Sofiya Law Firm investigates the risks of operating a cashback service in Ukraine

Cashback service business (bonus programs for attracting customers and enhancing their loyalty), which is widespread abroad, in Ukraine has traditionally been met with special attention by regulatory and law enforcement agencies. Typical claims are allegations of fictitious nature, tax evasion, and even money laundering.

At the request of one of the cashback service operators, Sofiya Law Firm experts performed a legal evaluation of the organization and risks of doing this specific business in Ukraine.

The analysis was carried out by Sofiya Law Firm Head of Finance Mr Viktor Rudyi and Sofiya Law Firm partner Mr Oleksandr Polivodskyy.

The basic model of a cashback service is that a user buys goods from a partner's store through a mobile app or website. For this, the partner (shop) pays the service a certain percentage of the amount of the user's purchase, and the service returns a part of the money spent to the user.

"We wanted to build an effective, safe and legal scheme for the organization of business for the client, to prevent possible risks, as well as to provide with recommendations for their minimization and improvement of the existing scheme," - noticed O.Polivodskyy.

In addition to the analysis of Ukrainian legislation, the legal evaluation included a detailed study of the money flow and the legal aspects of contracts (client and partnership agreement), the identification of possible risks and claims by the tax authorities and the Antimonopoly Committee of Ukraine, as well as the development of specific recommendations for optimization of cashback service activities.

"As a result, we provided the client with the most expansive consultation, which included approximately forty recommendations for revision of contracts, formation of payment system, peculiarities of information presentation on the cashback service website, users identification," V. Rudyi noticed. "The implementation of these recommendations will allow the company to carry out this specific type of economic activity in Ukraine within the legal field, without fear of sanctions by public authorities."

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