Is It News, Or An Ad?

It's The Editor's Choice, Not The Tax Collector's

By Scott Lewis

When I arrived in Ukraine, I landed a job as business editor, and later chief editor, of the Kyiv Post.   For the next three-plus years, we printed weekly newspapers that made copious mention of the companies doing business and making news in the country.  Sometimes it was bad news, more often, good, but it always was news - information our readers generally found useful.

To my knowledge, we were never questioned by the tax police about the content of our articles.  While I assume the taxes due were paid on display and classified ads, not once did an inspector wave the business section in the air and imply that KP Publications owed the state cash because we'd mentioned that Anya Kravchenko had been appointed receptionist at Acme Anvil Ukraine. 

I knew that journalists at Ukrainian and Russian media outlets demanded payment for the type of stories we printed. Their position is that if a story mentions a company or product, the State Tax Administration will work on the assumption that it had been a paid advertisement. Absent any signed ad insertion order (and on the assumption that the paper was defrauding the government of deserved revenue) the tax police would impute a value to the advertising and assess the appropriate tax.

As an editor, had I discovered one of my journalists working this scam, I'd have summarily fired him or her, and as a PR agency manager, I'd not knowingly allow payment for news not clearly marked as an advertorial.  Both KP and Willard maintain western ethical standards. Our agency strongly counsel against paying for news.

For the record, we asked Kyiv attorney Alex Frishberg of Frishberg and Partners to research the issue.  Is there any law that mandates payment for mention of a corporate or product name in a news story?
Frishberg's short answer is 'no,' but read his analysis.

The 'requirement' that cash trade hands in order to see the name of your company or product in print stems from the fact that Ukraine's newspapers and magazines are rarely hugely profitable, and that journalists are notoriously poorly paid - not from any dictate of the advertising law.

Even if the law did label any mention of a company or product as an ad, the cash-for-coverage principle is not applied evenly.  If it were, the sport section would easily be a newspaper's most profitable pages, as each mention of a team would require payment.  Imagine the calamity that would occur if some teams paid, while others didn't: "Shakhtar Donetsk lost 3-1."  Who was the victor?  That team didn't pay, so cannot be mentioned.  And what of bad news?  If a scandal breaks out, or Acme Anvil poisons dozens of villagers when its factory pollutes area wells, do journalists demand payment to cover the story?  Of course not.  So, 'anti-reklama',  or unfavorable news coverage, appears also to be exempt.  Find that in the law.

The assertion that newspapers must pay advertising tax on stories that mention your company's name or products' names is just phony.  Newspapers and journalists who persist in demanding compensation are acting unethically, and corporations that pay up should be ashamed at their part in perpetuating a fraud that limits the growth and health of a free press and fair coverage.