a long period of existence of this problem as an object of research and practical interests, there is a sufficient scientific and practical understanding of the role and significance of shareholders agreements as a tool of accessory regulation and protection of corporate interests of shareholders (Aktienübernahmevereinbarungen zwischen Mehrheits und Minderheitsaktionären: ein Vorschlag zu einem wirksamen Minderheitenschutz, vor allem in kleinen und mittleren Aktiengesellschaften, 1973). Legislative foundations for the possibility of concluding shareholders agreements in Switzerland are general norms of contractual and corporate law. The Art. 27 of the Civil Code of Switzerland, which proclaims the principle of freedom of an agreement and inadmissibility of excessive obligations, should be called as the general basic norm of civil law. This principle is determining both for using shareholders agreements and for establishing the limits of their specific content. It is historically that in France there is somewhat different situation for the recognition of the possibility to conclude a shareholders agreement. Thus, agreements between the shareholders of the duty to vote in a

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certain way were banned in France. It is associated with the understanding of the role of a shareholder, who participating in the general meeting shall decide on the basis of free will principle (Sonnenberger, 2000). Later in court practice such agreements were admitted, but with certain restrictions, in particular concerning the timing of their action and content. In England shareholders agreements regulate relations arising in connection with the management of the company, establish the dividend policy, are aimed at addressing “deadlock resolutions”, may impose restrictions on the disposal of shares: call option, put option, pre-emptive rights on acquiring shares by the shareholders, lock - up provisions, tag along rights, drag along righs (Hewitt, 2016). Italy is one of the few EU countries, where the civil law contains special provisions aimed at regulating the procedure of concluding shareholders agreements. Such a decision of the Italian legislator was not a reflection of general European tendencies (Chionna, 2008). Italian experience in regulating shareholders agreements is of particular interest for studying this issue because we can observe the characteristics along with the fact of the presence of special norms of the civil law on such commitments, indicative, in particular to the norms of other states, such as the Art. 32.1 of the Law of the RF “On Joint-Stock Companies”. This is due to the fact that many provisions of the Italian civil law on this issue were borrowed by Russian legislator concerning a joint-stock company. In legal doctrine presented approaches were not unequivocal supported. In particular, Ye. O. Sukhanov asserts that a shareholders agreement according to its legal nature is a civil and legal contract on exercising shareholders’ rights, not a “corporate transaction”, which determines the structure of the corporation’s management (Suhanov, 2014). V. A. Bielov does not support the position about a “clean” contractual nature of the researched relations between the shareholders indicating that they (relations) should be considered as “unilateral half-directed transactions with a plurality of persons on the side, which exercise them” (Belov, 2013). There is a question whether shareholders agreements are the kind of civil and legal contracts, or whether they are independent type of contracts governed by the Civil Code of Ukraine, but being outside the civil law, and are the object of other area – corporate law, the object and method of which are under the scientific discussion for many years. Binding and legal rather than corporate nature of the shareholders agreements is generally admitted in European corporate law. Derived from here is their binding nature only for persons who have signed them, but not for the whole corporation. Thus, in case of violation of such an agreement by one of the shareholders, contractual responsibility can be relied on

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Vol. 4, No. 2, 2018 him, but the results of voting and decisions taken by the company are legally valid and can not be challenged. In Germany and Switzerland the shareholders agreements, usually are not considered as an independent type of agreement. The prevailing view is that it should be understood as agreements of shareholders that regulate legal relationships of the shareholders or groups of shareholder between each other (Mayer, 2006). The basic norm that determines the admissibility of the shareholders agreements under German civil law, is the provisions enshrined in c. 5, § 23 of German Law “On Actions” (Aktiengesetz vom 6. September 1965), under which “provisions supplementing the charter of the company are admissible, if the law does not contain an exhaustive regulation”. The shareholders agreements in German legal literature and practice are almost unanimously qualified as agreements on common activities and are regulated by §§ 705-740 of the German Civil Regulations on the agreement of partnership. However, it should be noted that the shareholders agreement in the form of “partnership” can solely exist, when its parties are only individuals, who do not have the status of entrepreneurs. In other cases, such agreements are considered as binding and legal agreements on the ways and peculiarities of realizing the rights to shares and rights from them and are regulated by the general norms on contracts. Similarly, this issue is solved in Swiss legislation, which recognizes several forms of real expression of the shareholders agreements: single and double sided binding agreements, a partnership agreement (Müller, 1998). The latter in most cases is the basic form of fixing binding relationships between the shareholders. Analyzing the experience of legislative regulation of the shareholders agreements in Germany, Switzerland, France, one can conclude that, firstly, these countries do not use legal concept – “corporate agreement”. None of the countries of continental Europe does not apply the legal terminology of foreign countries in its legislation, including legislation on joint stock companies (exceptions are Latin terms and names of some legal institutions that are quite specific to any country or the group, such as the concept of “trust”). Anglicisms, which are followed by the modern adjective “corporate” may be used only as a doctrinal concepts. National legislator and the corresponding doctrine analyze, compared and receive legal structures used in other countries – it is a natural process of international and interstate legal communication. However, we seek to use legal concepts that are specific to the national language. Thus, the Art. 2341 bis of the Civil Code of Italy uses the term “Patti parasociali”, which is literally interpreted as “an agreement concerning the company”. Herewith the Italian legislator does not use the adjective “corporate” («corporativo»), because the word “corporation” is used in a rather narrow sense, as a rule, to refer to groups

Vol. 4, No. 2, 2018 based on membership, sometimes without a legal entity, for example, trade unions. The legislation of most countries in Europe does not contain a legal definition of the shareholders agreement. The exception is Italy, which civil law designates such agreements in different ways, including both the term “shareholders agreements”, and other terms that emphasize the variety of such agreements according to their nature and spheres of application. In particular, the shareholders agreement are designated as patto parasociale (also contratto parasociale). Besides such term as sindacato azionario is used. It means agreements of shareholders with the terms for selling the shares. The term sindacato di blocco is used to state the type of shareholders agreements providing specifically only the condition for not selling the shares. Thus, we can specify that the legislation of European countries does not generally contain the definition of the category “shareholders agreement” that is because of the fact that the corresponding construction has found its development and grounding within court practice and legal doctrine. However, the absence of such a definition only makes embarrassment, because does not allow to give a definite answer to some questions – one of which is the subjective matter – the parties under such an agreement. There are three approaches to the establishment of the parties of the shareholders agreement. They are: 1) shareholders only (Lomakyn, 2008; Suhanov, 2014); 2) shareholders and a company (Hureev, 2007; Karzhavyna, 2007); 3) shareholders, the company and third parties (Spasybo-Fatieieva, 2009; Stepanov, 2013). Paying attention to guarantees of the minority shareholders, Yu. V. Romanova indicates that shareholders agreements under the laws of France, the United States and other countries, are concluded between the shareholders (Romanova, 2004). Despite the fact that corporate law does not literally establish that it is the company or third parties, who are not its shareholders, can be a party to such an agreement, but still we need to recognize that neither the company nor persons who are not its members can be a party to the shareholders agreement under current regulations, there are no corporate relations outside the legal entity. The second position related to the definition of the subject matter of the shareholders agreement is limited to the fact that it can be concluded between the shareholders or between the shareholders and the company, as the shareholders agreement signed only between the shareholders does not obligate the joint stock company to anything, which in turn, makes little sense in the agreement itself (Hureev, 2007; Karzhavyna “Shareholders' agreement as a way of corporate conflict overcome and the problem of its validity under the Russian”, Business Law, 4 (2007).


Why is there a need in practice to include a company among the parties of the shareholders agreement? According to D. I. Stiepanov, it is for the reason that the bodies, which are derived from the general meetings of the corporation members through the corporation that is involved in this agreement as the party, had to be obliged to fulfill decisions taken by its members. Typically, the scholar continues, the company may be a party either of an agreement, where all of its shareholders take part, or an agreement, which involves not all the shareholders, but where the corporation receives only the rights, but bears no obligations to other parties of the agreement (otherwise the rights of other shareholders, who do not participate in the agreement could be violated in favor of the parties to the agreement) (Stepanov, 2013). This approach is confirmed by the international legal practice. In particular, provisions, by which the company becomes a party to a shareholders agreement, are more common in England (Stedman, Jones, 1998). It is worth paying attention to the existence of the third approach. Thus, I. V. Spasybo-Fatieieva believes that the shareholders agreements relate to the concert between the shareholders (Spasybo-Fatieieva, 2009) ..., however, continued her position, notes that not only the shareholders can be their subjects, but also future shareholders (investors) (Spasybo-Fatieieva, 2009). Instead, O. M. Vinnyk offers acknowledge founders, shareholders and/or potential shareholders – persons, who subscribed for shares of additional issue, as the parties of the shareholders agreement (Vinnyk, 2010). The main reference of the supporters of the third approach is the fact that the company lenders and other third parties may enter into an agreement with the shareholders, whereby the latter, in order to guarantee the interest of third parties protected by the law, undertake to exercise their corporate rights in a certain way or to abstain (abandon) their implementation, including, to vote in a certain manner at the general meeting of the company members, to take other actions to manage the company, to acquire or dispose the shares in its authorized capital (shares) at a specified price and (or) under certain conditions to refrain from alienation of a shares (interests) to the occurrence of certain circumstances. The rules on corporate contract are applied to such an agreement (Abova, 2013). Let’s study these approaches. Since the shareholders agreement has the appropriate name, the first thing making any associations – is its recognition by the parties of only the shareholders. As we have already noted, the number of shareholders who conclude the shareholders agreement may be any, besides these can be both majority and minority shareholders, who have decided to protect their rights by consolidating their capabilities, these can be shareholders – individuals or shareholders – legal entities, these may be only two shareholders or all shareholders of a company without exception. It is obvious that only the shareholders are

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the parties of the shareholders agreement, only they acquire the rights and obligations under this contractual structure, execution of which is realized through the implementation of actions by the shareholders, the most common of which is the transfer of property and advance voting in a certain way. The shareholders in a joint stock company are not in legal relations between each other, but the latter may arise between them, if they conclude an agreement. In this case, there will exist two kinds of legal relations in a joint stock company – between a joint stock company and each shareholder (corporate) and between the shareholders who entered into an agreement (contractual). The latter include not all the shareholders, but only those who signed the agreement. It does not act for the rest of the shareholders. Therefore, the execution of such an agreement should be made by those shareholders, who are its parties (SpasyboFateeva et al., 2014). The proposition to participate in this agreement for both the company in the whole (herewith, the decision will be determined not by all of its shareholders, but only the parties of the shareholders agreement) and any third parties, including those, who did not buy the shares of a company (was not involved in the formation of the company’s property), but got essentially unlimited ability to determine the decision of a joint stock company, is not reasonable. We believe that even if these third parties will be lenders of a joint stock company, their crucial part in the affairs of a company is able to make no sense for other shareholders to participate in it, not even mentioning the fact that the interests of third parties and shareholders are not identical. European continental law does not usually recognize the opportunity of third parties that are not shareholders to participate in the shareholders agreements. Since these are only the shareholders, who determine the purpose of its activities, and fix it in the statute and determine its fate, thus, only they have the right to participate in shaping the will of a company (and third parties by obtaining mastery over the votes of the shareholders may get the opportunity to influence the decisions of the corporation, the risk and the consequences of which take the shareholders of a company, but no the third parties). Negative attitude to participation of third parties in the shareholders agreements is also due to the fact that they are excluded from the traditional corporate responsibilities to act in good faith and in the interests of the corporation in the whole (Suhanov, 2014). Instead, third parties according to English legal practice (potential buyers of shares) may be parties of the shareholders agreements obliging themselves by the provisions of an agreement of shareholders by signing the deed of adherence (Petrova, Khrapov, 2008). Founders of a company often seek assurances that while the alienation of shares by anyone of them, a new purchaser will be bined with the terms of the

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Vol. 4, No. 2, 2018 shareholders agreement, and thus, the prolongation of the direct contractual nature of relationships between all the stakeholders will assured. Accordingly, the shareholders agreements subordinated to English law, almost always include a condition that the registration of the fact of transfer of shares into the property to another person may occur only under the condition of joining a new owner to an existing shareholders agreement by signing the deed of adherence. In case of the alienation of a small number of shares by one of the members of the shareholders agreement, other shareholders-parties may require restrictions of the deed of adherence to obligations on the compliance with some certain provisions – such as the conditions on confidentiality, obligations not to be engaged in competition, certain obligations related to decision-making and voting, etc. We believe that the company can not be a party to the shareholders agreement because it does not have the status of a shareholder and can not be a shareholder of itself. In the case that it bought the shares of its own issue, they are “dumb” until their alienation to already existing shareholders or third parties. Besides this possibility could bring to life “circular reference” – the management of the company subordinated to shareholders should ask their permission for the inclusion / non-inclusion of any condition of the agreement. We should express some doubts regarding the recognition of potential investors as parties under the shareholders agreement. If we accept the possibility for third parties to participate in the conclusion of the shareholders agreements, we should also recognize the expansion of limits of shareholders relations that would come out the limits of a joint stock company. If we agree with the fact that the company creditors have the right to direct the actions of the shareholders of a particular company in the interests of third parties, thereby affecting the management of a company, would this situation cause the management of a company not by its shareholders, but by third parties. On the one hand this possibility is aimed at ensuring the interests of creditors and on the other – there is a question if the application of such a norm would lead to the occurrence of negative effects such as violation of corporate rights of the shareholder by persons, who are not members of shareholders relations, corporate capture or acquisitions, corporate conflicts. The issue of the content (terms) of the shareholders agreement and especially its object is still very urgent. To clarify this issue we should refer to the law and legal doctrine of European countries. In countries, where the shareholders agreements as a legal structure are recognized at the legislative level (Italy and Russian Federation), the norms focused on their regulation, contain the list of the obligations that may be the object of such agreements. However, the regulation of the object of the shareholders agreements has fundamental differences. In general, the legislation

Vol. 4, No. 2, 2018 of these countries contain similar obligations, but if the norms of Russian legislation regarding the types of specific obligations have the nature of a possibility (the Art. 32.1 of the Law of Russian Federation “On Joint Stock Companies”), the norms of Italian law unequivocally confirm that only obligations listed in the Art. 2341 bis of the Civil Code of Italy may be the object of such agreements. Besides, the structure of the p. 1 of this Article makes it possible to conclude that only those agreements, which provide the obligations listed respectively in points a) – c), may be recognized as the shareholders agreements, if they are concluded for the purposes set out in the same norm. Thus, the shareholders agreement in Italy can not contradict the mandatory norms of the law, its object is very limited. Regarding the object of the shareholders agreement within English legal literature it has been noted noted that the main objective of joining it is the regulation of corporate rights and obligations of the shareholders both under the conditions of executing shares’ sale and purchase agreements, and during the creation of joint enterprises, including international ones (Osypenko, 2010). Thus, the shareholders agreements on the territory of the United Kingdom, except the norms similar to the standards of memorandum, usually contain a more detailed description of the objective and scope of activities regarding joint ventures, procedure of financing the company and agreed on shareholders’ deposits in non-cash form; policy of profit distribution (Makarova, 2010). Such agreements in the French corporate law can generally refer only voting of shareholders and only during specific meetings (not during any period of time) and subjected to other serious limitations (Sukhanov, 2014). Specific types of obligations that may be the object of such agreements are describe more differentiated in Germany and Switzerland. This is due to the fact that authors, as a rule, list the specific typical kinds of obligations, which are the basis for the conclusion of the shareholders agreements. Their detailed analysis demonstrates that they are covered by such types as the obligation to exercise voting rights, obligations to the features of the alienation of shares and obligations to the company. There are also atypical cases, but they are not common in the practice of concluding the shareholders agreements. These include obligations to third parties, not the shareholders about the transference of the rights, etc. The German and Swiss legal doctrine offers to allocate such types of obligations that may be the object of the shareholders agreement, as a) to vote at the general meeting in a certain way, for example, only together under the previous concert or according to the suggestion of one of the parties; b) to sell shares only under certain conditions, for example, only by the consent of other shareholders; c) obligations to grant


the right of preferred purchase under the pre-set price, in case of selling the shares; d) to provide (retreat) to a third party, for example, the voting rights to a creditor of the shareholder; e) to provide one of the shareholders the right to appoint his representative to the supervisory board, irrespectively to his share (Mayer, 2006; Schramm, n. d.). The Law of Ukraine “On Joint Stock Companies” does not contain clear indication on the aspects of the company’s activities and specific actions of the shareholders that should be the object of the shareholders agreement. The bill No. 4160 dated from February 26, 2016 “On Amending Some Legislative Acts of Ukraine on Corporate Agreements” has defined the object of such an agreement, which may be the realization by the shareholders their rights to shares and/or the rights under shares, as well as laying duties according to own will of the shareholder – the parties of the agreement, leading to the conclusion that the shareholders may agree to establish a special procedure for decision making by the general meeting or the procedure of formation and activities of the executive agencies, supervisory board, to determine the procedure of conflict resolution, etc. Based on the principle of the freedom of the agreement, the shareholders-parties of such an agreement have the right to agree on the validity term and correspondantly specify the exact day of its termination (or the event that terminates it). In practice, the parties may establish any validity of the agreement and predict the circumstances entail the automatic its termination (for example, liquidation of the company, its reorganization, bankruptcy, etc.). We believe that more effective measure to plan the termination of the agreement will be the establishment of its validity or classical way of termination – concert of the parties. The form of the shareholders agreement. Freedom of the agreement in corporate law may be subject to limitations as according to the content, as under the reasons depending the document or the form it should be expressed. Shareholders agreement is concluded in written form by drawing up one document signed by the parties. This approach is, in general, traditional. However, it should be noted that in Germany and Switzerland it is allowed to conclude such agreements also orally. In accordance with p. 2, c. 1 of the Art. 32.1 of the Law of Russian Federation “On Joint Stock Companies”, the shareholders agreement is concluded in a written form by drawing up one document signed by the parties. As a consequence of non-compliance with simple written form of the agreement entails its invalidity. English law also does not require a specific form of the shareholders agreement, but in practice it is concluded in a simple written form or in the form of «deed». Oral shareholders agreement according to English law is theoretically possible but in practice can not be applied.

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If the parties of such an agreement under English law are legal persons, they can sign the agreement in two forms: 1) simple written form. For its adherence the shareholders agreement must be signed by a person authorized by the Supervisory Board. Typically, this is one of the members of the executive body, but may be another person who has any document confirming the authority to sign; 2) «deed» form (while concluding the shareholders agreement according to this form there are different options): a) sealed by the companies – parties to the agreement and signatures of the persons authorized by the constituent documents (signatures of two directors or secretary and director of the company or other persons authorized by the Supervisory Board); b) the signing by two directors or a secretary and director of the company in the presence of a witness. The witness also must sign, specifying the address, place of work and position (according to the Art. 44 of the English Law on Companies, 2006). c) signing according to the proxy notice (in this case the proxy notice must be made in the form of «deed»). If an authorized (trusted) person is an individual, his signature must be placed in the presence of a witness (who must also put the signature, indicate his address, place of work and position). If the trustee – another legal entity (company), then it must fulfill all the same formalities as if the document is signed on its behalf. However, in both cases, an authorized (both individual and legal entity) person is obliged to notify that he acts on behalf of another person according to the proxy notice. In all cases the document must specifically state that it is – «deed». If it is assumed that the document («deed») does not take effect until the specific moment or event in the future, thus containing a pending condition, this fact must be due to the parties – mainly to avoid doubts or disputes in the future, in a written form through correspondence, presentation in a separate document, etc. In the absence of any indication on this intention of the parties will be deemed that «deed» came into legal force immediately after realization of all formalities. Consequently, the shareholders agreement is concluded in a written form by drawing up one document signed by the parties. Shareholders who signed it are obliged to inform the company about the fact of its conclusion. In case of default of this obligation the shareholders who are not parties to the shareholders agreement, are entitled to demand compensation for their losses. Content of the shareholders agreement creates a set of the rights and obligations. There is a question: how agreements are brought into accord between shareholders (those rights and obligations provided by them) with corporate rights, rights for shares and rights from shares that are limits of acceptability restricting

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Vol. 4, No. 2, 2018 shareholders’ rights, which are established by the agreement and ultimately lead to their inequality and whether they are valid. It is rather difficult to provide the exact definition of “deadlock provisions”, owing to the lack of a unified approach to its description. In general, it is characterized as the inability to achieve the consent by the shareholders on key points of the activities of a joint-stock company. It often occurs, when the shareholders have different views on the issues of forming management agencies, spending the profits, determining the strategy of the company’s development. To resolve deadlock provisions there are various options for action. Let’s pay attention to some of them. Russian Roulette. Quite comprehensive solution, which main point lies in the fact that in the case of “deadlock situation” one or both shareholders make another shareholder the proposal of repurchasing the half of already priced joint-stock. The shareholder who receives such notification has the choice to cell his stock for the marked price or, conversely, to buy the other shareholders’ stocks for same price. Texas Shoot-out. Each shareholders' agreement party which is in the “deadlock situation” forwards to independent mediator sealed proposal for price to buy another parties’ assets. The envelopes are opened simultaneously and the highest price bid wins, so the person who made it has to buy and the other side has to sell its shares for price as marked. Multi-choice procedure. This mechanism is milder in comparison with referenced hereinabove. It is used when parties don’t want to enter into an obligation of severe and concrete deadlock situation solution. For example, this mechanism can provide specified set of predetermined options one of which will be chosen in fine. The advantage of such method is that parties in view of irreversible consequences connected with shares loss could act more reasonably and find the compromise solution. But the disadvantage of this model is than in case of effective negotiation process and final arrangement absence the process can draw down and affect the company activity. The parties would be bound to resort to arbitration which would decide what option has to be used. This circumstance brings some uncertainty in deadlock situation solution. Cooling-off (mediation). Its main point is that shareholders stipulations provide the parties’ duty to carry on negotiations using an outside mediator till the decision won’t be found. If the mutual decision won’t be found through the process of negotiations, the so called judgment of Solomon should be taken by mediator on the basis of principle of reasonableness. From the first glance this method is mild but there is a possibility that the judgment of Solomon will be that parties should wind up a company as far as they failed to solve the dispute by negotiations.

Vol. 4, No. 2, 2018 Deterrence approach. This mechanism should detain the parties from solving the deadlock situation by withdrawal of one party from shareholder's composition without resolving of disagreements by discussion. This is achieved by including in the contract, in a certain sense, onerous regulations for the party, which nevertheless initiates this procedure. Instead of activing negotiations proposition and subsequent statement of impossibility to make a decision on key issues this party can come straight to the notifying about the deadlock situation. In this case the party which forwarded the notification should either buy out the other side shares for 125% of their fair market price or sell its’ share to the other side for 75% of its fair market price. This value is determined with the assistance of appraisers and auditors. Such mechanism is still not always effective because on the one hand it excludes negotiations as method of discrepancies elimination and on the other hand maintains certain parties’ interests balance violation that could paralyze the activity of the company. Parties’ responsibility by the shareholders agreement. Civil legislation highlights five main forms of responsibility: restitution, compensation of moral harm, penalty payment, loss of downpayment, compensation payment. However, those measures are difficult in applying to the parties of share agreement. Because of that, in practice are traceable cases of other forms of responsibility application inherent in foreign law, such as compulsory shares sale. For example we can give a shareholders agreement between Swissport International Ltd, ZAO “Airline” Ukraine International Airlines”, Airline Business Handling Limited where was pointed the question of voting at the general meeting and the result of nonobservance was the duty of one party to dispose its’ share in favour of other party, this became the responsibility measure for disregard of provision. However, both science and practice gives ambiguous answer to the question: whether it is appropriate to provide an opportunity to attach in provisions of such agreement measures (forms) of responsibility not foreseen by civil law and, consequently, the possibility of judicial protection of the parties in the case of failure or improper performance of their obligations under the joint stock contract? By the shareholder agreement may be provided measures of civil liability for its failure or improper fulfillment. Separate question is responsibility for dereliction of such duties because art. 29 of the Law of Ukraine “On Joint Stock Companies” says only about shareholders’ responsibility for breaking the duty of participation in the general meeting. Clumsy phrasing of this provision may affect the addressing of the issue of bringing to responsibility shareholders for the failure to fulfill other obligations established by the agreement between them. One of topical issues is one about possible consequences of shareholders agreement


nonfulfillment, particularly, ways to protect shareholders’ corporate right in case of such agreement breach. In case of its violation by one of stockholders on him can be imposed a contractual liability in form of obligation to compensate damages to other parties or pay the agreed in advance penalty, but the results of voting and corporate decisions remain legally enforceable and can’t be contravened on that basis. According to English law shareholders agreements are assured by court defense as a usual contractual obligation. Thereafter, shareholders’ protective means in case of provisions violations are: a) liquidated damages levy – in English contract law damages are not punitory but compensatory, in other words it don’t have the penal character; b) specific performance – demand of stipulated by the contract obligations fulfillment; c) injunction for specific activities interdiction (injunction). In this case certain treaty provisions (warranties) give the shareholders right only for restitution, whereas other (conditions and representations) give the right for restitution and voidance of contract. Although Italian and Russian legislations contain a reference to the norms of Civil legislation, but orient to use common methods of collateral for commitments taking into account the specificity of obligations which originate from shareholders agreement. Italian practice uses such methods of obligations collateral as forfeit, pledge of shares. In Russian Federation, on the contrary, only some measures which can be used in case of nonexecution of shareholders agreement exist: a) reparation of damages, caused by its infringement; b) award of a penalty, fine, mulch; c) payment of the consideration (firm amount or amount that should be defined under procedure outlined in shareholders’ agreement); d) imposition of sanctions resulting from agreement infringement. One of substantive issues of shareholders’ corporate rights protection techniques is possible consequences of shareholders agreement nonexecution. As a result of such agreement institute integration to the corporate practice appears an opportunity for shareholders to protect their interests at the contractual level, that is now used insufficiently. Mandatory duties performance in kind. The Law of Ukraine “On Joint Stock Companies” contains no express statement of possibility to specific performance (for example, make the shareholder to vote at the general meeting in a certain way). For the aim of defining the ability or inability to claim for specific enforcement at the fore should be the condition of obligation after the violation happen to be. Nonperformance (improper performance) of duties according to the shareholders agreement by stockholder can cause: 1) the termination of obligations and abandonment of it unfulfilled, 2) the existence of delay in execution of shareholders agreement. Agreeably, claim for specific enforcement

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can be brought only in latter case, in other words, in case when shareholders whose rights were infringed does not take actions that could be interpreted as a waiver of joint stock agreement or acceptance of defective performance. In case of non-property liabilities infringement, envisaged by the joint stock agreement (for example, shareholders refusal from voting in specific way and so on) specific performance is inadmissible in case of: a) such liability has strictly fiduciary nature; b) such liability is hard to fulfill both from the perspective of real possibilities shareholder who has violated shareholders agreement and in terms of court decision implementation; c) claim to complete this obligation is not brought within a reasonable period of time after shareholder whose rights were violated by nonperformance or improper performance of shareholders agreement came to knowledge about committed violation. Foreign legal literature, concerning the issue of application of liability measures for shareholders agreement violations, a long time already is recognized possibility of judgment for specific performance in case of such agreement terms violation. In particular, H. Appenzeler considers in detail the problem of this measure application and admits that his party whose rights have been violated, may fundamentally require not only compensation of caused damage, but also actual obligation performance (Appenzeller, 1996). A similar point of view expresses R. Muller, noting that as one of the measures of responsibility, in case of shareholders agreement violation can be used claim for specific enforcement (Müller, n.d.). P. Forstmoser also declares the right to claim for specific performance by party which violated shareholders’ agreement measures (Schluep, Forstmoser, 1988). Specific enforcement is not an appropriate mean of protection, because there are no mechanisms which would allow to force him to vote, for example, like it’s stipulated in the agreement, as if it could be possible in some another agreement. There is also absent the possibility to put into use such consequences as consider the shareholders-parties of the agreement will automatically expressed during the voting, for which reason, no matter in what way he voted, consider his vote given for adoption of a decision for which he was obliged to by the agreement. Along similar lines is not acceptable during the shareholders vote count on the result of voting to check whether the vote of shareholder who signed the agreement corresponds the obligation he’s assumed by voting in a certain way. Recognition of the transaction invalid and application of the consequences of its invalidity. In contradiction from Ukrainian joint stock legislation Law of Russian Federation “On Joint Stock Companies” (P. 4 of Art. 32.1) expressly provides that agreements committed by a failure to comply with conditions of

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Vol. 4, No. 2, 2018 share agreement are disputable. For example, if for the purpose of agreement violation party commits the shares disposal before a certain event, this purchase agreement could be invalidated by judicial procedure on the claim of its other side, if it’s proved that buyer knew or must be taken to have known about set restrictions. Considering that the content of shareholders agreement parties correspondence (including limitations foreseen there) de jure shall be kept confidential a need in efforts arises in order to prove in court that the third person knew or should have known about the limitations stipulated in the contract. From the practical point of view it would be appropriate to consider that moment and provide in certain agreements some provisions containing warranties of relevant agreements noninfringement and also establish measures corresponding to parties’ liability. Invalidation of general meeting decision. Such method of violated rights defense is not quite new to corporate law. The share of legal controversies on invalidation of extraordinary and annual shareholders general meetings and as well as meetings of joint stock company supervisory board are almost half of all the joint-stock disputes being considered by the courts. To solve them the Resolution of Plenum of the Supreme Court of Ukraine dated from October 24, 2008 No. 13 "On Practice of Court Consideration of Corporate Disputes" is used successfully enough (Resolution of Plenum of the Supreme Court of Ukraine, 2009). In this regard it seems to be explicable to capture this method of violated right protection in the Art. 16 of Civil Code of Ukraine. However, to answer the question about the possibility of its application in case of shareholders agreement breach is not so simple as it seems at first glance. On the purpose of keeping a balance of interest between shareholders and third parties Law of Russian Federation “On Joint Stock Companies” establishes that shareholders agreement violation can’t be the foundation for invalidation of company bodies’ decisions. Thus, if agreement is established as a result of company decision making (these are significant company transactions and interested-party transactions) then it shouldn’t be considered invalid, even if its settlement breaks shareholders agreements’ treaties. So, if, presumingly, shareholders agreement settles the duty of all shareholders to vote at the general meeting in a certain way and this duty is infringed, for example, by stockholder who has controlling block of stocks, it’s impossible to consider this decision invalid because of agreement unfulfillment. The only possibility for stockholder whose rights will be infringed is to claim for usage of penalties to shareholder-violator, of course if such measures are stipulated in the agreement. This regulation will be logical ending for the rule that shareholders agreement is obligatory only for its parties. So, such an agreement, for one thing, sets aside of corporate law regulations and, for another thing,

Vol. 4, No. 2, 2018 can’t create any legal effects for third parties including company personally, stockholders who didn’t take part in that, company contractors. This position is not one and only. In foreign legal doctrine significant expansion has approach, supported by Russian law scientists as well, which insists on necessity of giving the possibility for shareholders of non-public corporations to influence the relations within the corporation. Law, for example in USA and the Netherlands, recognizes the permissibility of non-public corporations’ shareholders to asset agreements aimed at changing the legally established regulations governing internal relationships in the corporation. Among practice lawyers exists the opinion that legislator shouldn’t exclude the possibility of influence of shareholders agreements’ violation on validity of company bodies decisions so peremptory. The decision about permissibility or impermissibility of such position should be decided taking into account type of stockholders relationship and whether the rights and interests of third parties are affected by decision made with breach of an agreement. If we are talking about, let’s say, about JSC which structure is built by closely held corporation model (where is small amount of shareholders and company shares are disallowed for trading) which has strong element of shareholders personal participation in company affairs, their actions are coordinated and interest are pretty equal, in that case arrangement violation could have influence for decision validity measurement. Invalidation of shareholders general meeting decision in relation to adoption procedure violation: shareholders voted for decision in violation of undertaken by agreement obligations to vote in a certain way (for certain candidate for some position and so on) according to I. V. Spasybo-Fatyeyevoyi appears to be unacceptable protective measure as far as consequences of unfulfillment of an agreement by shareholders (arrangements for voting at the general meeting) should ensue only for this arrangement parties but not for the rest of shareholders. But general meetings decision causes consequences for all shareholders and its invalidation irreversibly will have an impact to all shareholders and JSC itself (Spasybo-Fateeva et al., 2014). That’s why fulfillment or unfulfillment of shareholders’ agreement can’t be the reason for general meetings’ and other company bodies’ decisions invalidation. The restitution can’t always be adequate measure against shareholders’ agreement nonobservance because of its proving complexity. Thus, according to Art. 16, 611 of the Civil Code of Ukraine, the party which violated the obligation must compensate the other party inflicted losses – actual damage, as well as loss of expected profit. Upon the request of damages recovery plaintiff must prove the wrongfulness of inflictors’ behaviour, his guilt (in accordance to requirements of art. 614 of the Civil Code of Ukraine), nature and extent (assessment) of adverse consequences, cause and effect relationship


between actions (inactions) of the offender by the consequences occurred. According to the content of the above-mentioned norms of the Civil Code, damages, being property losses, are the subject of proving in every specific case of its’ infliction. For shareholders whose rights were inflicted by shareholders agreement unfulfillment it will be quite difficult, and sometimes even impossible, to prove the fact of damage infliction and to determine its amount. For example, actions of shareholder who sold shares to the third party in disregard of prohibition established by shareholders agreement for its’ off-load within specified time, undoubtfully, will cause negative consequences for other agreement parties making more complicated implementation of company projects, putting under threat the company achievement of previously set targets and tasks that may cause the risk of failure to obtain dividends by shareholders, may lead change of the Supervisory Board and (or) the sole executive body and so on. However, it will be quite difficult to prove cause and effect relationship between such shareholders actions and possible negative consequences for other parties of this agreement as well as estimate the amount of expected profit loss. In the opinion of R. Muller, in order to secure the obligations that are derived from the shareholders' agreement, it is possible to apply such methods: a) contractual penalty; b) deposit of shares; c) pledge of shares to cover contractual penalties; d) transfer of shares to the common ownership of the respective shareholders; e) contribution of shares into holding company; f) transfer of the authority to the representative - the third party, who exercises the rights and obligations stipulated by the shareholders agreement; g) transfer of shares to the trust management of an independent third party or several persons; h) establishment of shares purchase pre-emptive right in case of agreement violation; i) establishment of majority decision voting procedure among persons participating in the agreement (Müller, n.d.). Contractual penalty usage is one of the most popular measures of derived from shareholders’ agreement obligations collateral. However, a significant disadvantage of using this means of securing obligations is the fact that the forfeit amount can be reduced in a judicial proceeding. Besides, considering the fact that the consequences of such agreement violation mostly can’t be valued in monetary terms, it’s not so obvious which forfeit could be "commensurable" with the consequences of obligation infringement. We believe that the forfeit will be an effective mean of the obligations fulfillment insurance utility if shareholders agreement prescribes such parties obligations as purchase or dispose shares by predetermined price and (or) in case of some circumstances occurrence to retrain from shares disposure till certain circumstances occur.

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The possibility of using the majority of effective methods on ensuring obligations’ performance depends on the parties’ ability to entrench the amount which should be payed in case of nonexecution the shareholders’ agreement obligations, particularly, the amount of forfeit. It allows to use such methods of obligations fulfillment ensuring as, actually, forfeit, pledge and also guarantee. Shareholders agreement should be secured by the measure which definitely allows parties to predict the consequences of performance failure or its improper performance. That is what determined the appearance of such method of responsibility for this agreement violation as compensation, which remains firm and fixed amount that should be payed in case of agreement breach. Compensation for shareholders agreement violation has purely warranties nature which provides proper obligations performance provided by this agreement. It is necessary to point out that appearance of such responsibility measure as compensation appears to be the implementation of one of the basic Civil law principles – freedom-of-contract doctrine and its real enforcement. Upon that bona fide shareholder receives the possibility to decompensate not only losses but also moral harm which evolves unprejudicialy. One of the most up-to-day and the most complicated questions connected with the usage of compensation in case of shareholders agreement violation is question about possibility of decreasing the compensation amount in legal proceedings. Compensation should be correlated with a monetary assessment of the adverse consequences of obligation breach. There are not foreseen and cannot be foreseen all possible measures of identifying the amount of caused harm because of variety of relevant actual facts of obligation breach. However, in each specific case the shareholder who goes to court for protection of the violated right and demands vindication of the compensation from violator should justify not only legality, but also economic expediency of settlements procedure offered by him that sometimes appears to be difficult, especially while calculating the expected profit loss. That’s why legislator provides parties of shareholders agreement the possibility to assess beforehand and in their own right the amount of losses that can be caused by each specific violation of such an agreement. In our opinion, compensation is the most universal and effective measure of responsibility of the parties to the shareholder agreement. First of all, compensation is established by the parties and can not be reduced at the court decision. Secondly, for its appliance there is no need to prove the existence of losses. Thirdly, the compensation recovery does not exclude the possibility of restitution in case of their existence. To protect the shareholders’ rights in case of shareholders agreement infringement and exclusion of legal uncertainties in the matter of applying the

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Vol. 4, No. 2, 2018 compensation in corporate law, it seems advisable to add to the Art. 29 of the Law of Ukraine “On Joint Stock Companies” by the regulation about if the regulations of a shareholders agreement are violated, the guilty party should compensate affected party the losses stipulated in the contract terms. Only in that case, compensation could be recognized as the most effective protective measure for shareholders agreement parties and could be admitted as an essential guarantee of agreement fulfillment by its parties.

2. Conclusions Research of the problem of civil and legal regulation of the shareholders agreements in Ukraine, the USA, Russia and Western European countries (by the example of Germany, Italy, Switzerland and France), led to the following conclusions. 1. The shareholders agreement – is an agreement concluded between the shareholders and is aimed at determining the procedure of actions, rights and obligations of the parties directly related to the management of a joint stock company, profit distribution, implementation of the rights and obligations of the shareholders, the decision of “deadlock” situations, if the number of votes of shareholders, who have different points of view on the decision of any matter, is equal. 2. Objectives of the shareholders agreement – is to regulate the behavior of the shareholders in any given situation. For example, to predict the distribution of seats and the balance of power in choosing the next part of members of the executive authority or to define different restrictions on the sale and purchase of shares of a joint stock company, i.e., the prohibition to sell shares to a certain point or, conversely, the obligation to buy shares of other shareholders under certain events. 3. Generalizing analysis of the legislation and doctrinal sources of the considered systems of justice of European countries and Ukraine makes it possible to distinguish the most characteristic features for the notion of shareholders agreement. First, the shareholders agreement is concluded in regard to the rights of shareholders; secondly, it provides methods or the peculiarities of the implementation of the rights of shareholders, including those not under the law and the charter of the company; thirdly, such agreements are of relative nature – their action is spread only for the parties of obligations. 4. Indication of the purpose of the shareholders agreement in a regulatory form will make it possible to define its legal nature more precise, to make interpretation of the relevant norms regulating such agreements, to distinguish them as the legal construction from other similar agreements and to ensure prevention of abuse in exercising the rights by the shareholders. 5. In accordance with the legislation of European countries the shareholders agreement is concluded in a

Vol. 4, No. 2, 2018 written form, in Switzerland and Germany it is possible to conclude it orally, but in limited cases. There are no additional requirements to the form of shareholders agreements, in particular there no registration requirements or notary registration of such agreements even if they supplement the provisions of the statute. We believe that shareholders agreements are to be concluded in a written form by drawing a single contract signed by the parties. 6. The relationships between shareholders settled by the shareholders agreement is not an analogue of corporate relations within a joint stock company. The joint stock company and other shareholders of that company may not be aware about the existence of the agreement. Therefore, we can not talk about its “normative feature” or in other words “generally binding character” for all shareholders of the company. The action of such an agreement is not extended to the sphere of functioning and activities of the company. 7. Measures of civil and legal liability applicable for the violation of the terms of the shareholders agreement


are quite diverse. We believe that compensation is the most versatile and effective measure of liability for the obligations that derive from shareholders agreements, in particular such as to vote in a certain way at the general meeting, to coordinate the voting options with other shareholders, to agreed other actions related to the management, activity, reorganization and liquidation of the joint stock company due to the fact that the amount of compensation is determined by the parties and does not depend on the availability of damages, which can not be reduced by the decision of the court and can be used along with others measures of civil and legal liability. 8. The adjudgement to perform specifically is allowed in case of the violation of a shareholders agreement because it is not against the law in most cases and can be an effective mean of guaranteeing the rights of the shareholders. However, from a practical point of view, the real adjudgement of obligations, in case, if the object of a shareholders agreement is the obligation on voting procedure, will be ineffective mean to protect the interests of their parties.

References: Abova T. E. (2013) “On the new approaches to the civil-law transactions regulation in Federal Law "On Amendments to Parts One, Two, Three, and Four of the Civil Code of the Russian Federation, as well as to certain legislative acts of the Russian Federation" draft”, Regulation of private law social relations: tradition, modernity, perspective, (TOV «Bilotserkivdruk», Odesa), р. 41. Aktiengesetz vom 6. September 1965 (BGBl. I S. 1089), Artikel 2 Absatz 49 (22 Dezember 2011) (BGBl. I S. 3044) URL: http://www.gesetze-im-internet.de/aktg/BJNR010890965.html Art. 384, On Joint-Stock Companies (Law of Ukraine dated from September 17, 2008 No. 514-VI) 50(1) Bulletin of Verkhovna Rada of Ukraine (2008). Belov V. A. (2013) Civil law. Special part. Relative Civil Law Forms: A Textbook for Bachelors Vol. IV ( Jurajt, Moskow), 958 р. Chionna V. V. (2008) La pubblicità dei patti parasociali. (Giuffrè, Milano), р. 2–4. Christoph Weber (2000) Privatautonomie und Außeneinfluß im Gesellschaftsrecht Tübingen: Mohr Siebeck. (Zugl.: Mainz, Univ., Habil.-Schr., 1998/99), 92 р. Die Zweimannaktiengesellschaft, Von Hans-Konrad Peyer (1963) Bern, and other. Fischer (1953), GmbH-Rundschau (GmbHR), 65 р. For example, in Swiss science the foundations of modern doctrinal understanding of shareholders agreements are reflected in following scientific studies: Eric Haymann, Aktienübernahmevereinbarungen zwischen Mehrheits und Minderheitsaktionären: ein Vorschlag zu einem wirksamen Minderheitenschutz, vor allem in kleinen und mittleren Aktiengesellschaften (Zugl.: Zürich, Univ., Diss., 1973). Graham Stedman & Janet Jones (1998), Shareholder’s Agreements. р. 58-59. Hans Jürgen Sonnenberger und Christian (2000) Autexier Einführung in das französische Recht von. Ausgabe: 3., neubearb. Aufl. Heidelberg: Verl. Recht und Wirtschaft, 190 р. Hewitt I. (2016) Hewitt on Joint Ventures (Sweet & Maxwell; 5th Revised edition), 166 р. Hureev V. A. (2007) Problems of protecting the shareholders rights and interests in Russian Federation, (Wolters Kluwer, Moskow), 115 р. Innominatverträge: Festgabe zum 60. Geburtstag von Walter R. Schluep hrsg. von Peter Forstmoser. (Polygraph. Verl Zürich: Schulthess, 1988), 373 р. Karzhavyna N. S. (2007) “Shareholders' agreement as a way of corporate conflict overcome and the problem of its validity under the Russian”, Business Law, 4, at 8. Lomakyn D. V. (2008) Corporate legal relationship: general theory and practice of its application in business entities (Statut, Moskow), р. 127–128. Mayer D. (2006) “Grenzen von Aktionärsvereinbarungen”, 4 Mitteilungen des Bayerischen Notarvereins, der Notarkasse und der Landesnotarkammer Bayern, at 281.

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Vol. 4, No. 2, 2018 Medvedev Yu. L. (2014) Approximation of the law of Ukraine to the right of the European Union: conceptual categorical apparatus and methods of harmonization. Bulletin of the Lugansk State University of Internal Affairs named after E.O. Didorenka. No. 1, р. 52-59. Müller R. (n.d) “Der Aktionärbindungsvertrag”, at. 4, URL: https://www.alexandria.unisg.ch/publications/54111/ L-en. Osypenko K. O. (2010) “Agreements of participants (shareholders) in Russian and English”, 4 Legislation, at 30–32. Pavlenko S., Sevruk V., Kobko Y. (2017) Training police officers in the conditions of reforming the system of education of the ministry of internal affairs of Ukraine in accordance with european standards. Science and Education. № 6, р. 142-150. Petrova E., Khrapov M. (2008) “Shareholders' agreements regulation under the English Law”, Corporate Lawyer, 9, at 46–47. Resolution of Plenum of the Supreme Court of Ukraine dated from October 24, 2008 No. 13 “On Practice of Court Consideration of Corporate Disputes”, 2 Commercial legislation bulletin (2009), at 7. Romanova Yu. V. (2004) “Minority shareholders rights protection in Russian and foreign Civil Law”, Journal of Russian Law, 10, at 125. Schramm H.-J. (n.d) “Die rechtliche Erfassung von Aktionärsvereinbarungen”, URL: http://www.cac-civillaw.unibremen.de/publikationen.html Spasybo-Fatieieva I. (2013) “Shareholders agreements”, 12 Pravo Ukrainy, at 188. Spasybo-Fateeva Y. V., Sybylev M. N., Jarockyj V. L. and other (2014), Kharkiv School of Civil Law: protection of subjective civil rights and interests, (Pravo, Kharkov), 459 р. Stepanov D. Y. (2013) “Contractual freedom and Corporate Law”, Civil law and modernity: col. of. art. in memory of M. Y. Brahynskii, (Statut, Moskow), 366 р. “Stimmbindungsabsprachen in Kapitalgesellschafte: Rechtsvergleichung und internationales Privatrecht”, Hansjürg Appenzeller, (Polygraph. Verl., Zürich: Schulthess, 1996), 58 р. Suhanov E. A. (2014) “Corporate agreements in modern Russian and foreign law” Civil Society and the Development of Civil Law: col. of. art. for the anniversary of holder of habilitation degree in law, professor N. S. Kuznetsovoi, (ChAO «Yurydycheskaia praktyka», Kiev), 190 р. Vasylieva V. A. (2012) “Corporate transactions: Theory and Practice”, Сontemporary issues of Civil, Family and Private International law (Matvieievski tsyvilistychni chytannia), (Alerta, Kyiv), 24 р.. Vinnyk O. M. (2010) “Corporate-management technologies based on shareholders agreements: statement of a question and defining of issues array”, Yaroslav Mudryi National Law Academy of Ukraine Bulletin, 1, at 146.

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COMPARATIVE ANALYSIS OF FOREIGN AND NATIONAL EXPERIENCE OF UKRAINE IN ADMINISTRATION OF VALUE ADDED TAX Anatolii Kislyi1

Educational and Scientific Institute of Law, Interregional Academy of Personnel Management, Ukraine

Bohdan Stetsiuk2

Educational and Scientific Institute of Law and Psychology of National University "Lviv Polytechnic", Ukraine

Inna Kovalenko3

Educational and Scientific Humanitarian Institute of V.I. Vernadskyi’s Taurian National University, Ukraine Abstract. The aim of the article is to carry out a comparative analysis of foreign and national experience in the administration of value added tax; to outline the content of this tax, to define its role in the tax systems of foreign countries, as well as clarify the features of charging value added tax in individual foreign countries. The subject of the study is foreign and national experience of Ukraine in the administration of value added tax. Methodology. The methodological basis of this research is a comparison of the features of the administration of value added tax in Ukraine and foreign countries. Based on the aspects of the administration of VAT in Canada, Belgium, France, Great Britain, and others, the advantages and disadvantages of different conditions for charging VAT are highlighted. On the basis of the comparative legal analysis, the possibilities of the application and implementation of foreign experience in the national VAT administration are determined. The results of the study revealed that, in the activities of tax authorities, international experience of the administration of value added tax implies the consolidation of rigorous methods of influencing tax entities through applying appropriate penalties. However, this aspect is combined with a high level of legal awareness and law-abidingness of tax entities. In addition, foreign experience involves the active use of information technology in the administration of VAT, which facilitates its charging and increases its efficiency. Practical implications. Positive international experience of the administration of VAT confirms that improvement of the quality of this mechanism requires providing centralization of the tax administration in the state; intensifying the implementation of the latest technologies in this process; increasing citizens' legal consciousness in taxation, and so force. Relevance/originality. A comparative analysis of the features of the administration of value added tax is the basis for the development of national experience in this field. Key words: value added tax, tax administration, foreign experience. JEL Classification: E62, H71, F38

1. Introduction Without doubt, independence of Ukraine is a positive factor for the development of democratic tendencies of our country. However, independence in all internal and external relations has necessitated the development of political and economic sectors of the country. In this context, the issue of improving the tax system

was particularly acute, since the old model was not acceptable due to, first, the change of the economic vector from the planned-command to market direction, and, second, the active introduction of international standards in taxation. At the same time, the main task of the tax system evolution is to ensure its stability, which, in turn, should lead to a number of positive factors:

Corresponding author: 1 Department of Security Management, Law Enforcement and Anti-Corruption Activities, Educational and Scientific Institute of Law, Interregional Academy of Personnel Management. E-mail: [email protected] 2 Department of History of State and Law, Educational and Scientific Institute of Law and Psychology of National University "Lviv Polytechnic". E-mail: [email protected] 3 Department of Civil Law Disciplines, Educational and Scientific Humanitarian Institute of V.I. Vernadskyi’s Taurian National University. E-mail: [email protected]

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increase of financial revenues to the budget; improving the tax collection mechanism, etc. It should be noted that the development of the tax system is a complex aspect, which involves solving a number of problems. In particular, in recent years, the relevance of the administration of value added tax (hereinafter referred to as VAT) has increased, since the latter is important for budget forming. Therefore, the theoretical development of this problem requires an analysis of foreign experience in the administration of VAT, for example, according to R.S. Melnyk, foreign experience contributes to expanding perceptions of legal phenomena under the study; helps to look at this or that issue from another perspective; compare own achievements with the achievements of foreign colleagues; do not waste time solving the problems that have already found solutions on the pages of foreign publications (Melnyk, 2010).

2. Literature review The issue of the administration of value added tax has always been under thorough consideration of many foreign and domestic scientists. In particular, this issue was the subject of research of V.L. Andrushchenko, Yu.V. Bondar, O.V. Budko, Yu.A. Veryha, O.S. Husakov, M.Ya. Demianenko, Ya.V. Lytvynenko, V.M. Melnyk, S. Blancart, E. Dollan, J. Stiglitz and others. Meanwhile, the comparison of foreign and national experience in the administration of value added tax has not been studied exhaustively that underlines the relevance of this study. The aim of the article is to conduct a comparative analysis of foreign and national experience in VAT administration and consider possibilities for its implementation in Ukraine.

3. Main material It is worthy to note that the value added tax (hereinafter referred to as VAT) is a rather complicated and interesting economic and legal category. The VAT system was first proposed in Germany in 1919. Wilhelm von Siemens, who called it "Veredelte Umsatzsteuer" (translated as ‘ennobled turnover tax’). At that time, this tax was called ‘ennobled on turnover’ or ‘ennobled turnover tax’. Later, namely in 1921, Thomas S. Adams proposed to introduce VAT in the form of a business tax, as a substitute for the US corporate income tax. Initially, these proposals were ineffective, and the introduction of this tax was of no need. However, from time to time, tax authorities from different countries referred to the ideas of Wilhelm von Siemens and Thomas S. Adams. The need to eliminate the shortcomings of the turnover tax and the growth of fiscal needs prompted the search for alternative types of indirect taxation. The modern scheme of this tax was developed and

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Vol. 4, No. 2, 2018 described by French economist M. Lauré in 1954 (Azarov, et al., 2004; Korolchuk, 2010). These days VAT is widely used in many countries, including Ukraine. Of course, since the middle of the twentieth century, the essence of this tax has changed. In this study, it is advisable to outline the concept of VAT. Thus, according to Article 14 of the current Tax Code of Ukraine (hereinafter - the TCU), the value added tax is an indirect tax that is calculated and paid in accordance with the rules of the current legislation (Podatkovyi kodeks Ukrainy, 2010). Obviously, the legislative interpretation of VAT does not reveal the content and purpose of the tax, therefore, quite often, researchers introduce their own definitions of this category. In particular, according to economic science, the value added tax is a type of tax that is charged not on the total value of the goods, but on its increase at each subsequent stage in the overall chain of sales and production. Ultimately, the difference between the proceeds from the sale of goods and services and the amount of raw material, semi-finished products and services received from suppliers is subject to the tax (Ambartsumov, Sterlykov, 1993; Vaschenko, 2003). According to G.V. Bekh and S.G. Pepeliaieva, VAT is a multi-stage, indirect tax, which serves a part of the newly created value, included in the price of the sale of goods (works, services) and paid by the consumer of these goods (works, services) to the State budget at each stage of production of goods, performance of works, provision of services. Its charging at each stage of the turnover gives VAT universality and inevitability (Kucheriavenko, 2001; Bekh, 2001). T.M. Semenenko emphasizes that the value added tax is an indirect tax, which is part of the newly created value of goods (works, services) that is formed at each stage of production, turnover and is included in the price of the goods and paid by the end user. VAT is a tax on domestic consumption of products, in fact, an increase in the price of goods (works, services), which are consumed in the customs territory of Ukraine (Semenko, 2011). Correspondingly, O.I. Okseniuk defines VAT as a consumption tax that is charged on the value added, created at each stage of production, paid by the end user and funded to the budget by the seller, except in cases of transactions with the participation of non-residents (Okseniuk, 2015; Podolianchuk, 2017). In the same way, A.G. Ziunkin and L.K. Voronova define the value added tax as an indirect tax on goods and services, the main modern form of universal excise tax, which is established for the newly created value by the payer (Ziunkin, 2003; Voronova, 2006). Consequently, the value added tax is an indirect, commission-determined tax that is calculated at each stage of production and is dependent on the type of enterprise, the tax system used on it, which payment entity is the final consumer.

Vol. 4, No. 2, 2018 This tax is known in many foreign countries, and, consequently, the mechanisms of its administration vary. Nevertheless, before determining the foreign experience of the VAT administration, it is necessary to answer the question of what the administration of taxes is in general. The etymological basis of the concept is the term "to administer," which according to the provisions of interpretative dictionaries means: 1) to manage an institution, organization, enterprise; 2) to supervise in bureaucratic manner, using orders and commands instead of a specific guiding (Busel, 2005; Bilodid, 1970). Meanwhile, in the context of tax administration, this concept is interpreted more broadly than purely management or supervision, according to a large number of scientists. A.O. Selivanov claims that tax administration is legal relations that are drawn up in the implementation of measures for repayment of tax debt by the authorized state bodies and provide for the application of methods of compelling and compulsory nature to taxpayers (Selivanov, 2002; Lastovetskyi, 2004). V.B. Marchenko considers the administration of taxes as an administrative process in the field of tax charging, that is, as a procedure established by law for the consideration and resolution of individual (administrative) cases that arise in the field of tax charging by specifically authorized bodies (tax administrators) and, in certain cases, by competent courts (Marchenko, 2009). Professor A.Z. Dadashev considers tax administration exclusively from the perspective of tax control (Dadashev, 2002). In turn, I.P. Vakulich considers the form of tax revenues, specificities of taxation in various sectors of the economy and spheres of activity, the write-off and restructuring of tax debt, reduction of the tax base, application of the system of benefits, and so on to be tax administration (Vakulych, 2003). Some researchers argue that tax administration is manifested through established by law rights and obligations of taxpayers, authorities of the State Tax Service and other supervisory bodies (Nikitina, 2002; Pryshva, 2004). However, evidently, the most complete and correct definition of the concept of tax administration is stated in the provisions of the Tax Code of Ukraine. In accordance with Article 14 of the TCU, the administration of taxes, duties, customs duties, a single compulsory state social insurance contribution and other payments in accordance with the legislation, which is monitored by the controlling bodies is a set of decisions and procedures of the controlling bodies and actions of their officials, which determine the institutional structure of tax and customs relations, organize the identification, registration of taxpayers and payers of the single contribution and objects of taxation,


provide service for taxpayers, organize and control the payment of taxes, fees, payments in accordance with the procedure established by law (Podatkovyi kodeks Ukrainy, 2010). Therefore, based on the legally established definition, the tax administration is an integral legal mechanism, that is, a set of relevant procedures, decisions and regulations through which the taxation is managed in Ukraine. Consequently, the administration of VAT is the branch of the classical administration mechanism. However, S.M. Gritsa states that so far the administration of the value added tax has not been considered enough in the scientific literature. Some authors consider accounting of taxpayers, defining the object of taxation and VAT rates, tax exemptions, the procedure for calculating and paying the VAT, accounting for calculations of the VAT with the budget, and so on to be the main functions and procedures for administration of the VAT (Value added tax, 2004; Hretsa, 2014). Therefore, in this research, consolidating the above-mentioned information, the concept of the value added tax administration is synthesized, according to which it is a mechanism of the state regulation of a VAT levy, as well as all related legal relations. Considering foreign experience, nowadays the VAT is very actively used and developed in many European countries. In particular, E.S. Khoroshaiev argues that the value added tax is the perfect form of universal excise duties, which has become an integral part of modern European taxation. Its presence in the national fiscal system is one of the conditions for membership in the European Union (Khoroshaiev, 2008). Confirmation of this conclusion can be seen on the example of many countries. For example, the value added tax is a key element of the French budget system. Objects of taxation are the price of goods and services. The main positive feature of the VAT is neutrality in relation to enterprises, as well as the reality and stability of budget revenues. This creates favorable conditions for the export of products. To a certain extent, the consumption of luxury items is discouraged. In France, the VAT comes fully to the central budget (Kharchenko, 2017). It should be noted that the efficiency of this tax administration is explained by several aspects. First, in France, the VAT is charged at several rates. The key rate is of 18.6%, and increased of 22%. At the same time, the law provides for the existence of a reduced rate of 5.5%, which is applied to most household goods and agricultural products, books and medicines. The same reduced rate is applied to certain types of services: tourist and hotel services, freight and passenger transportation, entertainment events, lunches for employees of enterprises (Kniazev, Chernik, 1997). In addition, France has a Euro-continental model of taxation that is characterized by a high share of social security contributions, as well as a significant share of

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indirect taxes, consequently, indirect taxes account for about 60% of the tax revenues of the general budget of France. In this context, the VAT is applied to all operations of production and trade, and as a result, all business transactions carried out by both commercial organizations and private individuals are subject to tax (Ovcharenko, Rieznik, n.d.). The key authority in the system of the value added tax administration and other mandatory payments provided for by French legislation is the Ministry of Economy, Finance and Industry. In the structure of this executive body there is a special department, the General Directorate of Taxes, whose authorities include a wide range of powers, in particular: implementation of tax control, examination of taxation issues, and so forth (Tax Liability in France, n.d.). It should also be noted that France is one of the countries with a special regime for the payment of the value added tax in agriculture, which, in turn, is implemented in two standard forms. The latter differ from each other by the payment regime, accounting and tax composition of entities. For example, there is a regime of the tax on total turnover (the farmer keeps a journal of chronological accounting of sales and the VAT, and also stores the invoices received during purchases for the final calculation of the year) and the regime with the option for entrepreneurs engaged in intra-industry trade (for example, trade in cattle) (Bezkrovnyi, 2012). The experience of the VAT administration in Belgium is interesting to analyze. In this state, the value added tax is levied on a consumer in a consistent manner during the conclusion of each transaction in the production and distribution process, in particular in the supply of goods and services in of Belgium and the purchase of goods outside the EU. Each VAT payer includes the VAT in the price of the product when selling. Finally, the tax is paid by the end user, who cannot deduct the VAT paid on purchase. At the legislative level, several types of tax rates have been introduced, which vary according to the type of entrepreneurial activity. In addition, taxpayers may submit VAT returns on a quarterly basis, depending on whether the threshold for deliveries exceeds 1,000,000 EUR (not including the VAT) annually (Kmit, Shuhailo, 2017). Taxpayers, whose business is in areas such as mobile phones, computers, and vehicles, may only use this option under certain conditions. Taxpayers, who file a tax return on a quarterly basis, must pay a tax in the first and second months of the quarter. Taxpayers, who submit a monthly declaration must pay taxes at the end of December for December. All payments must be made via bank transfer. Notably, taxpayers have the right to choose independently their tax reporting form. Therefore, for today they can file a tax or electronic declaration of the VAT via a special information system "INTERVAT" (Pokyntelytsia, 2009; Kmit, Shuhailo, 2017). In addition, there are other specificities of Belgian

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Vol. 4, No. 2, 2018 value added tax administration mechanism, which is stated in the legal literature. L.V. Andrushchenko, Z.S. Varnalii, I.A. Prokopenko, T.V. Tuchak note that the key characteristics of the VAT administration in this country are: 1) no mandatory pre-registration for submission of VAT tax returns and additional information on intraEuropean transactions; 2) in order to ensure the confidentiality of the declarations filed through the Internet, the relevant information is encrypted using electronic signatures. Therefore, VAT payers must obtain appropriate certificates from the certification body or receive an electronic ID card reader; 3) the essential advantage of Belgian system is that the necessary data for VAT authorities regarding VAT obligations can be either manually made in the required forms or downloaded as a separate file from the accounting software, etc. (Andrushchenko et al., 2012; Drahalchuk, 2017). In the United Kingdom, where both direct and indirect taxation are equally developed, a leading role in the system of the latter plays the value added tax. Due to it, in the country, up to 17% of consolidated budget revenues are formed. There are three tax rates: 0%, 5% and 17.5%, some of the objects are exempt from taxation. The controlling and monitoring system for VAT payers’ activity is based on the mechanism of voluntary registration. All payers, who have completed at least one business transaction in excess of 5,500 pounds, are subject to registration. The tax authority assigns a taxpayer a registration number (Andrushchenko, 2004; Proskura, 2012). The Treasury, which is constitutional and has the status of the main ministry, conducts the administration of VAT and other taxes in the UK. Practical administration is carried out by two structural subdivisions of the Treasury: the Internal Revenue Service and HM Customs and Excise. It should be noted that in the UK, tax authorities carefully monitor transactions of only 15% of taxpayers who provide up to 70% of tax revenues. Therefore, the cost of controlling and monitoring of their activities can be lowered and more attention can be paid to those who provide the highest income. At the same time, control over the activities of other payers is based on a risk-oriented system, which involves conducting regular routine inspections according to the standard procedure (Popova, 2011; Proskura, 2012). In Germany, the VAT administration mechanism has specificities. In this country, there is a standard VAT rate (16%) and a reduced rate (7%), which deals with food products (except drinks), print publications, hotel services, public catering establishments and public transport. There is a well-developed system of local taxation. A key aspect of the German model of administration, not only VAT, but all other statutory mandatory payments and fees, is rather high and severe

Vol. 4, No. 2, 2018 financial penalties for tax offenses, which, in turn, stimulates the vast majority of taxpayers to pay taxes voluntarily in due time. It is also important to note that there is no single tax administration in Germany, and tax collection and tax control functions are assigned to various structural subdivisions of the Federal Ministry of Finance and the Ministry of Lands (Karlin, 2004; Proskura, 2012). Bulgarian foreign experience in the VAT administration is noteworthy. In particular, it is the first country to implement the idea of creating special VAT accounts. For such accounts, there is a special regime of use: cash is credited and written off only for VAT transactions or payments to other taxpayers (Yarosh, n.d.). Such an approach significantly reduces the corruption component in charging VAT, and increases the budget-forming aspect of this tax. Therefore, based on the experience of many European countries where VAT is used as one of the key budget supplementing instruments, its administration, regardless of the type of tax system of a particular state, develops constantly towards increasing the efficiency of VAT collection, and is open for introduction of innovative technologies. However, the value added tax is known not only in European countries. It is actively used in many other countries, whose experience in administering this tax should also be considered. For example, in Japan from April 1, 1989, along with the introduction of a new tax system a new for Japan tax, a tax on consumption, was introduced. This tax is levied on all transactions in the sale of goods and services, except cases specified in the legislation. The tax is paid at different stages of production and sales of goods, but only the added value is taxed. That is, in essence, it is a value added tax (Azarov, et al., 2004). It should be noted that in Japan, VAT is calculated using the balance sheet method, an alternative to the commonly used credit method. The balance sheet method is based on the calculation of the value added (wage costs, tax payments, depreciation, planned profit) and the application of a certain tax rate to it (Pasichnyk, 2015). It should be emphasized that in Japan the mechanism of tax administration and VAT in particular differs greatly from its European analogue. This, above all, is due to the peculiarities of the tax system of this country. Thus, the Japanese tax system is oriented on the specific characteristics of the local population. The country has traditionally highly developed legal consciousness and law-abidingness, and the vast majority of citizens are simply not in a position to violate the law. The strength of this system is not in severity of punishment, but in the existing system of control over payers, which makes it practically impossible to evade the completion of the declaration. Of course, there are those who evade taxes. However, according to the law on the state control over tax violations, they can be subject to various sanctions, from fines to criminal prosecutions.


Japanese tax police works rigidly, consistently and fundamentally, regardless of individuals and positions (World tax experience, n.d.). In addition to a rigid fiscal policy, the key to the effective administration of VAT in Japan is the high level of centralization of the tax collection. In particular, all state-defined mandatory payments and fees are divided into three groups: direct income taxes, direct taxes on property and direct and indirect consumer taxes, which are subject to VAT. In addition, all of them are sent to the state budget, and a single centralized system of tax authorities collect them (World tax experience, n.d.). The value added tax also exists at the federal level in Canada, where it has a fiscal value. The peculiarities of its administration are connected, first of all, with the specifics of the tax system of the state. Thus, the latter is based on the principle of tax federalism, which implies the presence of significant powers of regional and local authorities in taxation (Tkachenko, 2004). The administration of VAT and all other taxes in Canada is carried out by the Canadian Customs and Revenue Agency, which reports to the Parliament through the Minister for National Income. This agency also administers most local taxes, but local authorities make a certain fee for the service. In some provinces, the administration of local taxes is carried out by regional authorities (the ministry of income of a certain region). Tax administration fees in Canada make up about 1% of tax collections. Every year, tax authorities check on-site about 2% of taxpayers. All payers are divided into four categories by risk of committing an offense. Most often, payers with the highest levels of risk are checked (Proskura, 2012). According to K.P. Proskura, the high efficiency of the administration of VAT and all other taxes in Canada is due to a generally rational and flexible tax policy that organically takes into account the interests of all, the state and territories and taxpayers (Proskura, 2012). A large number of specific features has the administration of VAT in Israel. Along with many European countries, in Israel, VAT plays a key role in indirect taxes. It was introduced in 1976. It should be noted that about 700 tax officials are involved in the collection of this tax. There are about 1,000 taxpayers (mostly commercial enterprises) per one tax official. To control the payment of VAT, all payers are categorized as large, medium and small according to the volume of activity. This differentiation enables to focus on those payers who pay large amounts, by the principle of "Pareto," 20% of the determined effort gives 80% of the results. This enables effective control over taxpayers at a minimal cost. One of the key features of the VAT administration is the requirement for obligatory registration of all taxpayers (Global tax experience, n.d.). It should be noted that the presence of the value added tax in almost all countries of the post-Soviet area emphasizes the need to consider the mechanism of its administration in these states. One of the most

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progressive in this area is the experience of Belarus. According to T.V. Sydorova and E.V. Komliev, VAT is one of the two indirect taxes most often paid and one of the taxes most often charged in general. VAT is an indirect multi-stage tax, as it is included in the price of the product and ultimately paid by the end user (Komlev, Sidorova, 2017). The object is the added value, while the entities, in accordance with the Tax Code of the Republic of Belarus, are: - organizations; - individual entrepreneurs; - the trustees for the turnover of the sale of goods (works, services), property rights arising in connection with trust management of property; - individuals in cases determined by law (The Tax Code of the Republic of Belarus, 2009). Analyzing the current mechanism of the administration of VAT in the Republic of Belarus, L.N. Lykova admits an inherent "aggressive model", in particular, in the tax control. The latter is characterized by a noticeable punitive character, which manifests itself in a range of sanctions for violation of tax laws (Lykova, 2015). However, the Republic of Belarus is among the countries where information technology is being actively introduced into the VAT administration mechanism. Therefore, today according to Article 106-1 of the Tax Code, a special electronic invoice operates in the administration of VAT system. The latter is a mandatory electronic document for all VAT payers who have an object of value added tax or an obligation to submit an electronic invoice, and it is the basis for calculating value added tax between the seller and the buyer and deducting amounts of VAT. Electronic document flow of electronic invoices between sellers and buyers is

Vol. 4, No. 2, 2018 carried out using the Portal of electronic invoices, which is an information resource of the Ministry of Taxes and Duties of the Republic of Belarus (The Tax Code of the Republic of Belarus, 2009).

4. Conclusions Therefore, the value added tax acts as an effective fiscal instrument in many countries of the world, since it can provide significant revenues to the state budget. That is why, in most countries, the VAT administration mechanism improves constantly. In Ukraine, nowadays one of the key places in indirect taxation belongs to VAT. Consequently, it would be advisable to adopt and implement relevant experience in the VAT administration in Ukraine, in particular: 1) to optimize the size and scope of VAT rates according to the standards of European countries, for example, France, Great Britain, Belgium, etc.; 2) to intensify the implementation of innovative technologies in the activities of tax authorities to improve the quality and efficiency of implementation of the mechanism of the administration of VAT; 3) to centralize the mechanism of tax administration, as well as strengthen the powers of the controlling bodies of the branch and sanctions for violation of the legislation in the VAT collection by the pattern of the Republic of Belarus and Israel; 4) to increase the awareness of the country's population in taxation by the pattern of Japan, explaining the rights and obligations to prevent illegal behavior. Therefore, the use of this experience will become a pledge of further development of the administration of value added tax, which, in turn, will determine its effectiveness in filling the budget of Ukraine.

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Baltic Journal of Economic Studies. Volume 4 (2018) Number 2. Publicētie materiāli ne vienmēr atbilst redakcijas viedoklim. Par skaitļu, faktu pareizību un sludinājumiem atbild autori. Publishing House “Baltija Publishing” Valdeku iela 62-156, Riga, LV-1058 Iespiests tipogrāfijā SIA “Izdevniecība “Baltija Publishing”