EMEA Legal Insights Bulletin Volume 27 No. 1 © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. AUSTRIA Schottenring 25, 1010 Vienna, Austria Telephone: +43 1 24 250 AZERBAIJAN The Landmark Building 96 Nizami Street Baku AZ1010 Azerbaijan Telephone: +994 12 497 18 01 BAHRAIN 18th Floor, West Tower Bahrain Financial Harbour P.O. 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Al-Ajlan & Partners in association with Baker & McKenzie Limited) Olayan Centre – Tower II Al-Ahsa Street, Malaz P.O. Box 4288 Riyadh 11491 Telephone: +966 11 291 5561 ARGENTINA Buenos Aires AUSTRALIA Brisbane, Melbourne, Sydney BRAZIL Brasilia**, Porto Alegre**, Rio de Janeiro**, São Paulo* CANADA Toronto CHILE Santiago CHINA Beijing, Hong Kong, Shanghai COLOMBIA Bogotá INDONESIA Jakarta* JAPAN Tokyo MALAYSIA Kuala Lumpur* MEXICO Guadalajara, Juárez, México City, Monterrey, Tijuana MYANMAR Yangon PERU Lima PHILIPPINES Manila* SINGAPORE Singapore TAIWAN Taipei THAILAND Bangkok UNITED STATES Chicago, Dallas, Houston, Miami, New York, Palo Alto, San Francisco, Washington, D.C. VENEZUELA Caracas, Valencia VIETNAM Hanoi, Ho Chi Minh City *Associated Firms **In cooperation agreement Offices in Europe, the Middle East and Africa Jeddah Legal Advisors (Abdulaziz I. Al-Ajlan & Partners in association with Baker & McKenzie Limited) Bin Sulaiman Center, 6th Floor, Office No. 606 Al Khalidiyah District Prince Sultan St. and Rawdah St. Intersection SOUTH AFRICA 11th Floor, The Forum Building 2 Maude Street Sandton 2146 Johannesburg, South Africa Telephone: +27 11 911 4300 SPAIN Barcelona Avda. Diagonal, 652, Edif. D 8th Floor 08034 Barcelona Telephone: +34 93 206 0820 Madrid Paseo de la Castellana 92 28046 Madrid Telephone: +34 91 230 4500 SWEDEN Baker & McKenzie Advokatbyrå KB Vasagatan 7, 111 20 Box 180 SE-101 23 Stockholm Telephone: +46 8 5661 7700 SWITZERLAND Geneva Rue Pedro-Meylan 5 1208 Geneva Telephone: +41 22 707 9800 Zürich Holbeinstrasse 30 P.O. Box, CH-8034 Zürich Telephone: +41 44 384 1414 TURKEY Ebulula Mardin Cad., Gül Sok. No. 2 Maya Park Tower 2, Akatlar-Beşiktaş 34335 Istanbul, Turkey Telephone: +90 212 339 81 00 UKRAINE Renaissance Business Center 24 Vorovskoho St. Kyiv 01054 Telephone: +380 44 590 0101 UNITED ARAB EMIRATES Abu Dhabi Level 8, Al Sila Tower Sowwah Square, Al Maryah Island Abu Dhabi, United Arab Emirates Telephone: +971 2 612 3700 Dubai O14 Tower, Level 14 Business Bay, Al Khail Road Dubai, United Arab Emirates Telephone: +971 4 423 0000 UNITED KINGDOM 100 New Bridge Street London EC4V 6JA Telephone: +44 20 7919 1000 For more information on our offices or on legal developments in the region, please visit www.bakermckenzie.com/EMEA. Worldwide With Africa having a big share of the fastest-growing economies worldwide, it is expected to catch the eye of more and more businesses looking to make investments. This attractiveness, however, needs to be translated into actual investments and returns - which, in turn, require sufficient infrastructure to ease and lower the risk of doing business in the continent. What this means for Africa is elaborated on in this edition’s Feature section, by a Baker & McKenzie partner who has a broad experience in financing energy and infrastructure projects in the Middle East, Russia and Africa. Outside of Africa, our lawyers report on legal updates and case laws in nine jurisdictions. These include renewable energy-related developments in the Netherlands and United Kingdom; the Hungarian Data Protection Authority’s new guide on mergers and acquisitions transactions involving online shops; a Turkish court’s continued cancellation of provisions in the country’s Trademark Decree; and the impact of the Swiss Federal Council’s additional guidance on the Federal Financial Services Act (FFSA) and the Federal Financial Institutions Act (FinIA). Introduction The EMEA Legal Insights Bulletin is a quarterly publication that explains select case laws and regulatory changes at both regional and local jurisdiction levels in Europe, the Middle East and Africa (EMEA). It also provides analyses and commentaries on legal developments in the region and their possible impact on business. If you have comments and suggestions, please feel free to send them to [email protected]. Feature Plugging the gap on infrastructure investment* .......................................................1 Azerbaijan Rule on registration of grant agreements approved..................................................3 New rules for related party transactions ..................................................................5 New system of price regulation for medicines ..........................................................7 Belgium Tax transparency regime for trusts and tax haven companies..................................8 Hungary Legislation tightens rules surrounding advertising.................................................12 Law’s good intentions may still leave victims out of pocket....................................14 New rules smooth data transfer and record data breaches ...................................16 Guidance balances enterprise and individual rights................................................17 The Netherlands Initiatives advance unbundling, offshore wind and energy efficiency......................19 Spain Directors’ and Compliance Officer’s Criminal Liability under the latest reform of the Spanish Criminal Code*.....................................................22 Switzerland Financial service providers face further scrutiny in the future ...............................26 When staying single makes perfect financial sense................................................28 Disclosure regime boosts transparency, raises sanctions ......................................31 Turkey Constitutional Court continues to cancel provisions of Trademark Decree............34 Foreign exchange wins restrictions reprieve ...........................................................36 Banks broaden investor access to Islamic finance ..................................................37 Turkish Constitutional Court ends compulsory assignment of similar trademarks...................................................................................................39 Ukraine Corporate officials face fresh scrutiny of their actions............................................41 Legal changes streamline apartment management ...............................................43 United Kingdom Winds of change blow through renewable energy sector ........................................44 Contents FEATURE | 1 EMEA Legal Insights Bulletin August 2015 Feature Plugging the gap on infrastructure investment* How Africa is boosting its infrastructure coffers by attracting international investment seeking higher returns. Calvin Walker reports. “ …international banks, investment funds and other investors are slowly being lured by the promise of higher infrastructure investment returns than those in developed markets… ” It is forecast that seven of the top 10 countries in terms of GDP growth within the next decade will be from Africa. But this growth is wholly predicated on increasing energy supply. The correlation between economic development and power supply highlights an absolute truth: realising Africa’s promise will require significant increase in funding to meet anticipated growth in electricity demand. International banks, investment funds and other investors are slowly being lured by the promise of higher infrastructure investment returns than those in developed markets, but it is Development Finance Institutions (DFIs) and Export Credit Agencies (ECAs) which still have a vital role in increasing lending and drawing in more foreign investment. With infrastructure spending in Africa set to grow by 10 per cent per annum for the next decade and exceed USD180 billion by 2025, there are however still questions of where the money will come from and how much more will be required. Lending volumes of non-bank institutions such as ECAs and DFIs are continuing on an upward trend, rising by more than USD25 billion in 2013 compared to 2012, for example. These non-bank institutions play a disproportionately important role in funding smaller projects and facilitating long-term investment by commercial institutions. As well as finance, these institutions provide banks and institutional investors with help on the ground in conducting due diligence, issuing guarantees and negotiating with local authorities. Major players Afreximbank attracted some USD8 billion into Africa in 2014 through 19 syndicated financing deals. Meanwhile, the World Bank’s IFC made new investments in Africa of USD4.7 billion in the year to EMEA Legal Insights Bulletin August 2015 2 | FEATURE Bank (NDB) may turn out to be a serious player in Africa through its proposed regional centre in Johannesburg. In terms of specific examples of DFIs flexing their muscles, Morocco’s Noor II and III 350MW concentrated solar power (CSP) deals reached financial close recently, with seven DFIs lending USD1.6 billion in total to state utility Masen. Last year EKF, the Danish ECA, and two DFI’s, the European Investment Bank and the African Development Bank – provided a package of guarantees on the USD523 million financing for the 300MW Lake Turkana wind farm in Kenya. The 95MW Tobene IPP in Senegal had similar DFI backing, this time from the World Bank. DFIs are often the only lenders on smaller infrastructure deals, without whose support many projects would not be completed. And the balance sheets of ECAs make them increasingly important to major deals, as structured products backed by ECAs guarantee long-term cash flows, decrease risk and encourage long-term funding by institutional lenders. Increased issuance June 2015 across 30 countries and made increasing energy supply and power transmission one of its major priorities. The US Power Africa Initiative will see US Exim lend around USD3 billion and the World Bank USD5 billion to African projects by 2020. In China, the People’s Daily recently reported that China Development Bank, the largest of China’s three policy banks, has granted more loans to Africa than the World Bank, the African Development Bank and the Asian Development Bank combined over the past six years. There are also new players: the BRICS-led New Development volumes for ECA-backed bonds are likely as institutional investors seek lower-risk ways to support African infrastructure. A recent survey of Loan Market Association Members identified ECAs and DFIs as likely to grow their lending into Africa this year by more than any other institution except local banks. Members also overwhelmingly identified energy, power and infrastructure as the areas most likely to drive future growth in Africa. So lenders believe there are enormous opportunities in African energy. But banks and other private investors provide finance based on certainty, not faith. DFIs and ECAs can provide such certainty to help turn aspirations into Megawatts. * An earlier version of this article was first published online on 17 June 2015 by The Global African Investment Summit at bit.ly/1NKXG6Y. Calvin Walker (Partner, London) Tel: +44 20 7919 1899 calvin.walker @bakermckenzie.com “ …Development Finance Institutions are often the only lenders on smaller infrastructure deals… ” AzerBaijan | 3 EMEA Legal Insights Bulletin August 2015 Azerbaijan Rule on registration of grant agreements approved A new regime governing registration of grant agreements has been introduced. Gunduz Karimov reports. “ …grant agreements must be submitted for registration within 15 days… ” The recently introduced Grant Registration Rule has authorised the following state bodies to carry out registration of grant agreements: the Ministry of Economy and Industry, with respect to commercial entities; the State Committee for Work with Religious Organisations, with respect to religious organisations; and the Ministry of Justice, with respect to non-commercial entities and natural persons. Like the 1998 Law On Grants, the Rule applies to grant agreements (orders), sub-grants, grant additions, as well as to other financial assistance which must be formalised in accordance with the Grant Law. The Grant Registration Rule does not apply to donations. Furthermore, the requirements of the Rule also apply to sub-grants and additional agreements related to the grant agreements (orders), specifically to their term, purpose as well as the changes in the grant amounts in the respective agreements. The Cabinet of Ministers of the Republic of Azerbaijan in Resolution No. 216 approved the Rule on Registration of Grant Agreements (Orders) on 5 June 5, 2015 which was published in the official press on 14 June 2015. Section 2 of the Grant Registration Rule contains a list of the documents which must be submitted for the registration of grant agreements (orders) such as the executed original of the grant agreement (order), as well as an additional agreement (order) and amendments thereto, the executed original of the project description under the respective agreement (order), copy of the document evidencing that the donors are authorised to issue grants in the Republic of Azerbaijan, proof of financial reporting submitted to the Ministry of Finance by non-governmental organisations and branches and representative offices of foreign non-governmental organisations in Azerbaijan, as well as other procedural documentation, such as a power of attorney, etc. A grant agreement (order) must be submitted for registration not EMEA Legal Insights Bulletin August 2015 4 | AzerBaijan later than 15 days from the date it is signed (issuance). Information on the grants from the state budget (public funds) must be submitted by the donor not later than three days from the date the respective order is adopted. The registration body, in the absence of grounds for suspension or rejection, which are contained in Section 3 of the Rule, must register the agreement (order) within 15 days of the application date. The initial 15 days can be extended once for another 15 days. Notification from the relevant state body is required to conduct bank operations. The Grant Registration Rule prohibits banking transactions and any other transactions regarding the unregistered grant agreements (orders), which is in line with the Grants Law. While both Grants Law and the Rule use the terms “agreement” and “order” interchangeably, neither the Grants Law nor the Rule contain a definition of an “order”. This might give rise “ …there is a risk of bureaucratic delay in the procedure due to lack of clarity on a couple of points… ” to bureaucratic barriers in the registration bodies. For instance, Section 2.1.1 of the Rule requires that the original of the grant agreement (order) signed by the parties be submitted, among other documents, to the relevant state body. It is unclear if the relevant state body would accept a grant order (and not an agreement) signed by the donor only. It seems that an order would also need to be signed by the recipient of grants, which might result in delays in implementing the grant. Gunduz Karimov (Partner, Baku) Tel: +994 12 497 18 01 gunduz.karimov @bakermckenzie.com AzerBaijan | 5 EMEA Legal Insights Bulletin August 2015 New rules for related party transactions Altay Mustafayev and Simuzar Feyzullayeva outline the new rules for related party transactions. Significant amendments regulating transactions between legal entities and parties related to them have been introduced into the Civil Code of the Republic of Azerbaijan and take effect from 2 June 2015. The changes affect the list of parties considered to be related parties and the transaction value thresholds for various approval mechanisms. 2. Heads of structural units (e.g., branch, representative office, department, etc.) of a legal entity 3. Relatives (spouses, parents, including spouse’s parents, grandparents, children, adopted children, siblings) of persons listed under 1 and 2 above 4. Any person directly or indirectly holding at least 10 per cent of the shares or a 10 per cent participatory interest in the charter capital of the legal entity 5. Legal entities in which the persons listed under 1, 2 and 4 above directly or indirectly participate 6. A legal entity holding at least 20 per cent of the shares in the charter capital of the legal entity 7. Persons holding at least 20 per cent of the shares or a 20 per cent participatory interest in the charter capital of the legal entities listed under 4 and 6 above 8. The heads of the boards of directors (supervisory boards) and executive bodies of the legal entities listed under 4 and 6 above The rules applicable to related party transactions vary depending primarily on the value of a particular transaction. If the value of the transaction to be entered into with a related party is equal to or more than 5 per cent of the total value of the legal entity’s assets, the transaction requires the opinion of an independent auditor engaged by the legal entity and a decision adopted at the general meeting of the legal entity’s shareholders or participants by a simple majority of votes. The related persons cannot participate in the voting. If the value of the transaction is less than 5 per cent of the total value of the legal entity’s assets, the transaction can be concluded by the general meeting of the legal entity’s shareholders/participants, board of directors (supervisory board) or the executive body of the legal entity in accordance with the charter of the legal entity. Related persons cannot participate in the voting. If the head of the sole executive body of the legal entity, or persons related to it and listed under 3 and 5 above, are acting as related persons, the relevant decision must be adopted by the board of directors (supervisory board) or, in its absence, by the general meeting of shareholders/ participants. “ …new rules define who classes as a related party to a transaction, and the obligations they face during enterprise transactions… ” Pursuant to the amendments, any transaction or agreement entered into between a legal entity and related party is a related party transaction. The list of persons considered as “related parties” is as follows: 1. Heads and members of the board of directors (supervisory board) and executive body of the legal entity EMEA Legal Insights Bulletin August 2015 6 | AzerBaijan competent body of the legal entity in writing about the conclusion of a related party transaction by themselves and the persons listed under 3 and 5 above, and provide details on their interest in the relevant transaction. The amendments were introduced by the law On Amendments to the Civil Code of the Republic of Azerbaijan, dated 2 June 2015, which amended the Civil Code of the Republic of Azerbaijan of 1 September 2000. Transactions which violate the new threshold requirements will trigger liability for the persons causing damage to the legal entity. Additionally, such a transaction may be challenged by the legal entity or any of its participants if a counterparty was aware of the violation at the time. The heads and members of the board of directors (supervisory board) and the executive body of the legal entity and any other parties must inform the Altay Mustafayev (Partner, Baku) Tel: +994 12 497 1801 altay.mustafayev @bakermckenzie.com Simuzar Feyzullayeva (Senior Associate, Baku) Tel: +994 12 497 1801 simuzar.feyzullayeva @bakermckenzie.com AzerBaijan | 7 EMEA Legal Insights Bulletin August 2015 New system of price regulation for medicines Gunduz Karimov explains how medicine pricing will now face Tariff Council scrutiny. In order to guard against inflated medicine pricing a new system of price regulation for state registered pharmaceuticals came into force on 3 June 2015. The new rules govern the determination of wholesale and retail prices for state registered medicines and apply to three categories of medicine distributors: wholesale pharmaceutical companies, pharmacies, and medicine manufacturers. Prices are set by the Tariffs Council of the Republic of Azerbaijan and the pricing rules set out the application procedure for obtaining regulated prices from the Tariffs Council. In addition the rules specify that the retail prices should be printed on the packaging of pharmaceuticals or otherwise incorporated as approved by the Ministry of the Economy and Industry - the state authority supervising regulated prices for state registered pharmaceuticals. In another change, the Tariffs Council has also been made responsible for the setting the prices for examination (for registration purposes) of pharmaceuticals and state registered medicines starting from 24 April 2015. The Azerbaijani government explains the new system as an attempt to stop local distributors from charging unreasonably high retail prices for imported medicines compared to the prices of those drugs in their countries of origin. The Pricing Rules were introduced on 3 June 2015 when the Azerbaijani Cabinet of Ministers passed Decision No 209 approving the “Rules on Regulation of Prices of State Registered Pharmaceuticals and Price Supervision” while the procedure governing the price for examination of medicines was introduced on 14 April 2015 when the Cabinet of Ministers passed Resolution No. 107 amending the “List of Goods (Works, Services) the Prices (Tariffs) of which are Regulated by the State”, approved by Resolution No. 178 of the Cabinet of Ministers on 28 September 2005. Gunduz Karimov (Partner, Baku) Tel: +994 12 497 1801 gunduz.karimov @bakermckenzie.com “ …to keep a lid on the price of medicines the Tariffs Council will oversee pricing and some aspects of medicines packaging… ” 8 | belgium EMEA Legal Insights Bulletin August 2015 Belgium Tax transparency regime for trusts and tax haven companies Alain Huyghe and Matthias Doornaert report on the omnibus bill featuring the so-called “Cayman Tax” which has recently been published by Parliament. “ …under the Cayman Tax, income received by a legal arrangement will generally be taxed either in the hands of its Belgian resident founders (in the absence of any distribution) or, upon distribution, in the hands of Belgian resident beneficiaries… ” In 2013, the previous Belgian Government introduced a new reporting obligation for individual founders and beneficiaries of so-called “legal arrangements” (i.e., trusts, foundations and certain tax haven companies). At the same time, the previous Government also internally discussed a draft bill seeking to further discourage the use of such legal arrangements for tax purposes by introducing a regime of tax transparency. This bill was eventually not submitted to Parliament. On 9 October 2014, the new Belgian Federal Government announced, in its coalition agreement for the coming term, its intention to introduce a regime of tax transparency for the income of trusts and other foreign legal arrangements (the so-called “Cayman Tax”). The draft omnibus bill containing the Cayman Tax was approved by Parliament on 24 July 2015 and the final omnibus bill of 10 August 2015 was published in the Belgian Official Gazette on 18 August 2015. The Cayman Tax is similar to the tax transparency regime provided for in the previous draft bill. Under the Cayman Tax, income received by a legal arrangement will generally be taxed either in the hands of its individual Belgian resident founders (in the absence of any distribution) or, upon distribution, in the hands of Belgian resident beneficiaries. Moreover, distributions made upon liquidation of certain legal arrangements (legal entities) will also be treated as a taxable dividend. The Cayman Tax, and consequently the aforementioned reporting obligation, will also apply to Belgian not-for-profit entities acting as founder or beneficiary of legal arrangements. The Cayman Tax would not apply to Belgian resident companies acting as such. The omnibus bill provides that the Cayman Tax belgium | 9 EMEA Legal Insights Bulletin August 2015 will apply to income received, attributed or made payable by legal arrangements as of 1 January 2015, with a retroactive effect. Targeted “legal arrangements” and taxpayers The omnibus bill provides for two types of legal arrangements: trusts, and foreign legal entities (i.e., foundations and companies), which are either not subject to an income tax or are subject to an income tax that represents less than 15 per cent of their taxable income as determined under Belgian tax law. Foreign legal entities established in the European Economic Area (EEA) will not be regarded as “legal arrangements,” unless they are included in a list of legal arrangements, which is yet to be published. A second (non-exhaustive) list, also yet to be published, would contain entities established outside the EEA that are deemed to be legal arrangements (unless it can be proven that they are subject to an effective income tax rate of 15 per cent, as indicated above). It is likely that many of the foreign entities that were included in the current black list for reporting purposes will be included again in the new lists. Public and institutional undertakings for collective investment and pension funds as well as listed companies will not be viewed as legal arrangements under certain conditions. Moreover, a foreign trust or legal entity will not be considered a legal arrangement if it can be proven that it carries out genuine economic activities in connection with the exercise of a business activity at the place where it is established or where it has a permanent establishment, and there is a proportionate correlation between the activities carried on by it and the extent to which it physically exists in terms of premises, staff and equipment. This counterproof will only be possible for legal arrangements that are established in the EEA or in a country that, pursuant to a tax treaty, agreement or other bilateral or multilateral legal instrument, can exchange with Belgium information relating to tax matters. The explanatory statement on the omnibus bill notes that this exception will not apply to activities that fit in the management of a private estate. The Cayman Tax will apply to Belgian resident “founders” and “third party beneficiaries”. A “founder” is defined as any of the following: • any individual or Belgian notfor-profit entity who has set up the legal arrangement or has settled assets and rights therein; and • upon decease of the aforementioned individual founders, their direct or indirect heirs or the individuals who will directly or indirectly inherit from the latter, unless they or their heirs can demonstrate that they will never obtain any benefit from the legal arrangement. A third-party beneficiary is any Belgian resident individual or notfor-profit entity that receives, at any time or in any way, a financial benefit or a benefit in kind from a legal arrangement. An individual can qualify both as a founder and as a third-party beneficiary. New tax regime The omnibus bill provides for a tax fiction pursuant to which Belgian resident founders of legal arrangements will be deemed, for Belgian tax purposes, the beneficiaries of the income received by such legal arrangements and therefore will become taxable thereon. Founders will not be taxable based on the income of their legal arrangements if they can prove that such income has been paid to a third party beneficiary that is resident in a country “ …the Cayman Tax will apply to Belgian resident “founders” and “third party beneficiaries” (i.e., individuals and not-forprofit entities)… ” 10 | belgium EMEA Legal Insights Bulletin August 2015 that, pursuant to a tax treaty, agreement or other bilateral or multilateral legal instrument, can exchange information relating to tax matters with Belgium. When income received by a legal arrangement is distributed in the same year to a third-party beneficiary who is resident in Belgium, the latter will also be deemed the beneficiary of such income for Belgian tax purposes and will become taxable thereon if the beneficiary is a Belgian tax resident, according to the same tax fiction. This tax fiction will not apply if the income that is distributed to a founder or to a third-party beneficiary has already been subject to its Belgian tax regime in the hands of the founder or the third-party beneficiary. Individuals (other than the initial founder) who can demonstrate that they will never obtain any benefit from the legal arrangement will not be deemed as founders. According to the explanatory statement on the omnibus bill, individuals can prove this by: renouncing any benefit from a legal arrangement to which they may be entitled; and providing a letter from the relevant body of the legal arrangement that confirms that the individual can never obtain any benefit from such legal arrangement. Distributions made by a foreign legal entity that qualifies as a legal arrangement as a result of its liquidation or the total or partial transfer of its assets for which no equivalent consideration is received will be considered a taxable dividend for the part that exceeds the amount of contributed assets that have been subject to their tax regime in Belgium. The exact meaning of “having been subject to their tax regime Belgium” is not yet entirely clear. In any event, this seems to mean that distributions from income received by the legal entity during previous years (prior to the entry into force of the Cayman Tax) would be subject to tax upon liquidation. According to the explanatory statement on the omnibus bill, the abovementioned taxation would also apply in the case of a transfer of seat of a legal entity. However, there seems to be no legal basis for such taxation in the law, as the relevant holder does not receive any payment and he or she continues to hold the rights in the entity whose legal seat has been transferred. Surprisingly, distributions made by a trust upon its liquidation would not be taxable according to the omnibus bill and the examples provided in the explanatory statement thereto. In other words, trusts would be able to distribute their income accumulated prior to the entry into force of the Cayman Tax without taxation. Accordingly, the main difference between a trust and a foreign legal entity that qualifies as a legal arrangement is that upon liquidation of the latter, the distribution of income accumulated in the years prior to the entry into force of the Cayman Tax is taxable, whereas upon liquidation of a trust, the distribution of such income seems not to be taxable. The omnibus bill provides for a specific anti-abuse provision pursuant to which tax authorities would be entitled to disregard legal acts of foreign legal entities qualifying as legal arrangements, which are aimed at circumventing the Cayman Tax. Moreover, it is provided that any change to the deed of incorporation of a foreign legal entity (legal arrangement) in order to convert it into a trust to escape the taxation upon liquidation of the latter is not binding upon the tax authorities. In the absence of any possibility for taxpayers to provide counterproof that the transaction is driven by a valid economic or other motive (other than avoiding the application of the Cayman Tax), the legal validity of this specific anti-abuse provision seems disputable. “ …trusts may be able to distribute their income accumulated prior to the entry into force of the Cayman Tax without taxation… ” belgium | 11 EMEA Legal Insights Bulletin August 2015 The omnibus bill also provides that any changes to the deed of incorporation of a trust in order to convert it into a legal entity (legal arrangement) as of 9 October 2014 is not binding upon the tax authorities. Learnings and recommended actions As of 1 January 2015, Belgian residents that can be considered founders of foreign trusts, foundations and tax haven companies will become subject to a tax transparency regime. This means, as of 1 January 2015, they will be considered the direct beneficiaries of income received by such legal arrangements for Belgian tax purposes and thus will become taxable thereon, even if such income is not distributed by the legal arrangement to the beneficiary. Many legal arrangements, such as trusts and foundations, hold their investments through underlying companies. If these underlying companies could also be considered as legal arrangements, the Belgian resident founders could be considered the owners of the investments held by the underlying companies and thus could be taxed on the income received thereon, irrespective of whether they would receive such income from the legal arrangement or not. Different scenarios could be considered to alleviate the tax burden that Belgian resident founders may encounter as a result of the proposed tax transparency rules. For instance, one could consider having legal arrangements holding types of investments whose income is typically exempt from Belgian income tax under certain conditions (e.g., capital gains realised on shares or on certain accumulation UCITS investing not more than 25 per cent in debt instruments) instead of investments whose income is taxable according to Belgian law. In such case, the tax transparency regime would not have adverse tax consequences for Belgian resident founders. Moreover, liquidation of trusts with Belgian resident founders or beneficiaries may also be considered, as their accumulated income seems not to be taxable in Belgium upon distribution to such Belgian residents under the omnibus bill and its explanatory statement. More generally, taxpayers should evaluate the use of foreign structures qualifying as legal arrangements in light of this change in tax treatment. Alain Huyghe (Partner, Brussels) Tel: +322 639 3655 alain.huyghe @bakermckenzie.com Matthias Doornaert (Associate, Brussels) Tel: +322 639 3750 matthias.doornaert @bakermckenzie.com “ …as of 1 January 2015, Belgian residents that can be considered founders of foreign trusts, foundations and tax haven companies will become subject to a tax transparency regime… ” 12 | hungary EMEA Legal Insights Bulletin August 2015 Hungary Legislation tightens rules surrounding advertising Hungary introduces more stringent regulation of the advertising market, including agency bonus prohibitions. János Puskás reports. “ …full transparency must be provided to the advertising customer concerning both the financial terms of the advertising and the publishing data… ” New Hungarian Advertising Act rules came into effect in July 2015, impacting advertising intermediaries, sellers of advertising and advertising services providers. Under the Advertising Act, advertising intermediaries are companies which facilitate advertising between advertising customers and advertisement publishers. Advertising intermediary services are usually provided by advertising and media agencies. Sellers of advertising are companies which sell advertising slots on behalf of advertisement publishers. The Advertising Act establishes a fixed fee which may be charged for advertising intermediary services. This is 15 per cent of the publication fee per advertisement. Advertising intermediaries are prohibited from accepting any direct or indirect bonus, rebate, gift or other gain from the publisher or any other person. Advertising intermediaries may agree to a discount; however, it must be passed on to the advertising customer and indicated as such on the invoice issued to the customer. This same restriction applies also to advertisement service providers, who usually create and design advertisements and campaigns. However, they are not permitted to agree to a discount. An advertising intermediary, acting on behalf of its advertising customer, may agree directly with the publisher about the fee to be charged. However, full transparency must be provided to the advertising customer concerning both the financial terms of the advertising and the publishing data. The Advertising Act amendments also aim to provide further transparency to advertising customers. The new rules require advertising intermediaries and hungary | 13 EMEA Legal Insights Bulletin August 2015 advertising service providers to disclose to their customers if the intermediary or service provider, or a company in which they have a qualified majority ownership, owns either a company having facilities suitable for the publication of advertising or an for publishing advertising or a company which sells advertising. If an advertising intermediary owns a seller of advertising which is involved in a contract, then the Advertising Act prohibits the advertising intermediary from being a party to the advertising agreement. That same prohibition applies if the seller of advertising has direct or indirect ownership in the advertising intermediary. The Consumer Protection Authority may impose a fine if the Advertising Act’s rules are not followed. The fixed amount of the fine is 10 times the financial benefit gained from the violation. Currently existing agreements must be amended to comply with the Advertising Act until 30 September 2015. Agreements concluded after July 2015 must comply with the Advertising Act’s new provisions. János Puskás (Associate, Budapest) Tel: + 36 1 302 3330 janos.puskas @bakermckenzie.com 14 | hungary EMEA Legal Insights Bulletin August 2015 Law’s good intentions may still leave victims out of pocket Dusán Lásztity and Annamária Tóth wonder if the Asset Seizure Act will leave victims behind. To compensate the victims of brokerage scandals this spring, the Hungarian Parliament has passed the Asset Seizure Act. The new Act allows a wider range for the seizure of crime related property, thereby suggesting that the victims can enforce their civil claims more effectively. Whether the recently passed law actually protects the injured parties’ claim, is questionable. property crime, bankruptcy and drawing off funds as defined by the Hungarian Criminal Code. The law establishes the possibility of seizing the assets of persons possessing qualifying holdings or controlling influence, and also those of the chief executive, employee, the manager, a supervisory board member or even the auditor of the organisation as defined by the Criminal Code. Although it may appear that victims can now more efficiently enforce their claims, the reality shows a different picture. According to the Hungarian Criminal Code, a civil claim can be enforced only against the organisation suspected in the criminal procedure, i.e., the accused, the cover of which is the asset seized from the accused. As a consequence, of all the seized properties, only the asset seized from the accused ensures the recovery of the civil claims. Assets seized from anywhere other than the accused – unless provided for by law to the contrary – will become properties of the State. As stated in the Criminal Code a property obtained by the offender in the course of, or in connection with, a criminal act and also property acquired in the course of, or in connection with, a criminal act if it served the enrichment of another person can be confiscated. Furthermore, the Asset Seizure Act fails to answer the question how crime related assets played into the hands of offshore companies either by the organisation or a person participating in any of the activities of the organisation can be used to compensate for damages. After contracting a third party, assets are no longer at the offshore company’s disposal, which makes the chances of their recovery slim to none. The burden of proving that the aim of the “ …a civil claim can be enforced only against the organisation suspected in the criminal procedure… ” “ …assets seized from anywhere other than the accused will become the properties of the State, while assets disposed of by offshore companies are impossible to recover… ” Act XXXI of 2015 – the Asset Seizure Act – sets new rules as compared to the provisions of Act XIX of 1998 on the Criminal Procedure. The aim of the amendment is to ensure that the assets of organisations carrying on certain specified activities and persons in connection with them can be seized in a wider range. Based on this, asset-seizure can affect organisations committing hungary | 15 EMEA Legal Insights Bulletin August 2015 contract is to draw off funds lies with the damaged party, however regardless of each party being Hungarian, due to the formalities of the Civil Code in such cases, the applicable law is that of the offshore companies. It may be that the Hungarian parties have to litigate under the jurisdiction of the British Virgin Islands, where if the drawing off of funds cannot be proved, the fund to meet the claims of the damaged parties further decreases with this amount. Although the Asset Seizure Law allows a wider range for the seizure of crime related property, only a smaller part of the seized property can cover the claims of the damaged parties. Properties seized from anywhere other than the accused will become the properties of the State, while at the same time properties disposed of by offshore companies are impossible to recover. It appears that the Asset Seizure Law needs to be amended to ensure that the seized property is rendered to the damaged party. Dusán Lásztity (Partner, Budapest) Tel: +36 1 302 3330 dusan.lasztity @bakermckenzie.com Annamária Tóth (Associate, Budapest) Tel: +36 1 302 3330 annamaria.toth @bakermckenzie.com 16 | hungary EMEA Legal Insights Bulletin August 2015 New rules smooth data transfer and record data breaches Ádám Liber reports on Information Act amendments which enable the use of Binding Corporate Rules, and require a data breach registry to be established. The Hungarian Parliament adopted by 6 July 2015 an amendment (Act No CXXIX of 2015) of the Act No CXII of 2011 on Informational Self-Determination and Freedom of Information (the Information Act) that will provide for an authorisation procedure of the Hungary Data Protection Authority (DPA) regarding the implementation of Binding Corporate Rules (BCR) as an adequacy instrument for data transfers in the future. BCRs are designed to allow multinational companies to transfer personal data from the European Economic Area (EEA) to their affiliates located outside of the EEA. Notably, BCRs were earlier completely omitted from the list of recognised “adequacy” instruments under Hungarian data protection laws. Considering that the new legislation does not contain any transitory provisions regarding BCRs already approved by other DPAs, it is currently unclear - and further guidance from the Hungary DPA will be needed - how such existing BCRs will be treated by the DPA. Accordingly, companies whose EU BCR cooperation procedure is already closed – depending on the DPA’s future guidance – might be required to make a formal filing before the Hungary DPA in order to authorise the use of BCRs within the Hungarian jurisdiction. Notably, ad hoc contractual clauses will continue to be excluded from the list of recognised adequacy instruments under Hungarian data protection laws. The amendment also contains provisions regarding the treatment of data breaches by data controllers under Hungarian data protection laws. Data breach notification will continue to apply only with regard to telecom providers. However, the amendment will impose an obligation on data controllers to keep a register of data breaches, including any measures introduced by the controller to remedy such breaches. This new provision only applies to controllers. But existing data processing agreements will need to be amended because data processors also will be required to register data breaches on behalf of the controller. Thus, the processing agreement should contain detailed provisions regulating how the processor should comply with such obligations relating to the recording of data breaches. Finally, the Bill will introduce higher fines, as the Hungary DPA will be able to impose a data protection fine up to HUF20 million (approximately USD70,000) – twice the current maximum fine amount of HUF10 million. The above indicated amendments introduced into the Information Act will enter into force by 1 October 2015. Ádám Liber (Senior Associate, Budapest) Tel: +36 1 302 3330 adam.liber @bakermckenzie.com “ …the amendment will impose an obligation on data controllers to keep a register of data breaches, including any measures introduced by the controller to remedy such breaches… ” hungary | 17 EMEA Legal Insights Bulletin August 2015 Guidance balances enterprise and individual rights Ádám Liber explains the impact of the Data Protection Authority’s guidance on M&A transactions involving online commerce assets. The Hungarian Data Protection Authority (DPA) recently released guidance on issues arising in the context of the sale of the assets of an online shop. This is the first guidance from the DPA on the practical application of the “legitimate interest” test under Hungarian data protection laws and is relevant to M&A transactions involving online shops. the purchase or transfer of shares. The transfer of client databases (including personal data) is ancillary that asset sale transaction. The DPA has taken the position that the transfer of the client database in such a transaction constitutes a personal data transfer under the provisions of the Information Act (the Hungarian implementation of Directive 95/46/EC) which must be legitimised by an appropriate legal basis for the data processing. However, the DPA underlined that the parties to the transaction do not necessarily need to rely upon the freely given, express advance consent of the data subject provided that such transfer may be justified by other legal reasons - such as by the legitimate interest clause contained in the Hungarian Information Act or in Article 7(f) of the EU Directive (which is directly effective in Hungary). The DPA described the “legitimate interest” (or balance of interests) test as having three prongs. First the identification of the legitimate interest of the controller; second, the identification of the legitimate interest or fundamental right of the data subject; and third, the requirement that those two weights be balanced against each other in order to determine if the “legitimate interest” may be relied on as the legal basis for data processing in the given situation. In that context, the DPA suggested considering the following key factors when applying the test: • The seller must provide clear and comprehensive information to the data subjects (i.e., the online shop’s customers) on the outcome of the test performed by the seller, explaining why it considers that its interests outweigh the restriction on the interests and rights of the data subjects. The seller’s notice to the data subjects must include the details of the transfer, such as its date, the identity of the recipient of data, and the main details of the asset sale transaction; “ …M&As involving online commerce enterprises may transfer data about clients inherited as part of the merger – but must not change the way their data is handled… ” “ …consumers who don’t wish to have their data transferred to a new owner must be given the chance to opt out… ” The sale of the assets of an online shop involves situations where domains, goods, trademarks and client databases as a whole are sold by one online shop operator to another, without 18 | hungary EMEA Legal Insights Bulletin August 2015 • Before the data is transferred to the new online shop operator, the seller (i.e., the data controller) must provide to the data subjects the option to object to the transfer of their personal data to the buyer; and • The buyer must remain bound by the conditions under which the seller processed the personal data of the data subjects. The data processing conditions may not change as a result of the data transfer to the new data controller. However, this does not impact the right of the new controller to engage a new data processor (which, in any case, does not require the data subject’s consent). The DPA also noted that certain processing activities (such as the retention of invoices) are based on the provisions of the accounting laws. If the seller and the buyer have agreed that the seller will retain the accounting documents, the said data transfer is considered to be based on a legal provision (under Section 5(1)b) of the Information Act). However, the DPA underlined that the notice to the data subjects also must include information about transfers of personal data the processing of which is based on a legal provision. Ádám Liber (Associate, Budapest) Tel: +36 1 302 3330 adam.liber @bakermckenzie.com the netherlands | 19 EMEA Legal Insights Bulletin August 2015 The Netherlands Initiatives advance unbundling, offshore wind and energy efficiency Baker & McKenzie lawyers report on a series of initiatives and decisions impacting the energy sector. “ …the Dutch Government intends to support several projects on the use of residual heat from numerous large industrial installations close to residential areas… ” The Dutch Government and Courts have been particularly active in the energy and renewables arena of late, which has significant implications for enterprises operating in this sector. Wind As planned, the Offshore Wind Energy Act entered into force on 1 July. The Act creates the legislative framework to designate locations for offshore wind farms and grant licences to construct and operate them. Now that the Act is in force, the Minister also completed another step needed for his tender of the first two plots in the Borssele wind farm zones in December 2015. It is currently foreseen that applications can be filed from December through March. The Minister also commented on research done by CE Delft last year, regarding the huge potential of energy savings in residential and commercial real estate. The Dutch Government is currently developing an agenda to unlock this potential. To do that, it intends to support several projects on the use of residual heat from numerous large industrial installations close to residential areas. In addition to these relatively short-term ambitions, the Ministry of Housing and Civil Services is developing a longterm plan to meet the goals of the 2013 Energy Accord related to the creation of an energy neutral built environment by 2050. This will be presented to Parliament early 2016. Unbundling The Dutch Supreme Court has decided that the Unbundling Act (Wet onafhankelijk netbeheer) does not breach European fundamental freedoms. The Court thus overturned an earlier decision by the Court of Appeals in the cases filed by Dutch energy companies 20 | the netherlands EMEA Legal Insights Bulletin August 2015 Essent, Eneco and Delta. When the Dutch Unbundling Act came into force in 2008, Nuon and Essent unbundled their network operators according to the requirements of the Act. Delta and Eneco resisted doing so claiming infringement of European fundamental freedoms. The cases of Eneco and Delta are now referred back to the Court of Appeals to decide on their appeal in as far as it is based on article 1 of the first protocol of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR). The Supreme Court dismissed the claim by Essent which did not include an appeal on the ECHR. Since that ruling the Dutch Minister of Economic Affairs has expressed his views on the matter in a letter to Parliament. In his letter, the Minister indicates that he does not intend to wait for a decision by the Court of the Hague on the remaining issue under article 1 of the ECHR and suggests that parties to the litigation should consult with the Dutch Regulatory Authority, the ACM. Sustainability Two days earlier, the District Court of The Hague held that the Netherlands fall short of their obligations to increase sustainability. The Court ordered the Dutch government to cut greenhouse emissions by 25 per cent by 2020 from benchmark 1990 levels, as opposed to its current goal of 14 – 17 per cent. The case was filed by interest group Urgenda on behalf of 886 plaintiffs. In its ruling, the Court attached great value to the State’s duty to care for the protection of the environment and its responsibility to avert the dangers of climate change. Offshore wind In a separate initiative the Dutch Minister of Economic Affairs published two important decrees related to the generation of renewable power at sea. Several conditions of the offshore subsidy tenders that will be held towards the end of this year are clarified in these decrees. The nameplate capacity of the wind farms will be at least 351 MW per plot, reduced by the number of MW of the wind turbine with the lowest capacity in the wind farm. The nameplate capacity shall not exceed 380 MW. The tender will close on 31 March 2016, 17:00 hours. However, in case the decree enters into force after 3 March 2016, the tender will close on the fifth Thursday after the date on which it enters into force, at 17:00 hours. The equity of the party requesting the subsidy, as appearing from its annual accounts published no more than three calendar years previously, shall be no less than 10 per cent of the total investment costs of the wind farm. In the event the equity of the party requesting the subsidy is less than 20 per cent of the investment in the wind farm, the request will have to be accompanied by a letter of intent by a financial institution financing the difference between 20 per cent and the equity. The maximum subsidy amount is EUR2,500 million per plot. The tender amount shall not exceed EUR0.124 per kWh. The subsidy will be granted under the conditions precedent that a realisation agreement will be entered into within two weeks and that a bank guarantee will be provided. Attached to the decree are a draft realisation agreement and the precedent bank guarantee. The realisation agreement states that a bank guarantee of EUR10 million will have to be provided to the Dutch state by a bank holding residence in the European Union, within four weeks. It also states that a second bank guarantee in an amount of EUR35 million will have “ …the Dutch Supreme Court has decided that the Unbundling Act (Wet onafhankelijk netbeheer) does not breach European fundamental freedoms… ” the netherlands | 21 EMEA Legal Insights Bulletin August 2015 to be provided within 12 months. Commissioning the wind farm late will lead to the forfeiture of a penalty of EUR3.5 million per month. Being late in the provision of the second bank guarantee will lead to a penalty of EUR10 million. Once a subsidy has been granted, it may be withdrawn at the request of the party receiving the subsidy, but such a withdrawal will also lead to a forfeiture of a penalty of EUR10 million The precedent bank guarantee is an abstract first demand guarantee. The subsidy will be granted for a 15-year period. The wind farm must be commissioned by the later of five years as from the date the subsidy is granted, or five years as of the date on which the plot decision has become irrevocable. The base electricity price shall be equal to EUR0.029 per kWh, the maximum number of full load hours shall be equal to the net P50 value of the full load hours stated in the subsidiary request. To determine the corrections for the advances for 2016, the average electricity price will be used in the period as from 1 May 2014 up to and including 30 April 2015. The corrections on the tender amount for the advance payment for 2016 will be EUR0.037681 per kWh for the electricity price; and EUR0.00 for the value of the guarantees of origin. Weero Koster (Partner, Amsterdam) Tel: +31 20 551 7547 weero.koster @bakermckenzie.com Sophie Dingenen (Counsel, Amsterdam) Tel: +31 20 551 7833 sophie.dingenen @bakermckenzie.com Margot Besseling (Junior Associate, Amsterdam) Tel: +31 20 551 7186 margot.besseling @bakermckenzie.com Adinda Karperien (Junior Associate, Amsterdam) Tel: + 31 20 551 7403 adinda.karperien @bakermckenzie.com Wei Chen (Foreign Consultant, Amsterdam) Tel: +31 20 551 7850 wei.chen @bakermckenzie.com “ …the Dutch Minister of Economic Affairs has provided important guidance related to the generation of renewable power at sea… ” 22 | spain EMEA Legal Insights Bulletin August 2015 Spain Directors’ and Compliance Officer’s Criminal Liability under the latest reform of the Spanish Criminal Code* Companies’ directors are now obligated to adopt organisation and management models to prevent criminal offences from being committed by their employees, executives, directors and other representatives. Victor Mercedes writes about the latest amendment of the Spanish Penal Code, which entered into force on 1 July 2015. “ …Part of the problems faced by corporate law at present, when regulating directors’ liability, are shared by white-collar law.… ” The recent reform of the Criminal Code (“Reform”) specifically provides for corporate criminal liability, as contained in Article 31 bis of the Criminal Code (“CC”). It expressly establishes that corporations will be exonerated if they have implemented compliance programmes, which must meet certain requirements and include specific contents. The role of ‘compliance officer’ has been introduced by the Reform. If the Reform is interpreted jointly with Law 31/2014, of 3 December, on the change of Corporate Enterprises for the improvement of corporate governance, which imposes on directors a specific duty of corporate risk control, directors may be held liable, as guarantors, for the offences committed by the employees, on the basis of commission by omission. The compliance officer does not assume that position as a guarantor, and will only be liable when a specific contractual duty has been delegated to the officer to prevent offences beyond his/ her role as a supervisor of the operation of, and compliance with, the prevention model. In recent years criminal law in Spain has been increasingly influenced by globalisation, by particular corporate scandals and by the regulatory tendencies of corporate legislation. Part of the problems faced by corporate law at present, when regulating directors’ liability, are shared by white-collar law. This is the case, in particular, for situations such as dissemination and fragmentation of information in companies, risk transfer in organisations and delegation of spain | 23 EMEA Legal Insights Bulletin August 2015 duties, which may result in the socalled organised irresponsibility of corporations. Worldwide there is a growing relevance of the regulation of corporate governance in enterprises, as well as a greater awareness of the usefulness and dissemination of good practices in corporate governance by means of self-regulation. Law 31/2014, of 3 December, for the improvement of corporate governance, mentions the failures in corporate governance as one of the reasons for the economic and financial crisis, since ‘both financial and non-financial entities have been affected by reckless risk-taking.’ The same Law exemplifies the transit from a prevailing soft law in corporate governance to an increase in the implementation of hard law measures. The referred corporate reform seems relevant, as it has an impact on specific components of the practical application of some types of white-collar criminal offences in corporations. Regarding the liable subjects, corporate legislation holds de facto directors liable. The concept of ‘de facto directors’ is now defined in corporate law for the first time, and meets the requirements of settled case law in corporate, insolvency and criminal law (as shadow directors and de facto directors). Reference is also made to general managers when there is no managing director in a company, and to the natural persons appointed by legal entities to perform the duties of directors on a permanent basis in governing bodies, which has a special impact on the private equity sector. Article 15 of the former Criminal Code referred to executives, bodies or representatives as potentially criminally liable by means of “acting on behalf of another person” provisions. Article 31 of the current CC includes the concept of “de facto directors” and “de iure directors”, to be integrated into the provisions of corporate law in line with settled case law, which has been holding both de facto and de iure directors concurrently liable (Supreme Court Judgment of 25 June, 2010). Similarly, the reform of the legislation on corporate enterprises introduces a crucial new duty of directors: the duty of corporate control. As a result, directors must have a suitable engagement with the good management and control of the company, and ensure that they adopt the necessary measures to that effect. This specific legal duty confers on directors the status of guarantors in the terms of Article 11 of the CC. It is projected on specific aspects of corporate law: (i) only if an appropriate decision-making procedure has been observed, as an indication of due control, may the exoneration of corporate liability be invoked, by applying the rule of protection of discretion in making corporate decisions; (ii) the Board of Directors is given the non-delegable power to determine control and risk management policies and the monitoring of information and control systems; (iii) the audit commission is entrusted with monitoring the efficiency of the internal control of the company and the risk-management systems, and discussing any significant weaknesses of such internal control systems; and (iv) the corporate governance report must include the systems for risk control, including those related to tax. In view of the above, directors may be criminally liable, as perpetrators, perpetratorsby-means or participants, for ordinary or special offences in which they have taken part in various forms in the context of a corporation, or by attribution under Article 31 of the CC. “ …It is the responsibility of the governing body to adopt and efficiently implement... organisation and management models (compliance programmes)...to prevent offences from being committed… ” 24 | spain EMEA Legal Insights Bulletin August 2015 Directors may also be liable, on the basis of commission by omission, pursuant to Article 11 of the Criminal Code, if they fail to prevent offences from being committed by employees or officers within the company, when the requirements of omission to action are met, as it is now a specific legal duty of control of the company’s activities and its risks. This results in a position of guarantor in terms of preventing crimes from being committed within the company. The delegation of duties by directors to third parties, including the compliance officer, should not mean that directors become fully exonerated in favour of the delegated party, as case law has established. Likewise, exoneration does not cover those cases in which, instead of a delegation of duties being in compliance with corporate formalities, a person is merely entrusted with a certain task. In these cases the director continues to be a guarantor, as in the cases of defective delegation. The new wording of Article 31 bis of the Criminal Code after its reform by Public General Act of Parliament 1/2015 (LO 1/2015, of 30 March) clarifies that the model of corporate criminal liability is based on a defect in organisation, supersedes the structure of vicarious liability, and becomes a separate type of criminal offence specifically referred to corporations, as opposed to the mere model of perpetrator clause or of extension of liability. It is the responsibility of the governing body to adopt and efficiently implement, before any offences are committed, organisation and management models (compliance programmes) that include surveillance and control measures to prevent offences from being committed or significantly reduce the risk of them being committed. According to the above, directors assume a position of specific guarantors in terms of adopting compliance and crime prevention programmes in the context of such programmes, as pointed out in the specific criminal offence type of omission of compliance programmes, which was finally eliminated from the final version of the reform. The status of guarantor is also correlated with the specific corporate control of the company and its risks. However, the role of the compliance officer is more clearly delimited by the law. The compliance officer is responsible for the operation of, and compliance with, the prevention model, and has initiative and control powers, but not decisionmaking powers, which continue to be the remit of the governing body. This is a supporting officer or manager, with no executive powers, who participates in the design, implementation, verification and update of compliance programmes. This role is not in charge of adopting or amending compliance programmes or making any final decisions in respect of these programmes. There is no specific legal duty that causes the compliance officer to be an automatic guarantor, although this position may be contractually assumed, based on the delegation of duties by the governing body through a contract or by means of corporate resolutions to that effect. Therefore the compliance officer may be excluded from that liability as a result of a specific limitation of duties, which the courts will take into account on a case-bycase basis. “ …This role (compliance officer) is not in charge of adopting or amending compliance programmes or making any final decisions in respect of these programmes… ” spain | 25 EMEA Legal Insights Bulletin August 2015 The delegation will not fully exempt the governing body from liability in this respect. An accumulation of positions of guarantee to that effect may occur, similarly to some German case law which has held subjects liable for assumption of a guarantor status by complicity by omission. It is crucial to provide an appropriate system of corporate documents in this regard with a view to defending directors, compliance officers and companies in a trial, in the event that an offence is committed by an employee or an executive. This is particularly important considering the courts’ tendency to expand the accused, depending on the outcomes of the investigation. This also suggests that it is advisable to avoid merely copying or using standard or certified ISO compliance programmes, which are not appropriately related to each company and the roles of its officers and administrators. *This article was also published in the 21 July 2015 issue of Actualidad Jurídica Aranzadi (AJA), nº 910. Víctor Mercedes (Partner, Barcelona) Tel: +34 93 206 0838 victor.mercedes @bakermckenzie.com 26 | Switzerland EMEA Legal Insights Bulletin August 2015 Switzerland Financial service providers face further scrutiny in the future Baker & McKenzie lawyers explain the implications of additional guidance on the new Federal Financial Services Act and Financial Institutions Act. “ …an FSP needs to ensure that its advisors have the necessary training and engage in continued professional development… ” After the conclusion of the consultation procedure regarding two important drafts of legislation which are expected to significantly affect the financial market infrastructure of Switzerland, i.e., the Federal Financial Services Act (FFSA) and the Federal Financial Institutions Act (FinIA), the Federal Council has provided additional guidance on where these two Acts are heading. The proposals will impact the responsibilities of financial intermediaries, the risks related to financial services litigation and the current Swiss regulatory regime as a whole. The additional guidance regarding three specific areas was given by the Federal Council on 24 June 2015. The draft FFSA provides that individuals working as advisors to clients of a financial service provider (FSP) have to be able to demonstrate proper education for their task on a continuing basis and to register as client advisor in a public registry. The Federal Council has now extended this requirement to be part of the responsibility of the FSP itself. An FSP needs to ensure that its advisors have the necessary training and engage in continued professional development. It will be up to the individual industry sectors to determine the training and the scope and frequency of continued professional development in the form of selfregulation. The FFSA aims at strengthening the position of private clients in legal proceedings against FSPs by various means: The current mediation procedure before the Ombudsman (for banks) shall be improved. The Federal Council has, however, discarded both previous suggestions of either a new arbitration body to deal with litigation in the financial sector or the introduction of a new fund to support the financing of proceedings against FSPs. Instead, the Federal Council proposes to exempt clients from the requirement of paying a deposit on court costs or providing similar securities. This removes one of the main obstacles to initiating legal proceedings against FSPs. Switzerland | 27 EMEA Legal Insights Bulletin August 2015 In addition, the risk of litigation cost is further reduced for clients by – provided certain conditions are met – having the FSP bear its own legal costs even if the FSP wins the dispute. Such conditions include that the relevant value in dispute does not exceed CHF250,000 and that the proceeding has previously been conducted before the Ombudsman. This strengthens the Ombudsman and fosters an efficient completion of proceedings. Finally, provided certain conditions are met, it shall be in the discretion of the court to allocate the court costs among the client and the FSP. To date, asset managers in Switzerland could provide their services to customers without needing to obtain a license from a supervisory body. The draft FinIA shall change this: In the future, asset managers of individuals (private clients) and of Swiss occupational benefit schemes will require a licence. While qualified asset managers (i.e., managers of collective investment schemes or of Swiss occupational benefit schemes) will be supervised by, and will therefore need a licence from, FINMA, the draft legislation provided for two alternatives regarding the licensing and supervision of asset managers of private clients. Now, the Federal Council proposes to create a new specific supervisory organisation (SSO). The SSO will be an independent body but licensed by and subject to the supervision of FINMA. The SSO shall exercise its prudential supervision in a risk-based manner. As a result, small asset managers with a lower risk profile and simple structures may be audited only every four years instead of every year. The SSO shall conduct its supervision independently and the possibility of establishing more than one supervisory organisation, if needed, remains reserved. The new guidance confirms that the new legislation will have a considerable impact on the market players. While asset managers will be newly regulated, FSPs generally will have to accept new burdens (and costs) to comply with additional duties and obligations. This will require a review of the existing business model by each market participant and may subsequently lead to changes, for example in the internal guidelines, such as in terms of training and continued professional development, and the relevant documentation. The Swiss government is expected to publish the actual draft laws to be debated in parliament by the end of 2015. While there is no published timeline for this new legislation to become effective, it can be expected that the new laws will enter into force in 2017 or 2018. An entry into force in 2017 would coincide with the entry into force of Europe’s new Markets in Financial Instruments Directive, MiFID II. Dr. Markus Affentranger (Partner, Zurich) Tel: +41 44 384 1286 markus.affentranger @bakermckenzie.com Dr. Marcel Giger (Partner, Zurich) Tel: +41 44 384 1316 marcel.giger @bakermckenzie.com Theodor Härtsch (Partner, Zurich) Tel: +41 44 384 1211 theodor.haertsch @bakermckenzie.com Dr. Anette Waygood (Senior Associate, Zurich) Tel: +41 44 384 1336 anette.waygood @bakermckenzie.com “ …the FFSA aims to strengthen the position of private clients in legal proceedings against FSPs… ” “ …small asset managers with a lower risk profile and simple structures may be audited only every four years instead of every year… ” 28 | Switzerland EMEA Legal Insights Bulletin August 2015 When staying single makes perfect financial sense Alexander Eichhorn outlines Switzerland’s regulation regarding single investor funds. In order to bring Swiss laws regarding single investor funds into line with EU legislation, a series of revisions has been introduced. The partially revised Swiss Federal Act of 23 June 2006 on Collective Investment Schemes (CISA) and the associated Swiss Federal Ordinance of 22 November 2006 on Collective Investment Schemes (CISO) took effect on 1 March 2013. The partial revision primarily aimed to make the CISA compatible with the regulation in the Directive 2011/61/EU of the European Parliament and the Council of 8 June 2011 on Alternative Investment Fund Managers, (AIFMD) and the Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertaking for collective investment in transferrable securities. The main changes have been made with regard to the regulation of the asset manager, custody and the distribution. Amendments also have been made in terms of the Swiss single fund. The Swiss single investor fund is an atypical legal structure in the framework of the Swiss collective investment schemes. In a strict sense, single investor funds are not collective investment schemes, since such funds have only one investor and therefore are not collective. Moreover, if the single investor manages the fund’s assets alone, which is possible, such a fund also lacks the requirement that the assets of the fund have to be externally managed. However, Swiss single investor funds are subject to the law on collective investment schemes in Switzerland and thus are treated as such. Although the revised CISO does not provide such a restriction anymore, single investor funds may only be set up in the legal structure of an open-end fund, either as a contractual fund or an investment company with variable capital (SICAV). Therefore, a Swiss single investor fund is to be seen as a modified version of a Swiss open-end fund for qualified investors. This is due to the fact that investment companies with fixed capital (SICAF) may not be set up exclusively for qualified investors, respectively investment limited companies for qualified investors that exclusively issue registered shares are not subject to the CISA. Limited partnerships for collective investments (KGK) must have a general partner and at least one limited partner. However, with regard to the latter, under certain conditions it is possible that the person functioning as a business manager of the general partner may act as limited partner. The minimum requirement of two investors is then fulfilled. Such a fund can be referred to as a “quasi-single investor fund“. Under the legal regime of the former Swiss Federal Act of 18 March 1994 on Investment Funds (IFA), the Swiss Financial Authority (at this time the Swiss Federal Banking Commission or EBK, and since 2007 the Swiss Financial Market Supervisory Authority or FINMA) considered single funds in principal as admissible, if the so called Destinatärstheorie (beneficiary theory) had been “ …a Swiss single investor fund is to be seen as a modified version of a Swiss open-end fund for qualified investors… ” Switzerland | 29 EMEA Legal Insights Bulletin August 2015 applicable. This theory states that – from an economic point of view – the final beneficiary is the investor and not the person who is legally to be seen as the investor or acting on behalf of clients. With the total revision of the IFA in 2006, single investor funds have found their way into the ordinance of the Swiss Federal Council. Previously single investor funds were admissible if the investor was an institution or an ancillary institution in the occupational pension sector, a regulated life insurance company or a taxexempt social insurance and compensation fund in Switzerland. The Swiss Federal Council thus implicitly codified the previous practice of the EBK under the scope of the IFA legislation. Scope extended While the preliminary draft of the CISA of the partial revision of 2012 did not contained amendments in terms of Swiss single investor funds, the later proposed draft of the Swiss Federal Council stipulated an extension of the scope of Swiss single funds to all institutional investors, assuming that the single investor represents a number of final beneficiaries. With this regulation, the legislator would have explicitly codified the Destinatärstheorie in the CISA. However, after consideration by the Swiss legislature the rules henceforth stipulate that the single investor has to be a regulated insurance institution, a public entity or a retirement benefits institution with professional treasury operations. Therefore, it is no longer a precondition that the single investor represents a number of final beneficiaries. In particular, this means that property insurance institutions may also issue a Swiss single investor fund, despite the fact that they only have potential rightful claimants and not final beneficiaries in the meaning of the Destinatärstheorie. Although the Swiss regulation on single investor funds has undergone a slight liberalisation compared to the previous legal situation, if we look further than the domestic legal framework, the Swiss regulation still remains restrictive, since the described Swiss rule under the revised law does not state – as is the case in some financial markets in the European Union – that single funds can be set up for any kind of institutional investors or even individual persons. Such a regulation would increase the competitiveness of the Swiss fund market place and moreover would serve the intended compatibility with the legal framework in the European Union in terms of funds. However, the Swiss regulation only seems restrictive at first sight. The CISA provides the possibility that the FINMA may fully or partially exempt collective investment schemes from certain provisions of the CISA, provided that they are exclusively open towards qualified investors and that the protective purpose is not impaired. The concept “protective purpose” refers in particular to the investor protection. While this generally leads to an enormous potential for innovation, if the aforementioned requirements are fulfilled, in terms of single funds, the FINMA could make an exemption and extend the possible circle of investors to all qualified investors and – at least in theory – even to high-net-worth individuals or investors with an asset management contract. This would be a huge improvement for institutional investors in Switzerland and moreover would provide family offices with an interesting investment vehicle from a taxation point of view. The question is whether this all applies to the legal structure of Swiss single investor fund and whether the requirements for such an exemption by the FINMA are fulfilled. As pointed out above, Swiss single investor funds are “ …for the Destinatärstheorie to apply, the single investor has to be a regulated insurance institution, a public entity or a retirement benefits institution with professional treasury operations… ” 30 | Switzerland EMEA Legal Insights Bulletin August 2015 to be seen as modified open-end funds for qualified investors. The investor would be protected by the very strict collective investment schemes regime and therefore be even better protected than with direct investments. However given CISA’s additional requirement for transparency and properly functioning markets, it seems rather unlikely that the FINMA would approve such a single investor fund, especially with an individual person as the sole investor, since one can argue that the Swiss legislature deliberately codified a clear rule in terms of the possible investor circle of Swiss single investor funds. However, if the above described Destinatärstheorie applies to the fund, it would not only be in line with the systematics of the law, but would also withstand a historical interpretation. Moreover, such a requirement would be – at least in terms of institutional investors as single investors – in accordance with the envisaged provision in the draft of the revised CISA of the Swiss Federal Council and would be compatible with the interpretation by the European Securities and Markets Authority of the concept of “a number of investors” in AIFMD. At time of writing no such fund exists in Switzerland. Whether such a single investor fund will eventually be approved by the FINMA remains to be seen. Alexander Eichhorn (Junior Associate, Zurich) Tel: +41 44 384 1295 alexander.eichhorn @bakermckenzie.com “ …the Swiss regulation only seems restrictive at first sight… ” Switzerland | 31 EMEA Legal Insights Bulletin August 2015 Disclosure regime boosts transparency, raises sanctions Equity holders of Swiss companies have new disclosure obligations and Swiss companies must keep a register of all equity holders as well as of their beneficial owners. Lukas Glanzmann and Philip Spoerlé report. A new transparency and disclosure regime provided for in the Swiss Act on the Implementation of the Recommendations of the Financial Action Task Force (FATF, also known as GAFI) came into force on 1 July 2015. These rules provide for new disclosure obligations of shareholders of a Swiss corporation (AG) as well as quota holders of a Swiss limited liability company (GmbH). In addition, such companies must keep a register of their beneficial owners and the holders of bearer shares. The new provisions apply to almost all Swiss companies. The pertinent measures have a fundamental impact on Swiss corporate law and significantly increase the administrative burdens in connection with the corporate housekeeping. Moreover, the sanctions for noncompliance are very harsh. Every person that acquires (registered or bearer) shares or participation certificates of an AG or quotas of a GmbH, and thereby reaches or exceeds 25 per cent of the nominal capital or the voting rights of such company, must notify the company and disclose the beneficial owner. The beneficial owner is the natural person for whom the acquirer is ultimately acting. If the acquirer is a legal entity, the beneficial owner is the natural person acting as ultimate shareholder. The acquirer must report the name and the address of the beneficial owner to the company within one month after the acquisition of the shares or quotas. Furthermore, any future change in the name and/ or the address of the beneficial owner must be disclosed. Persons, who hold bearer (but not registered) shares or participation certificates as of 1 July 2015 and thereby reach or exceed the relevant threshold, must disclose the beneficial owner within six months. Even more rigid than the disclosure obligation with regard to beneficial owners is the disclosure obligation in relation to the acquisition of bearer shares of an AG. An acquirer of any such bearer share must inform the AG of the acquisition as well as its (company) name and address within one month from the date of the acquisition. As part of such notification, the acquirer must prove the possession of the relevant bearer shares and identify itself by submitting certain identification documentation (official ID document with regard to natural persons or excerpt from the commercial register or equivalent for legal entities). Finally, the relevant acquirer is obliged to notify the company about any future change of its (company) name and/or address. Persons holding bearer shares as of 1 July 2015 must disclose their shareholding within six months. These disclosure obligations apply equally to acquirers and holders of bearer participation certificates. The described disclosure regime does not apply in relation to the acquisition of shares of an AG listed at a stock exchange or if the relevant securities exist as intermediated securities for which the issuing company has appointed a Swiss custodian. Furthermore, no disclosure is necessary in relation to profit certificates, bonds or derivatives. “ …companies must keep a register of their beneficial owners and the holders of bearer shares including names and addresses… ” 32 | Switzerland EMEA Legal Insights Bulletin August 2015 Owners’ register Mirroring the reporting obligations, each AG and GmbH must keep a register of the beneficial owners notified to it and, if applicable, the holders of bearer shares. Such registers contain the names and addresses of the beneficial owners or the holders of bearer shares (as the case may be). With regard to bearer shares, the register must also include the nationality and the date of birth of the respective shareholder. The register of the beneficial owners may be combined with the register of the holders of bearer shares or, in case of registered shares or quotas, with the existing share or quota register. The company must retain the documents based on which the beneficial owners and holders of bearer shares have been recorded for 10 years after the deletion of the relevant person from the register. The same retention requirement applies to the share and quota register. The registers of the beneficial owners and holders of bearer shares as well as the share and quota register must be kept in a way that they may be accessed in Switzerland at any time. If the register is not kept by a financial intermediary, such access must at least be granted to those persons who are able to represent the company in Switzerland: the current statutory regime requires an AG and a GmbH to be able to be represented by a member of the board of directors/managing director or an executive officer/ manager who is a resident in Switzerland. Financial intermediary In order to preserve the confidentiality of the holder of bearer shares with regard to the AG, the general meeting may decide that the notifications with regard to bearer shares shall not be made to the company but to a financial intermediary. The respective financial intermediary has to be designated by the board of directors, which also has to announce such designation to the company’s shareholders. In the case of such delegation, the financial intermediary is responsible for the keeping and maintenance of the register and the retention of the underlying documentation. Although the financial intermediary has the obligation to inform the AG about the holders of bearer shares (on a no-name basis), it will be necessary that the financial intermediary participates in the general meeting in order to enable the holders of bearer shares to exercise their voting rights on a confidential basis. Sanctions Non-compliance with the disclosure obligations will result in the following sanctions: • The participation rights (in particular, the voting right) as well as the pecuniary rights (in particular, the dividend right and the right to a portion of the liquidation proceeds) attached to the pertinent securities are suspended until the disclosure obligations are fulfilled; and • The pecuniary rights attached to the pertinent securities will be forfeited if the disclosure obligations are not fulfilled within one month after the acquisition or, with regard to current holders of bearer shares or bearer participation certificates, within six months after the entry into force of “ …anyone building a stake of 25 per cent or more in a company must alert the company and disclose the identity of the beneficial owner… ” “ …non-disclosure risks the application of significant sanctions with directors held personally liable in some situations… ” Switzerland | 33 EMEA Legal Insights Bulletin August 2015 the new provisions (i.e., until 1 January 2016). If the required notification is made later, the acquirer or holder may claim the pecuniary rights that had come into existence as from the date of the notification. Resolutions of the general meeting that have been taken with the participation of shares whose voting rights are suspended may be challenged. Furthermore, any dividends or portions of liquidation proceeds paid to a shareholder or quota holder whose pecuniary rights are suspended qualify as an unjustified distribution of profit and are subject to a repayment obligation. The individual members of the board of directors and the managing directors can be held personally liable for the exercise of rights by nondisclosing shareholders or quota holders. Actions to be taken In light of these changes, each holder of equity in a Swiss AG or GmbH must check whether such person has an obligation to disclose a beneficial ownership or a holding of bearer shares. This obligation exists regardless whether such person is a natural person or a legal entity. On the other hand, each AG and GmbH must check whether it has to implement a register of beneficial owners and/ or a register of bearer shares. In addition, the companies must ensure that signatories resident in Switzerland have access to such registers as well as to the share and quota register. Furthermore, each such entity must ensure that no shareholder or quota holder exercises any of such person’s rights as long as such person has not complied with such person’s disclosure obligations. As many details of this new regime are still unclear, particularly in relation to the reporting of the beneficial owners of subsidiaries of (listed) groups, companies will face considerable challenges in implementing these new rules. As there is no one-size-fits-all solution to the implementation of the new rules, each case must be assessed diligently. Lukas Glanzmann (Partner, Zurich) Tel: +41 44 384 13 55 lukas.glanzmann @bakermckenzie.com Philip Spoerlé (Associate, Zurich) Tel: +41 44 384 14 96 philip.spoerle @bakermckenzie.com 34 | Turkey EMEA Legal Insights Bulletin August 2015 Turkey Constitutional Court continues to cancel provisions of Trademark Decree Well-known trademarks are no longer absolute grounds for refusal and the nation’s IP laws are in need of an overhaul. Daniel Matthews and Mine Guner report. “ …Turkey still has no legislative acts for trademarks, patents, industrial designs, geographical indications and utility models, all of which are only regulated by decree… ” Registration applications for trademarks similar to well-known trademarks can no longer be refused on absolute grounds. In the second IP-related cancellation decision in a month, the Turkish Constitutional Court cancelled Article 7/1-(i) of Decree No. 556, On Protection of Trademarks, on 27 May 2015, at the request of the Ankara 3rd Court of Intellectual and Industrial Property Rights (the IP Court). The Turkish Patent Institute’s (TPI) power to require those assigning a trademark to assign their similar trademarks in the same portfolio has also been revoked and cancellations of other portions of the Trademark Decree are expected. With this in mind, IP owners need to remain particularly vigilant about protecting their rights. Article 7 of the Trademark Decree regulates absolute grounds for refusal. Absolute grounds are deemed a matter of public order; therefore, the TPI can reject trademark applications on its own initiative on absolute grounds. Article 7/1-(i) lists well-known trademarks as absolute grounds for refusal, so the TPI has been able to reject an application if a trademark is similar to a wellknown trademark. With the cancellation of this provision, the TPI no longer has this ability. Following Turkish procedure where a constitutional issue is raised, the IP Court filed an objection with the Constitutional Court seeking cancellation of Article 7/1-(i) of the Trademark Decree for unlawfully restricting fundamental rights and freedoms. The IP Court reasoned that property rights can only be restricted by a legislative act adopted by the Parliament and not by a Council of Ministers’ decree. Therefore, the restriction of property rights violates the Turkish constitution. The IP Court stated that Articles 7/1-(i) and 8/4 should be interpreted together with TRIPs Article 16/2 and Article 6 bis of the Paris Convention. According to international regulations, being well-known is not sufficient for rejecting a new trademark; other Turkey | 35 EMEA Legal Insights Bulletin August 2015 requirements should exist such as the likelihood of dilution and risk of gaining unfair advantage from the well-known character. Article 7/1(i) also has no equivalent in EU Directive No. 2008/95/EC, which is the source of the Trademark Decree. The IP Court also observed that trademark applications and opposing a trademark based on prior rights are entirely related to liberal, free-market economies, and fall under freedom of contract in Article 48 of the Turkish constitution. Well-known trademarks are also regulated under Article 8/4 as relative grounds for refusal, which means the owner of a well-known trademark can file an opposition to a new trademark application or file for revocation on the same basis. Well-known trademarks, then, should only be in the interest of the owner of the well-known trademark, and the owner should decide whether to oppose a trademark application where the conditions of Article 8/4 exist. The Constitutional Court accepted the IP Court’s reasoning and annulled Article 7/1-(i) in its entirety. Owners’ rights The Constitutional Court recently issued a similar decision, annulling Articles 42/c and 16/2 of the Trademark Decree on the same grounds — specifically, that only legislative acts can restrict property rights, and the restriction of a property right by decree violates the Turkish constitution. Turkey still has no legislative acts for trademarks, patents, industrial designs, geographical indications and utility models, all of which are only regulated by decree. The cancellation of decree provisions raises the risk of further Constitutional Court decisions based on excessive and unlawful restriction of fundamental rights, including property rights. To address this situation, a draft law amending several IP-related decrees is pending in the Turkish Parliament. With the piecemeal annulment of the Trademark Decree, Turkey is in need of proper legislation on intellectual property rights to ensure the integrity of the overall legal regime governing their protection. After cancellation of Article 7/1- (i), well-known trademarks are no longer matters of public order, and the TPI is no longer able to examine well-known trademarks on its own initiative for absolute grounds for refusal. Well-known trademark owners should, therefore, vigilantly monitor trademark applications for similar trademarks before they are registered. Turkish law grants immunity to trademarks upon registration, and a registered mark cannot be challenged on infringement grounds unless revoked by court decision. As a result, once a similar trademark is registered, the owner of the wellknown trademark assumes the burden of pursuing a lengthy judicial action to revoke the registration. Daniel Matthews (Partner, Istanbul) Tel: +90 212 339 8100 daniel.matthews @bakermckenzie.com Mine Guner (Associate, Istanbul) Tel: +90 212 376 6432 [email protected] “ …a draft law amending several IP-related decrees is pending in the Turkish Parliament… ” “ …Turkey is in need of proper legislation on intellectual property rights to ensure the integrity of the overall legal regime governing their protection… ” 36 | Turkey EMEA Legal Insights Bulletin August 2015 Foreign exchange wins restrictions reprieve Daniel Matthews and Muhsin Keskin outline how Turkey is liberalising its foreign exchange regime. The Turkish Council of Ministers has relaxed restrictions on exporting Turkish lira and foreign currencies. On 11 June 2015, the Council of Ministers adopted a decree amending Decree No. 32 on Protection of the Value of the Turkish Lira the main regulation under Turkish foreign exchange (FX) laws. Formerly, one could export Turkish lira and foreign currency through Turkish banks, but individuals could only carry up to the Turkish lira equivalent of USD5,000 out of Turkey. Under the amended Decree, exportation of Turkish lira exceeding TRY25,000 (approximately USD9,250) will be allowed, but subject to the Prime Ministry’s forthcoming rules and procedures. Exportation of foreign currency exceeding the equivalent of EUR10,000 will also be allowed, but also subject to the same rules and procedures. Liberalisation of FX transactions in Turkey started in the 1980s. The amendment to the Decree indicates that Turkey again has decided to further loosen restrictions. Daniel Matthews (Partner, Istanbul) Tel: +90 212 339 81 00 daniel.matthews @bakermckenzie.com Muhsin Keskin (Partner, Istanbul) Tel: +90 212 376 64 53 [email protected] Turkey | 37 EMEA Legal Insights Bulletin August 2015 Banks broaden investor access to Islamic finance Muhsin Keskin, Daniel Matthews and Berk Cin explore the rise of Islamic finance in Turkey. The move of Turkey’s state-owned banks toward Islamic banking demonstrates the government’s commitment to increasing the breadth and depth of Islamic financial services and to ensuring a more diverse range of financing sources to investors. In Turkey, Islamic banks (also called participation banks) were first introduced as private finance institutions in 1983 by a Council of Ministers Decree. In 1999, they were included under Banking Law No. 4389, and in 2005, they became fully subject to the new Banking Law No. 5411, and have become a new type of bank alongside investment and deposit banks. Albaraka Türk Finans Kurumu A.Ş. and Faisal Finans Kurumu A.Ş, both incorporated in 1985, were the first Islamic finance institutions in Turkey. In the following nine years, four more private Islamic finance institutions were established. Because of the 2001 economic crisis in Turkey, İhlâs Finans Kurumu A.Ş. went bankrupt and was liquidated. The same year, Faisal Finans Kurumu A.Ş. changed its trade name to Family Finans Kurumu A.Ş. as a result of an acquisition, and in 2005, it merged with Anadolu Finans Kurumu A.Ş. Out of this merger, Türkiye Finans Katılım Bankası A.Ş. was established. Turkey currently has four privately-owned Islamic banks in operation: Albaraka Türk Katılım Bankası A.Ş., Asya Katılım Bankası A.Ş., KuveytTürk Katılım Bankası A.Ş. and Türkiye Finans Katılım Bankası A.Ş. As a result of Turkish government’s pro-Islamic finance policies, in 2014, T.C. Ziraat Bankası A.Ş., the largest Turkish state-owned bank, was granted a licence by the Turkish Banking Regulatory and Supervisory Authority (BRSA) to establish a Turkish Islamic bank with a share capital of the Turkish lira equivalent of USD300 million. On 12 May 2015, the BRSA granted Ziraat Katılım Bankası A.Ş. an operating licence, making it the first state-owned Islamic bank in Turkey. The bank is now Turkey’s fifth Islamic bank and is expected to aggressively tap into the Turkish Islamic banking market by hiring 3,000 bankers. In October 2014, Türkiye Halk Bankası A.Ş., better known as Halkbank, one of the largest Turkish state-owned banks, announced that it will establish an Islamic bank. In January 2015, the bank received the BRSA’s approval to establish an Islamic bank in Turkey with a share capital of TRY1 billion. Türkiye Vakıflar Bank T.A.O., better known as Vakıfbank, another large Turkish stateowned bank, is also on track to set up its Islamic banking unit. In “ February 2015, Vakıfbank received …with five Islamic banks in operation — four private and one state-owned — and two more state-owned Islamic banks in the pipeline, the Turkish Islamic banking market is emerging fast… ” “ …the Turkish government has been a pioneer of Islamic finance with its USD1.5 billion sovereign sukuk in 2012… ” 38 | Turkey EMEA Legal Insights Bulletin August 2015 the BRSA’s approval to establish an Islamic bank in Turkey with a share capital of the Turkish lira equivalent of USD 300 million. The government expects this new Islamic bank to be a leader in the international Islamic banking sector. According to market speculation, Turkbank and Emlak Bankası, both liquidated in 2001, are also planning to return to the Turkish banking market as Islamic banks. Meanwhile the Turkish government has been a pioneer of Islamic finance with its USD1.5 billion sovereign sukuk in 2012. This attempt to diversify the Turkish government’s funding sources was also joined by the renovation of the sukuk regulation by the Turkish Capital Market Board which paved the way to first sukuk issuances by Turkish private issuers including corporates and banks. Kuveyt Türk has been the first Turkish private issuer to issue a Ringgit denominated sukuk in Malaysia last year. For political sensitivities, Turkey had largely shied away from Islamic finance. These developments show that Turkey is conquering its squeamishness about Islamic finance. The move of Turkey’s state-owned banks toward Islamic banking demonstrates the government’s commitment to increasing the breadth and depth of Islamic financial services and to ensuring a more diverse range of financing sources to investors beyond traditional products. This approach will also increase competition with the new players accessing the market. With five Islamic banks in operation – four private and one state-owned – and two more state-owned Islamic banks in the pipeline, the Turkish Islamic banking market is emerging fast, and is expected to grow aggressively in the next few years. The increasing popularity of sukuk will also crown the rise of Islamic banking in Turkey. These developments may help Turkey become a major market for Islamic investors from the Gulf and Southeast Asia. Daniel Matthews (Partner, Istanbul) Tel: +90 212 339 8100 daniel.matthews @bakermckenzie.com Muhsin Keskin (Partner, Istanbul) Tel: +90 212 376 6453 [email protected] Berk Cin (Associate, Istanbul) Tel: +90 212 376 6484 [email protected] “ …a major market for Islamic investors from the Gulf and Southeast Asia… ” Turkey | 39 EMEA Legal Insights Bulletin August 2015 Turkish Constitutional Court ends compulsory assignment of similar trademarks Daniel Matthews and Mine Guner outline important changes in the way trademarks are assessed and protected. Following a decision of the Turkish Constitutional Court on 13 May 2015, the Turkish Patent Institute can no longer require those assigning a trademark to assign their similar trademarks in the same portfolio. Article 16/5 of Decree No. 556 on Protection of Trademarks had long been criticised for granting TPI excessive authority to the point of infringing on the freedom of contract. The Constitutional Court has now curtailed that authority. Article 16 regulates the requirements for the assignment of trademarks. Sub-Article 16/5 extended not only to identical or nearly identical trademarks, but also similar trademarks, which are not normally subject to absolute grounds examinations, and imposed an additional requirement on assignors which have more than one similar trademark registered for similar goods and services, requiring that those similar trademarks be assigned together. This provision was based on the Turkish law regarding the “principle of uniqueness,” according to which a trademark can have only one owner, as the co-existence of trademarks is not permitted. This provision was problematic, especially for owners with large trademark portfolios, as they could be forced to assign trademarks which the owners were not contractually obligated to assign. As a consequence, when considering an assignment of a trademark, the TPI would routinely examine the assignor’s entire Turkish trademark portfolio and order the parties to also assign other similar trademarks, failing which the TPI would refuse to approve the assignment. In accordance with Turkish procedure where a constitutional issue is raised, the Ankara 3rd Court of Intellectual and Industrial Property Rights filed an objection with the Constitutional Court seeking cancellation of Article 16/5 of the Trademark Decree, on the basis that it violated the Turkish constitution and freedom of contract. Constitutional violation The IP Court raised a constitutional objection after concluding that Article 16/5 unlawfully restricted fundamental rights and freedoms. The IP Court reasoned that property rights can only be restricted by a legislative act adopted by the parliament and not by a decree of the Council of Ministers. Therefore, the restriction of property rights violated the Turkish constitution. The IP Court reasoned that, even though Article 16/5 is an interpretation of the principle of uniqueness, the provision granted excessive authority to the TPI. The court observed that, under the principle of uniqueness, Article 7/1-b of the Trademark Decree already granted the TPI the right to refuse trademark applications that are identical or confusingly similar to previously registered rights. Article 16/5, however, required trademark owners to assign all similar trademarks together and, if the owners wanted to assign only one of those trademarks, the TPI would refuse to record the assignment, “ …enables right holders to retain their rights to trademarks similar to an assigned trademark, and will ease transactional requirements for assignor parties with large portfolios… ” 40 | Turkey EMEA Legal Insights Bulletin August 2015 rendering the assignment invalid. The IP Court concluded that, in compelling the assignor to assign all similar trademarks, the TPI exceeded its authority. The Constitutional Court accepted the IP Court’s reasoning and annulled Article 16/5 in its entirety. The cancellation of Article 16/5 now enables right holders to retain their rights to trademarks similar to an assigned trademark, and will ease transactional requirements for assignor parties with large portfolios. The cancellation of the entire article also raises new questions where an assignor has identical trademarks in different but similar classes. This may lead to further discussion on the principle of uniqueness. The Constitutional Court recently issued a similar decision, annulling Article 42/c of the Trademark Decree on the same grounds – specifically, that only legislative acts can restrict property rights, and the restriction of a property right by decree is a violation of the Turkish constitution. Turkey still has no legislative acts for trademarks, patents, industrial designs, geographical indications and utility models – all of which are only regulated by decree. The cancellation of provisions in decrees, therefore, raises the risk of further Constitutional Court decisions based on excessive and unlawful restriction of fundamental rights, including property rights. To address this situation, a draft law amending several IP-related decrees is pending in the Turkish Parliament, waiting to enter into force. With the piecemeal annulment of the Trademark Decree, Turkey is certainly in need of proper legislation on intellectual property rights to ensure the integrity of the overall legal regime governing their protection. Daniel Matthews (Partner, Istanbul) Tel: +90 212 339 8100 daniel.matthews @bakermckenzie.com Mine Guner (Associate, Istanbul) Tel: +90 212 376 6432 [email protected] “ …a draft law amending several IP-related decrees is pending in the Turkish Parliament, waiting to enter into force… ” UKRAINE | 41 EMEA Legal Insights Bulletin August 2015 Ukraine Corporate officers face fresh scrutiny of their actions Lina Nemchenko and Mariana Marchuk outline the changes in legislation governing liability of corporate officers “ …the employer is obligated to terminate the employment of a corporate officer for repeated violations of certain legislative requirements… ” A series of legislative changes have been made – with others in the wings – that will impact the way in which corporate officers are allowed to operate. On 7 April 2015, the Law of Ukraine No. 191-VIII “On Amendments to Certain Legislative Acts of Ukraine on Facilitating Business (Deregulation)” dated 12 February 2015 came into effect. Under the changes, individuals holding the posts of head or member of the executive board of the company, the head or member of the audit committee or the internal auditor, as well as those holding positions in other governing bodies of a company that are envisaged in the constituent instruments of the company are deemed corporate officers of the company. One impact is that the employer is obligated to terminate the employment of a corporate officer for repeated violations of certain legislative requirements, in particular, in the field of building supervision. There may also be some obligations with regard to certain payments to the terminated employee. Looking further ahead, on 7 April 2015, the Verkhovna Rada of Ukraine adopted Law of Ukraine No. 289-VII “On Amendments to Certain Legislative Acts of Ukraine regarding Protection of Investors that will come into effect on 1 May 2016. According to the Law, the officers are responsible for damages they cause to the company through their actions. Such damages will be compensated if incurred by: • actions committed by an officer with excess or abuse of power; • actions committed with violations of the applicable procedures, including failure to obtain appropriate prior approval; 42 | UKRAINE EMEA Legal Insights Bulletin August 2015 • actions which have been agreed by the company, but on the basis of false information supplied by corporate officers in order to win that approval; • omissions of the corporate officers to properly fulfil their duties; and • other guilty actions of the corporate officers. Compensation procedure Under the Law, commercial courts have jurisdiction to hear cases on damages caused to the company by its corporate officers (even if such officer has since been dismissed). The cases will be considered at the location of the company. The High Economic Court must publish on its official website decisions to commence proceedings, information regarding recesses, and applications of the members (shareholders) on appointing the representatives of the applicant. Corporate officers that caused damage to a company are not eligible to be the company’s representative in court or appoint another representative to take part in the hearings on behalf of the company. According to the Law, the members (shareholders) of the company that collectively own a designated part of the share capital of the company, including the state and the relevant territorial communities, can be the representative of the company in such proceedings. However, the execution of the main legal proceedings regarding a lawsuit is subject to the written consent of all representatives of the company. Lina Nemchenko (Partner, Kyiv) Tel: +380 44 590 0101 lina.nemchenko @bakermckenzie.com Mariana Marchuk (Counsel, Kyiv) Tel: +380 44 590 0101 mariana.marchuk @bakermckenzie.com “ …from May 2016 commercial (rather than general) courts will hear cases on the officers responsibility for damages they cause to the company through their actions… ” UKRAINE | 43 EMEA Legal Insights Bulletin August 2015 Legal changes streamline apartment management Serhiy Piontkovsky and Lina Nemchenko explain how exercising ownership rights in multi-apartment buildings has been improved. A new law intended to help resolve management issues in multiapartment buildings has come into force. On 8 June 2015, the President of Ukraine signed Law of Ukraine No. 417-VIII “On Peculiarities of Exercising Ownership Rights in Multi-Apartment Building” which became effective on 1 July 2015. The law is aimed at resolving multi-apartment building management issues in a building where a co-owners association (the so-called OSBB) has not been established and improving the legislation on OSBBs. Baker & McKenzie acted as a legal advisor for the development of the law. The law provides for the following forms of building management: • by owners themselves; • by a manager on the basis of a relevant agreement; and • by establishing OSBB or an association of OSBBs. The law establishes a clear procedure for convening, holding and adopting decisions by the general meeting of co-owners of the building, where OSBB has not been established. Previously, the consent of all co-owners of the building was required to adopt any decisions on management of building joint property. Now, most of the decisions will be adopted by the owners of apartments and nonresidential premises, the total area of which exceeds 75 per cent of building premises’ area. Resolving some issues, including determination of the manager of the building, will require the consent of owners of apartments and non-residential premises, the total area of which exceeds 50 per cent of building premises’ area. If the number of votes is not sufficient for the adoption of the decision by the general co-owners meeting, a written questionnaire of owners who failed to participate in the meeting may be prepared. The results of such questionnaire are considered in the vote final count. Thus, the co-owners will be able to make decisions on all major building management issues. The law also changes the regulation of OSBBs. In particular, it improves the procedure to hold OSBB constituent and general meetings, specifies the exclusive competence of the general meeting and changes the procedure to adopt and publish decisions thereof. The changes introduced are expected to improve the effectiveness of building management regardless of having an established OSBB. Improvements to the decisionmaking mechanisms will allow the co-owners to make decisions on all building management issues efficiently. Serhiy Piontkovsky (Partner, Kyiv) Tel.: +380 44 590 0101 serhiy.piontkovsky @bakermckenzie.com Lina Nemchenko (Partner, Kyiv) Tel.: +380 44 590 0101 lina.nemchenko @bakermckenzie.com “ …new law injects efficiency and certainty into the management of multi-apartment buildings … ” 44 | uNITED kINGDOM EMEA Legal Insights Bulletin August 2015 United Kingdom Winds of change blow through renewable energy sector Marc Fèvre, Ben Farnell and Olympe Bory explore the renewable energy implications of the UK’s recent general election. “ …consent for the construction of onshore wind farms with a capacity of more than 50 MW will be in the hands of local planning authorities… ” On 7 May 2015, the UK General Election resulted in the election of a Conservative majority government. The 2015-16 session of Parliament began with the State Opening on 27 May 2015, during which an Energy Bill was announced. The changes proposed by the Energy Bill have the potential to significantly affect the energy sector. There are particular implications for wind energy. The Infrastructure Act 2015 (IA), which received Royal Assent in February 2015, contains a provision establishing a “community electricity right”. This will grant a statutory right for individuals and, or community groups to purchase a stake in renewable generation facilities located within the community or, if offshore, adjacent to the community. This right will only be exercisable where the facility has a capacity of at least 5 MW, and the maximum size of the purchasable stake will be 5 per cent of the facility. The section of the IA granting the community electricity right will come into force on 1 June 2016 and regulations implementing this right are expected to be published on or soon after that date. The Energy Bill proposed in the Queen’s Speech for the 2015-16 Parliamentary session will include proposals affecting planning consent for onshore wind farms. Currently, the Secretary of State for Energy and Climate Change is required to give consent for the construction of onshore wind farms with a capacity of more than 50 MW. The proposed Energy Bill will remove this requirement, leaving the decision solely in the hands of local planning authorities. This will be complemented by reforms to national planning policy in order to give local communities the final say on planning applications for onshore wind farms. This proposed reform will not apply in Scotland or Northern uNITED kINGDOM | 45 EMEA Legal Insights Bulletin August 2015 Ireland. The majority of wind farm projects awaiting consent are in Scotland (37 out of 45 proposed sites are in Scotland and therefore will not be affected). The Government has stated that it is considering how the changes will apply in Wales in the context of further Welsh devolution. In particular, the Silk Commission has recommended that Wales eventually be granted powers to decide planning applications for onshore wind farms of up to 350 MW capacity. However, there is no suggestion that this proposal will be implemented via the Energy Bill. A Wales Bill was proposed in the Queen’s Speech, but has not yet been published. Road ahead On 18 June 2015, the Department of Energy & Climate Change (DECC) announced that it would implement this pledge by introducing primary legislation to close the Renewables Obligation to new onshore wind projects from 1 April 2016, instead of April 2017 as had been planned. There will be a grace period in place for projects which have already received planning consent, a grid connection offer and acceptance and evidence of land rights (estimated to apply to up to 5.2 GW of capacity). On 14 July 2015, DECC together with the Scotland Office and the Wales Office published further information on such grace period indicating that it will likely apply to projects which: • demonstrate that they have relevant planning consents dated no later than the date of the announcement (18 June 2015); • demonstrate that they have a grid connection offer and acceptance of that offer, both dated no later than the date of the announcement; or confirmation that no grid connection is required; and • provide a Director’s Certificate confirming that, as at the date of announcement, the developer or proposed operator of the station: (1) owns the land on which the station is to be situated; (2) has an option or agreement to lease the land; or (3) is party to an exclusivity agreement in relation to the land. It further indicated that qualifying projects will be able to accredit under the Renewables Obligation up to 31 March 2017, the original Renewables Obligation closure date. Qualifying projects affected by a grid or aviation delay will be able to accredit by 31 March 2018. The Government previously pledged to consult with the devolved administrations before changing the subsidy regime outside England. Scottish First Minister, Nicola Sturgeon, is reported to have demanded a veto over changes to subsidies applying to Scotland and Scottish Energy Minister Fergus Ewing has stated that the decision to end subsidies may be subjected to judicial review. It may be that the Government will agree a different regime for Scotland. The Scotland Bill, which received its first reading on 28 May 2015, contains provisions granting new discretionary powers to Scotland over offshore renewable energy developments. If the Bill is passed, the Scottish Ministers will be able to declare a safety zone around renewable energy installations in Scottish waters and to determine what activities are prohibited within such zones. Scotland will also exercise powers over decommissioning obligations concerning offshore developments. “ …this proposed reform will not apply in Scotland or Northern Ireland… ” “ …there will be a grace period in place for projects which have already received planning consent, a grid connection offer and acceptance and evidence of land rights… ” 46 | uNITED kINGDOM EMEA Legal Insights Bulletin August 2015 The second reading of the Bill concluded on 6 July 2015. The provisions of the Scotland Bill dealing with devolution of powers to Scotland in terms of offshore renewables have not been substantially amended. It is therefore possible that these proposals with be implemented as is without any significant alteration further to the third reading (date yet to be announced). The manifesto also contains a pledge to “provide start-up funding for promising new renewable technologies and research”, with the proviso that only projects representing clear value for money will receive significant support. It remains to be seen whether this pledge will be implemented. Given the premature termination of the subsidy regime the government has potentially opened itself to legal action; with leading industry figures already going on record threatening to litigate if their subsidies are cut. In particular, it is foreseeable that the DECC may face challenges to its decision under the Energy Charter Treaty, which was designed to protect energy investments. Similar claims under the Energy Charter Treaty have been made against Italy and Spain with respect to their governments’ respective decisions to make changes to the subsidy regimes in their renewables sectors. Marc Fèvre (Partner, London) Tel: +44 20 7919 1041 marc.fevre @bakermckenzie.com Ben Farnell (Of Counsel, London) Tel: +44 20 7919 1503 ben.farnell @bakermckenzie.com Olympe Bory (Associate, London) Tel: +44 20 7919 1979 olympe.bory @bakermckenzie.com Baker & McKenzie has been global since inception. Being global is part of our DNA. Our difference is the way we think, work and behave – we combine an instinctively global perspective with a genuinely multicultural approach, enabled by collaborative relationships and yielding practical, innovative advice. Serving our clients with more than 4,200 lawyers in more than 45 countries, we have a deep understanding of the culture of business the world over and are able to bring the talent and experience needed to navigate complexity across practices and borders with ease. © 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. 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