The SELA regional newsletter features an overview of the most important regional legislative developments recently announced in the jurisdictions of SELA coverage. Many of the changes recently implemented impact the regions ability to attract foreign investments and related to tax, customs and other investment incentives, illustrating just how strategically important the governing bodies of the region see foreign investment.
Scope of unsolicited proposals for PPP/Concession projects limited
The Albanian Parliament has passed law no. 50/2019, approving certain amendments to the Law no. 125/2013 on PPP and Concessions.
Starting from October 1st 2019, the government will accept for review unsolicited proposals for PPP/Concession, only for projects for works or services related to ports, airports, production and disturbing of electoral energy, heating energy and disturbing of natural gas.
With this amendment, unsolicited proposals for PPP/Concessions projects related to road infrastructure will no longer be allowed.
Additionally, the party submitting unsolicited proposals in the above areas, will no longer be entitled to receive a bonus by the government of up to 10% of the award points in the tender procedure launched for the project. Instead, the party submitting unsolicited proposals will only be entitled to the reimbursement of costs, if the project is successfully awarded to a third party, but the amount to be reimbursed will not exceed 1% of the investment value of the awarded project.
New draft Law on the Albanian Citizenship
The Albanian Government has submitted a draft proposal to the Parliament for a new law on the Albanian Citizenship.
Under the new draft, the Albanian citizenship is acquired on the basis of:
- birth in the Albanian territory;
The citizenship by birth is generally granted to anyone that at birth had at least one of the parents being Albanian citizens. The right to claim citizenship by birth may be exercised at any time, irrespective of the place of birth.
On contrast, birth in the Albanian territory is granted to minors born or found in the country, without known parents, and as a consequence the child risk to become a stateless person. If the foreign parents become legally know before the minor reaches 14 years of age, they may request the Albanian citizenship to be removed, provided that such removal does not cause the child to become a stateless person.
The citizenship by origin may be claimed by anyone that is a direct descendant of an Albanian citizen, provided that the direct lineage is of not more than the third degree.
The citizenship by naturalization may be obtained by the adult having legally resided in Albania for more than 7 years. Other conditions include having good knowledge of the Albania language and culture, having sufficient economic resources, not having previous criminal records for crimes punished with more than 3 years of imprisonment, and not causing a threat to the public order and national security.
The foreigner that has been married with an Albania citizen for at least 3 years may obtain the Albania citizenship by naturalizing if he/she has legally resided in Albania for at least 1 consecutive year. In this case, the good knowledge of the Albania language and culture is not mandatory. Other conditions for obtaining citizenship by naturalization apply. Underage children of naturalized Albanian citizens may also obtain citizenship.
The child adopted by an Albania citizen obtains the Albania citizenship upon completion of the adoption procedures.
The new draft law also provides for specific cases of grant of citizenship for refugees.
Finally, the Albanian citizenship may be acquired by a foreign national who has attained the age of 18 (eighteen), if the Republic of Albania has a national interest or interest in the field of education, science, art, culture, economics and sport, without being required to fulfill all naturalizing requirements, except for the requirement of not causing a threat to the public order and national security.
Once the law is passed, the Council of Minsters is expected to define circumstances and rules for assessing the conditions for the application for Albania citizenship by foreigners.
New drafting initiative for a Law on Arbitration
The Albanian Ministry of Justice has restarted a project to draft a new law on arbitration, after several attempts in the past.
The main purpose of this initiative is to lay down rules on arbitration agreement, recognition and enforcement of arbitration awards, limitations on judicial powers when the parties have chosen arbitration as a dispute resolution mechanism, composition of the arbitral tribunal, improvement of adjudication procedures such as and increased efficiency in dealing with conflicts, in order to guarantee respect for fundamental rights and freedoms, in accordance with EU acquis.
The initiative also aims to preserve the coherence between domestic and international legislation in the field of arbitration and to create a fully and exhaustively unified legal text.
Bosnia & Herzegovina
New Law on Liquidation (winding up) Proceedings
The National Assembly of Republic of Srpska adopted the new law and soon it shall enter into force.
The main reason for the adoption of the new law was the need to make the liquidation procedure more efficient, faster and more cost-effective.
The biggest novelty in this law is the introduction of a new institute into our legislation - a shortened voluntary liquidation procedure, in order to speed up the process of closing business entities and to reduce the costs of liquidation proceedings.
The shortened voluntary liquidation procedure is carried out in such a way that after the decision on the termination of the business entity in the shortened voluntary liquidation procedure, all owners of the capital of the business entity make notarized statements that all obligations of the business entity towards creditors, including obligations towards employees, have been paid, and that they agree that a shortened voluntary liquidation procedure should be carried out.
After the court determines that all the conditions are fulfilled, the liquidating judge makes the decision on opening and concluding the shortened voluntary liquidation procedure, and upon the validity of the decision, that decision also orders the removal of the business entity from the Register.
If the conditions for a shortened voluntary liquidation procedure are fulfilled, the owners of the capital of a business entity shall be held jointly and severally liable for the obligations of the business entity for three years, after removing the business entity from the Register.
In this shortened voluntary liquidation procedure, no liquidator would be appointed, and therefore the costs of this procedure would be minimal.
Also, one of the novelties in this law, in relation to the previous law, are the provisions relating to the collection of funds from the sale of assets in liquidation proceedings, namely immovable and movable property, as well as non-encumbered and encumbered property.
New requirements for the mandatory transfer pricing documentation
The expected amendments to the Tax and Social Procedural Code were promulgated in August 2019, introducing the obligation for certain categories of persons to prepare and store transfer pricing documentation. The purpose of the amendments is to further ensure compliance with the arm’s length principle by regulating mandatory documentation that proves that transactions with related parties are conducted on a market basis. The amendments mainly concern Bulgarian taxpayers (legal entities) and permanent establishments of foreign companies operating in the country who are part of multinational groups and carry out transactions within the group. The amendments will become effective as of January 1, 2020 and this is the first year they will apply for.
1. Who are the parties and the transactions concerned?
Local and foreign legal entities operating in Bulgaria, carrying out transactions with related parties and meeting the accounting criteria for large enterprises are obliged to prepare transfer documentation.
The specific quantitative criteria to be met are as follows:
- assets with a balance sheet value exceeding BGN 38 million, and
- annual net revenue exceeding BGN 76 million, or
- personnel exceeding 250 people for the reporting period (regardless of the value оf the assets and the net revenue.
Exceptions to the above rule are the following:
- entities that are not subject to corporate income (e.g. certain collective investment schemes etc.);
- entities engaged in activities subject to alternative tax (e.g. budget enterprises or taxi companies);
- entities carrying out transactions with related parties only in the country.
The transactions requiring transfer pricing documentation are controlled transactions (those through which commercial and financial relationships between related parties is established), the value of which (excluding VAT and excise duty) for the respective year exceeds BGN 400 000 – for sale of goods and 200 000 BGN – for all other transactions.
File is also required for loans, both received from or provided to related parties, exceeding BGN 1 million or with a total amount of accrued interest and other loan related income or expenses exceeding BGN 50 000.
Each transaction is calculated individually, and in certain cases, transactions can be grouped.
2. Mandatory documentation
The mandatory documentation to be prepared includes: a local file and a master file, the detailed content of which are regulated by law. The content to its great extent is consistent with the European and international standards set by the European Commission and the Organisation for Economic Co-operation and Development.
- Local file
The local file should contain information about the business and property of the entity, as well as the transactions carried out with related parties and methods of market pricing. The deadline for compiling the local file is March 31 of following year. In case of submission of a corrective annual tax return, the information in the local file is to be updated within 14 days, but no later than September 30.
- Master file
The master file contains information on the organisational structureand activities of the multinational group of companies, the functionsof each of the members, the transactions carried out within the group, as well as the applied transfer pricing policy. The master file needs to be compiled by the parent company or another entity within the group and is to be prepared and available no later than 12 months after the deadline for preparing of the local file.
The documents which are part of the transfer pricing documentation need to be prepared on annual basis and kept by the obliged entity. The documents shall be presented to the revenue authority upon its request, in the course of an inspection or audit.
The following sanctions can be imposed in case of violations of the newly adopted provisions:
1. For failure to prepare a local file, the sanction can reach up to 0.5 % of the total value of the transactions for which transfer pricing file should have been prepared.
2. For not presenting a master file, the sanction can be in the amount from BGN 5000 to 10 000.
3. For providing untrue or incomplete data, the sanction can vary from BGN 1500 to 5000.
The Bulgarian Commission for Personal Data Protection published an opinion on the determination of the figures of “controller” and “processor” in the conduct of clinical trials
The Bulgarian Commission for Personal Data Protection (CPDP/Commission) published a crucial opinion for the pharmaceutical sector on the determination of the figures of “controller” and “processor” in the conduct of clinical trials. According to the opinion, when conducting clinical trials, the medical institutions and the sponsor of the clinical trial act in the capacity of joint controllers under the meaning of Art. 26 of the Regulation (EU) 2016/679 (GDPR).
The opinion has been published after CPDP examined a request by a company having the capacity of a “sponsor” under the meaning of § 1, item 8 of the Additional Provision of the Medical Products in the Human Medicine Act (MPHMA), i.e. a company which is responsible for initiating, management and/or financing a clinical trial and is participating in the clinical trials initiated by it. The requesting company states that while conducting clinical trials, the sponsor also has relations with other persons participating in the clinical trials, namely with the principal investigator and the investigators, as well with the members of the investigator’s team – collaborators, monitors and auditors of the trial.
To clearly determine the roles of the parties, CPDP examines the figures of “Controller” and “Processor” in the light of the national and EU legislation regulating clinical trials. According to the Commission, the data processing activities related to the conduct of clinical trials, could not be carried out “on behalf” of the sponsor of the trial, since such activities cannot be carried out by it, but only by organizations authorized in accordance with the applicable procedures and having the status of a “medical institution”. This is yet another confirmation of the thesis long ago adopted both in theory and practice that not each assignment contract automatically leads to arising of relationship of the type of controller-processor. In order to adequately determine the roles and responsibilities of the parties with regard to the processing of personal data, the nature of the rights and obligations in the contractual relationship need to be taken into account.
The main consequence of this opinion for the pharmaceutical sector is that companies and medical institutions that conduct clinical trials will need to conclude an agreement between them which shall clearly determine their respective responsibilities for compliance with the obligations in the field of data protection. In particular, they will have to regulate matters related to exercising the rights of the data subject and their respective obligations to provide the information referred to in Art. 13 and 14 of GDPR. Furthermore, the data subjects-participants in the clinical trial may exercise their rights in respect of and against each one of the controllers. (Art. 26, Para. 3 of GDPR).
Bulgarian Supreme Court rules on the scope of the arbitration clause in a power purchase agreement
Recently the Bulgarian Supreme Court of Cassation (SCC) has issued an important ruling on the issue whether a general arbitration clause in a contract covers rights and obligations of the parties which stem directly from the law.
At first sight, the matter seems quite clear – the arbitration clause applies only to disputes arising out of the agreement and does not cover disputes regarding any other legal relations between the parties.
In some situations, however, there is a thin line between legal relations stemming from the contract itself and legal relations stemming directly from the law. Sometimes entering into a particular type of contract could be just a precondition for arising of entirely different legal relations between the parties based on the applicable substantive law. This is the case referred to the Bulgarian SCC.
Background of the dispute and the relations between the parties
According to a repealed provision of the Electricity Market Rules, the Renewable Energy Source (RES) producers who have concluded a long-term PPA with NEK (the Bulgarian electricity public supplier) and have not chosen another coordinator of a balancing group, were automatically included in NEK’s special balancing group. As members of the balancing group, the producers were obliged to pay balancing costs to NEK determined in accordance with NEK’s methodology for allocation of imbalances.
Based on that, NEK filed a claim against a RES producer (member of NEK’s balancing group) for payment of balancing costs. The claim was filed before Sofia City Court. The respondent objected that the state courts had no jurisdiction to hear the dispute, because there was an arbitration clause in the PPA between the parties. The arbitration clause stated that all disputes arising out of or connected to the PPA were to be referred to ad hoc arbitration in accordance with the ICC Rules.
Sofia City Court sustained the objection of the respondent and discontinued the proceedings. This ruling was upheld by Sofia Court of Appeal. The ruling of Sofia Court of Appeal was appealed by NEK before the Supreme Court of Cassation.
The ruling of the Supreme Court of Cassation
Тhe Supreme Court of Cassation found that the general arbitration clause in the PPA does not apply to disputes concerning balancing costs.
The main argument of the supreme judges was that the obligations of the RES producers who are members of NEK’s balancing group to pay balancing costs stemmed directly from the legislative provisions of the Electricity Market Rules issued by the Energy and Water Regulatory Commission. The conclusion of a PPA with NEK was just a precondition for the respective RES producer to be included in NEK’s balancing group. However, the PPA itself did not contain any rights and obligations of the parties with regard to the balancing costs and therefore the arbitration clause in the PPA did not cover these rights and obligations.
As a result, the supreme judges found that the general arbitration clause in the PPA should not apply to the claim of NEK for payment of balancing costs. Hence, the state courts had jurisdiction to hear the case.
With this reasoning the Supreme Court of Cassation ruled that Sofia City Court should hear the dispute on the merits.
Why is this important?
The ruling of SCC should bring clarity to the scope of the arbitration clause included in a PPA. Most of the PPAs concluded by NEK contain arbitration clauses. Now it should be clear that these arbitration clauses should apply only to disputes regarding the rights and obligations of the parties under the PPA, but not to any other relations between the parties.
The same arguments should apply also in other situations where entering into a particular type of contract is only a precondition for creation of entirely new legal relation between the parties based on the applicable law.
The SCC ruling appears to confirm what seems like a general tendency in Bulgarian case-law to interpret arbitration clauses narrowly.
Register of Ultimate Beneficial Owners
Ordinance on Register of Ultimate Beneficial Owners was adopted to further implement EU law trends on anti-money laundering and financing of terrorism. The purpose of the ordinance is to regulate the process of registration of ultimate beneficial owners (UBO`s) of legal entities and trusts with registered seat in the Republic of Croatia. The ordinance imposes on entities an obligation to register detailed information on the UBO`s of Croatian companies, and to report existence of the complex ownership structure. The aim of the new ordinance is improved transparency of companies. The registration process is rather simple and may be performed physically at the dedicated Financial Agency offices or via Financial Agency web application, provided that the user has relevant certificates. All companies, branch offices, trusts or foundations are under obligation to register their UBO by 31 December 2019, while companies incorporated after that date are under obligation to register within 30 days following incorporation. Failure to register may expose the company and their responsible persons to significant monetary fines. Verification of registered data shall be performed by Croatian Tax Administration, which has the authority to examine accuracy and completeness of the data.
Personal Income Tax Amendments
On 1 September 2019 amendments to the Ordinance on Personal Income Tax entered into force. The purpose of the amendments is to further stimulate employers by introducing new non-taxable incomes that can be paid to the employees. Daily travel allowance has been increased from HRK 170 to HRK 200 for a full day spent on business travel, or HRK 100 for half a day. Non-taxable meal allowance was also introduced, either as a one-time flat rate payment of up to HRK 5.000 per employee, or as a total yearly amount capped at HRK 12.000, provided that invoices are issued in the name of employer and are payed as a cashless transaction. Costs of catering and tourist services for purpose employee`s rest in the amount of up to HRK 2.500 are also included as non-taxable incomes. Finally, employer may cover employee accommodation costs for the period of duration of employment agreement, as well as remuneration for costs of employee’s children daycare, up to the actual amount of such costs. These amendments aim to improve both employees’ position, as well as improve competitiveness among employers.
Amendments to the Civil Procedure Act
Recently passed amendments of Croatian Civil Procedure Act have entered into effect on 1st September. Much of the novelties are oriented toward expediting the procedure by giving greater authority to the judges conducting the procedures. Third instance procedure carried out by the Supreme Court has been completely rewritten so the right of the litigating parties to file a legal remedy against the second instance decision has been limited predominantly to disputes in fields of labor and family law, while the majority of other dispute types (i.e. claim for damages due to breach of contract) can be presented to the Supreme Court for review under if the leave to file such remedy is granted. Another major change is the introduction of the model dispute litigation, which may be useful in speeding up and rendering harmonized court decisions in large number of individual litigations based on the same factual and legal basis (e.g. consumer protection disputes). Finally, as a sign of times and overcoming digitalization, e-communication between courts and attorneys has become mandatory as of 1 September in commercial proceedings, while it is slowly but surely being introduced in civil litigations.
The Law on Amendments to the Law on Tax Advisors
The Law on Tax Advisors was amended in order to be in line with EU Directive on Services in the Internal Market (Directive 2006/123/EC).
Amendments created legal framework that enabled tax advisers who do not have Montenegrin citizenship but who reside in the territory of Montenegro or EEA to perform the duties of tax advisor in Montenegro. As an addition to general and special conditions, they must know the Montenegrin language at least at the level of unobstructed communication and provide proof thereof. It was also stated that the tax advisor and the company can perform the business permanently, by registering before the Central Business Registers Agency and the Register of Tax Advisers, or occasionally / temporarily, with the obligation to inform the Chamber of Tax Advisers about the beginning of the activity through a “single contact point” or directly.
The Law on Public Procurement
The new Law on Public Procurement entered into force on 1 April 2019. It represents harmonization with the EU public procurement rules, providing legal basis for more transparent and efficient procurement procedures, as well more effective allocation of the public funds, thus improving the public procurement system.
The most important novelty introduced with the law is the prescription of the ‘most economically advantageous tender’ as main contract award criteria, as opposed to the so far applicable ‘lowest price’ criteria. The application of this criterion can include three different approaches: the price only, the cost only or the best price-quality ratio. Along with the need for EU harmonization, the introduction of this change is due to the inefficiency of the previous practice which demonstrated that the lowest price did not always bring the greatest quality.
As for other novelties, the new law simplifies lower value procurement procedures through the introduction of procurement procedures such as small value procurement, an electronic market for small-scale public procurement and a simplified open procedure.
Another novelty is the establishment of an obligation for the contracting authorities for publishing of an annual plan for public procurements each January via the Electronic System for Public Procurements. This provides market transparency, as well as space for better and timely preparation for the upcoming public calls.
The Law also provides a series of anti-corruption rules and rules that will prevent the conflict of interest in the performance of public procurements.
Additionally, the Law contains solutions that will protect the rights of employees participating in the performance of public procurement contracts, as well as subcontractors. It also contains provisions for inclusion of social aspects in public procurement procedures via the so-called “reserved contracts”. Starting from 1 January 2020, contracting authorities will be able to use these contracts in order to encourage inclusive growth and employment of socially disadvantaged groups, or for socially vulnerable groups and those who reinvest their earnings for this aim.
The Law on Commerce
Fast technological development and new manners of conducting business imposed the need to introduce new solutions and institutes which have not been defined so far under the regulatory framework. Since the new Law on Commerce it is a completely new piece of leglistaon, we shall only point out the main novelties.
The new Law on Commerce defined retail commerce and providing services to consumers in a more precise and detailed manner. In addition to the traditional forms of trade at the point of sale or personal supply commerce, the new law now defines instates of the remote commerce such as e- commerce and commerce via other means of communication.
The new Law on Commerce established a distinction between e-commerce intended for the domestic market and e-commerce intended for the foreign market and prescribes exceptions when the retail can indicate the prices in the foreign currency. Further, the retailers have the right to keep all the documents on the procurement and the purchase goods, which are in its possession or which it issues and sends to the buyers, in the form of an electronic document.
The new law defines the purchase incentives as well as content that the advertisement message must not contain, relating to the purchase incentives.
Finally, explanation of the institute of undercover purchase is now introduced. Namely, the competent inspector is authorized, in case of reasonable suspicion that a person unlawfully carries out (electronic) commerce or does not issue an invoice for the sold goods /the rendered service in order to collect or ensure the evidence, to initiate and upon receipt of an order make an undercover purchase of a good / service.
Law on Amendments to the Law on Electronic Commerce
These amendments improve already adopted solutions in the initial version of the respective Law on Electronic Commerce, refine and redefine the existing terms and definitions and create enhanced legal framework for electronic commerce, thus continuing the harmonization process in accordance with European legislation in particular the Directive on Electronic Commerce (Directive 2000/31/EC).
The latest amendments have added a new article to the initial text of the respective law, which regulates the cross-border provision of services, i.e., the provision of services in the Republic of Serbia or the European Union when the provider does not have the seat, i.e. is not established in the territory where the service is being provided. In addition, commercial message is defined as the IT service which must meet the conditions prescribed by Law on Electronic Commerce.
Novelties in the field of Slovenian legislation
Restrictions on payments for the services of real estate agencies in connection to lease
The Amendment to the Real Estate Agencies Act entered into force on 10th of August 2019. The most important novelty is the restriction on payments for real estate agency services in connection to the lease of real estates. Prior to this, such restriction applied only to the sales of real estates.
The cap for agencies services, pursuant to the new Amendment, is 4% of contract value, but the price cannot surpass the monthly instalment of the lease or be lower than EUR 150.00. It is important to emphasize that the mentioned restriction is not used, if the lease agreement is concluded between business entities.
Furthermore, the Amendment brings the possibility for all EU citizens with adequate qualifications to provide real estate services in Slovenia. They have to file an application for recognition of professional qualifications and if the decision of the Ministry is in their favour, they can be entered in the Register of Real Estate Agents.
A comprehensive Amendment to Tax Procedure Act
There are two main changes adopted in the Amendment of Tax Procedure Law. The basis for the adoption arises from EU law, namely from the Council Directive (EU) 2018/822 of 25 May 2018 and the Council Directive (EU) 2017/1852 of 10 October 2017.
Firstly, the Amendment adopts the compulsory automatic exchange of taxable information concerning cross-border arrangements, which extends the scope of mandatory automatic exchange of information to potentially aggressive cross-border tax arrangements.
Secondly, the Amendment also implements several mechanisms for increasing efficiency in the process of joint discussions for resolving cross-border tax disputes. Some of them are the right to initiate a mutual agreement procedure, the establishment of an advisory commission and the right to demand execution with the help of national courts.
Abrogation of the provision of postponing eviction from the property
On 11 July 2019 the Slovene Constitutional Court annulled a provisions of the Slovene Claim Enforcement and Securities Act, which stipulated that it is only possible to postpone eviction and surrendering of the residential property, in which the debtor lives, in cases of especially justified reasons and only once for the maximum of 3 months. The Constitutional Court held that such time limitation does not fulfil the initial aim of the Article – to protect basic human rights of the debtor. After this annulment the competent court can now postpone such execution in a manner that the balance between interests of the debtor and creditor is established. It is expected that this decision will have a significant impact on the eviction proceedings in practice.