The Pharmaceutical Vestnik journal has published a commentary by Anna Ivanova, an attorney at BRACE Law Firm, regarding the legal regulation of corporate donations by pharmaceutical companies.

Many pharmaceutical companies engage in philanthropic activities, including making corporate donations. Under Russian law, a donation must be utilized for socially beneficial purposes. However, the legislature has not explicitly defined this concept. Anna Ivanova, an attorney at BRACE Law Firm, provided insights to Pharmaceutical Vestnik on navigating this regulatory ambiguity and properly drafting donation agreements.

Donors may make donations to citizens, medical, educational, charitable, and scientific organizations, foundations, museums, and other cultural institutions, as well as public and religious associations, social service organizations, and other non-profit entities.

When transferring property to an individual, a pharmaceutical company must specify that the recipient must use the property for a designated purpose. The applicable legislation does not specify what constitutes such a purpose. We believe that when donating medicines, for instance, the agreement should state that the donation is intended for treating a specific disease of a particular patient. In this scenario, the donor should obtain documentation verifying the diagnosis and the prescription of the respective pharmaceutical product. Failure to specify this condition will result in the individual donation being legally reclassified as a gift. For legal entities, the recipient must utilize the donated property in accordance with the general purpose of the asset, without a mandatory requirement to explicitly stipulate a specific narrow purpose.

As noted by the Federal Tax Service of Russia, “to qualify incoming funds and/or other property as earmarked receipts, such transfers must be made free of charge for the maintenance of non-profit organizations and the execution of their statutory non-profit activities. The utilization of donations in commercial activities does not comply with the provisions of Article 582 of the Civil Code of the Russian Federation.”

The law permits a donor to demand the revocation of a donation only if the recipient uses the property contrary to its designated purpose. Consequently, the pharmaceutical company bears the burden of proof. If the donation agreement does not explicitly secure this purpose, clawing back the property will prove highly problematic. Conversely, a recipient retains the right to reject a gift at any time prior to its transfer without providing any explanation, which effectively terminates the donation agreement. If the parties executed the agreement in writing, the recipient must also execute the rejection in writing.

A recipient retains the right to reject a donation at any time prior to its transfer without providing any explanation. In this event, the donation agreement shall be deemed terminated.

Donors should execute donations to a hospital directly to the medical organization rather than to its healthcare practitioners or management. Clarifications from the Ministry of Health of the Ulyanovsk Region reinforce this approach: “A medical organization, as a legal entity, may receive a batch of medicinal products (possessing certificates and sufficient shelf life for subsequent distribution) as a donation on a free-of-charge basis, provided that this advances the statutory activities of the medical organization and does not involve any corrupt intent or conflict of interest on the part of the administration or employees of the medical organization.”

Donations of medicinal products and medical devices are highly common; however, donors must carefully scrutinize the recipient's legal status. The recipient must be a non-profit organization. Applicable legislation does not prohibit donations to citizens, provided they are not healthcare professionals, pharmaceutical workers, or executives of medical organizations or pharmacy institutions.

Donors should execute donations to a hospital directly to the medical organization rather than to its healthcare practitioners or management.

Companies must pay particular attention to tax law compliance. As a general rule, a legal entity receiving a donation must maintain separate accounting records for all operations involving the utilization of the donated property.

The full article and commentary are available on the publication’s website: https://pharmvestnik.ru/articles/Bezvozmezdno-to-est-darom-Kak-pravilno-sostavit-dogovor-o-pojertvovanii-ot-farmkompanii.html, as well as here.

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