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November-December 2009
Estonia, Latvia, Lithuania, Finland, Sweden |
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RoschierRaidla News
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Inside this Issue:
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Estonia |
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Latvia |
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Lithuania |
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Estonia
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Reorganization Also to Apply to Tax Claims |
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In its 18 November 2009 judgement (Osaühing Loksa Ravikeskus civil
case No 3-2-1-122-09), the Supreme Court explains the concept and
procedure of reorganization of an enterprise and the role of tax
arrears in the reorganization. According to the Reorganization Act
reorganization of an enterprise is defined as the application of a
set of measures in order for the enterprise to overcome economic
difficulties, to restore its liquidity, improve its profitability
and ensure its sustainable management. In its analysis the Supreme
Court notes that the law does not provide an exhaustive list of the
tools at hand for reorganization; the list includes extension of the
deadline for performing obligations, settling a monetary claim in
installments, reduction of the amount of debt and exchanging an
obligation for shares of a legal person. The Supreme Court
emphasizes that the law only excludes transformation of a claim that
has resulted from an employment contract, but that it does not
exclude the transformation of a tax claim. There is no objective
justification for preferring the tax authority in reorganization
proceedings (the same applies to bankruptcy proceedings). In the
opinion of the Supreme Court giving preference to tax claims would
render rehabilitation of an enterprise through reorganization
proceedings virtually impossible and instead bankruptcy proceedings
would have to be brought against the undertaking whose enterprise is
to be reorganized. Given that enterprises in economic difficulties
can easily have tax arrears arising from their tax liabilities, the
ban on transforming tax arrears would make it actually impossible to
carry out successful reorganization proceedings.
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Other Recent Legislative Developments |
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State Export Guarantees Act
On 29 October 2009, the Estonian Parliament (Riigikogu)
adopted the State Export Guarantees Act. The purpose of the act is
to create additional possibilities for developing exports and to
strengthen protections for undertakings operating in Estonia against
potential loss arising from export transactions. Pursuant to the
prior act, export guarantees were issued by the Credit and Export
Guarantee Fund KredEx. But KredEx could only issue guarantees to
exports to third countries, outside the EU and the OECD countries
and the amounts of the guarantees issued were not sufficient. The
new act authorizes creation of a new insurance provider to be funded
with state participation that will start providing export guarantees
in the form of credit insurance. This new insurer also will be in a
position to offer export insurance to exports aimed towards EU and
OECD states. The act entered into force on 10 November 2009.
State Assets Act
On 11 November 2009, the Riigikogu passed the State Assets
Act. The purpose of the Act is to improve the legal environment for
administration of state assets and state participation in ownership
of assets. The law transforms the state assets register into a state
immovable property register (immovable property portal), which will
bring together and make publicly available data from the land
register, land cadastre and the construction register that is
related to state assets. The new register will contain contracts of
using and transferring immovables. The Act centralizes decisions
concerning the use and transfer of state owned immovables, and
decentralizes those concerning movable property. The act also
provides for the possibility of transferring state property on the
basis of a decision (i.e. without public auction or selective
tender). In some cases it is possible to exchange state assets
pursuant to the act. The following acts are repealed: the current
State Assets Act that entered into force in 1995, the Participation
in Legal Persons in Private Law by the State Act and Non-residential
Premises Privatization Act. The act shall enter into force on 1
January 2010.
New Commercial Code Provisions
On 21 October 2009, the Riigikogu passed the Act Amending the
Commercial Code and Other Acts. The amendments transpose an EU
directive regulating shareholders rights. The most important change
simplifies the exercise of voting rights at meetings by shareholders
who are not located at the seat of the company. Based on the
amendments, the articles of association of a company may set forth
that draft decisions concerning items on a meeting agenda may be
voted upon by mail or by electronic means. Another change pertains
to the possibility of transmitting a meeting partly or fully in real
time via the Internet, by using two-way communication or other
technically secure means. Simple viewing of the transmission is not
deemed participation in the meeting. Unless the articles of
association provide otherwise, the person convening a meeting must
prepare a draft decision for each item on the agenda prior to the
meeting. If the shareholders, supervisory board or the auditor call
a shareholders’ meeting, they must present the draft decisions to
the management board before notifying the shareholders of the
meeting. The amendments allow the draft decisions to be appended to
the notice of the meeting. The draft decisions and justifications
for the decisions must also be made available at a place established
by the company or on the company home page. In addition to the
above, the amendments specify the provisions regulating cancellation
of contracts concluded with a management board member. The
amendments of the Commercial Code entered into force on 15 November
2009.
Value Added Tax Act Amended
On 11 November 2009, the Riigikogu passed the Act Amending
the Value Added Tax Act and Related Acts. The amendments transpose a
Directive of the European Union regulating value added tax and
introduce new procedures concerning the supply of services and their
taxation, submission of the VAT return about intra-Community supply
and refunding VAT to taxable persons of other member states. The
amendments also clarify that the place of supply in the case of
providing services to a taxable person of another member state or a
third country undertaking is usually the location of the recipient
of the service, not the location of the provider of the service as
it was pursuant to the old rules. In addition, persons who made an
intra-Community supply of services during the period of taxation
have an obligation to file a VAT return about intra-Community
supply. The old rules only required this for supply of goods. In
order to fight fraud involving excise goods any transactions
conducted within an excise warehouse shall be zero-rated instead of
being subject to the previous VAT rate of 18%. Another new provision
grants the tax authority the right to demand security to ensure
fulfillment of tax liabilities by persons handling excise goods
(fuel, alcohol, etc). Finally, the definition of the term “supply”
is also specified, extending the term to include expropriation of
goods for which payment is received. Most of the amendments shall
enter into force on 1 January 2010.
Income Tax Act Amended
On 29 October 2009, the Riigikogu passed the Income Tax
Amendment Act. The amendments introduce restrictions to deductions
that resident natural persons may make from taxable income. Also
from 2010 student loan interest and trade union admission and
membership fees shall not be deductible from income. The amendments
shall enter into force on 1 January 2010. Some amendments entered
into force on 1 December 2009 and these are applicable retroactively
from 1 August 2009.
Accounting Act Amended
On 29 October 2009, the Riigikogu passed the Act Amending the
Accounting Act and Related Acts. Several other acts, including the
Commercial Code, are amended in addition to the Accounting Act
itself. The amendments mainly pertain to the rules of submitting
annual reports to the registration department. The amendments also
introduce a so-called taxonomy, i.e. a standardized body of elements
of annual reports agreed between the various state institutions: the
Tax and Customs Board, the Statistical Office and others (a taxonomy
standard). As a result, undertakings will be able to submit their
reports via the company portal of the commercial register without
also having to send the same data to other institutions. The
elements of the standard shall be established by a regulation of the
government. The reporting forms shall be issued by the Minister of
Finance. The annual report must be filed with the register
electronically. The act shall enter into force on 1 January 2010.
Supervisory Board Members to Start Receiving Compensation for
Business Use of Private Automobile
The Government of the Republic used its 19 November 2009 regulation
No 174 to amend its earlier regulation No 164, which establishes the
conditions and limit rates of compensating business, work-related or
official use of a private automobile. The change allows the payment
of compensation for using a private automobile for business purposes
to members of a supervisory body (supervisory board) of a company.
In the past this had been limited to employees and management board
members. The regulation entered into force on 27 November 2009.
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| For further information please contact
Raino Paron
(CV),
Partner at Raidla Lejins &
Norcous in Tallinn. |
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Latvia
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Latvian Data Inspectorate Issues a Recommendation on Personal Data
Transfers to the Third Countries |
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In October 2009 the Latvian Data Inspectorate has issued a recommendation on
personal data transfers to the third countries. The recommendation contains
schemes visually depicting the process of data transfer outside Latvia. The
recommendation also describes basic aspects of particularities of all main
(currently known) cases when personal data transfer usually takes place.
Therefore, such document is very useful for any individual or representative of
legal entity involved in personal data transfer.
The recommendation is very valuable document for anyone who is or will be
involved in personal data transfer outside Latvia, since it provides the overall
information on data transfer types, as well as applicable statutory and
contractual requirements. It is important to note that the recommendation refers
to (1) the binding corporate rules that are recognized by Latvian Data
Inspectorate as one of means to ensure adequate data protection; and (2)
fulfillment of statutory requirements of other country (e.g. the USA
Sarbanes-Oxley Act). The Latvian Individuals Data Protection Law does not
elaborate on these issues; however, in practice, they take place rather
regularly. Thus, the recommendation renders significant assistance to analyze
such cases for data transfer.
As to negative aspects it must be noted that it was expected that the Data
Inspectorate will elaborate more on the implementation of the adequacy of the
Safe Harbour recognized by the European Commission (“EC”) and other legal
instruments applied by the EC in order to assess data protection level ensured
by respective country or organization. Although such instruments are mentioned
and analyzed in the recommendation, they are not considered sufficient and
additional legal grounds shall be ensured in order to transfer personal data in
accordance with statutory requirements.
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Other
Recent Legislative Developments |
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Amendments to the Law on Personal
Income Tax
On 1 December 2009, the Latvian
Parliament has passed vast amendments to
the Law on Personal Income Tax that will
come into force already on 1 January
2010. Not only the tax rate has been
increased from 23% to 26% for the
employees and from 15% to 26% for the
self-employed persons, also the tax base
itself has been extended by
incorporating such types of income as
capital gains (to be taxed at the rate
of 15%), dividends and interest income
(to be taxed at the rate of 10%), as
well as the benefit received by an
employee from using the employer’s car
for the personal needs.
The decision to tax the benefit received
by an employee from using the employer’s
car for the personal needs is among the
most controversial novelties to be
introduced by the amendments. The exact
scope of application, exemptions,
methods used for the calculation of
taxable benefit and other details remain
unclear in absence of the respective
regulations of the Cabinet of Ministers
that are yet to be prepared.
Amendments to the Law on Real
Property Tax
On 1 December 2009 the Latvian
Parliament has also adopted amendments
to the Law on Real Property Tax that
will come into force on 1 January 2010.
The immovable property tax rate has been
increased from 1% to 1,5% from the
cadastral values. The residential
buildings with respect to which by way
of exception the real property tax so
far has not been applicable, will be
subject to tax as of 1 January 2010. The
tax rates applicable to the residential
buildings will depend on the cadastral
value of the respective building. If the
cadastral value will not exceed 40 000
Lats the applicable tax rate shall be
0.1% from the cadastral value. For the
cadastral value raging from LVL 40 000
to LVL 75 000 the tax rate of 0.2% shall
be applicable, while the cadastral value
above LVL 75 000 will be taxed at 0.3%
from the cadastral value. It should be
also noted that the definition of the
taxable immovable property has been
extended by making the engineering
structures (infrastructure buildings and
structures) subject to the immovable
property tax.
Amendments to the Law on Excise Tax
By amendments to the Law on Excise Tax
adopted on 1 December 2009 the excise
tax for certain products has been
increased and natural gas has been added
to the range of products subject to
excise tax, as well as a new digital
control system for the transfer of
excise goods has been introduced.
Thus, as of 1 January 2010 the minimal
level of the excise tax for cigarettes
shall be LVL 48 for 100 cigarettes, and
as of 1 February 2010 excise tax for
wine and fermented drinks will be
increased by 12,5%, while for
intermediate products with the absolute
concentration not in excess of 15% the
tax shall be increased by 7,1%. The
excise tax for gas will be introduced as
of 1 May 2010 (at the rate of LVL 15.6
per 1’000 cubic meters of gas used for
heating, and at the rate of LVL 70 per
1’000 cubic meters of gas used as car
fuel).
Number of the Competition Council
Members Shall Be Reduced
On 1 December 2009 the Latvian
Parliament has adopted amendments to the
Competition Law reducing the number of
Competition Council members from four to
just two. Although the reasons for the
amendments are formally presented to be
purely administrative they come as part
of the legislative package for the
consolidation of the state budget for
2010 and are primarily aimed to decrease
the burden of administration costs. It
cannot be excluded that this may have
negative impact on the overall
functioning of the Competition Council.
Amendments to the Criminal Law
On 19 November 2009 the Latvian
Parliament has adopted important
amendments to the Criminal Law that will
come into force on 23 December 2009. The
amendments introduce changes with
respect to the criminal offences related
to bribery (both private and public
sectors).
With respect to bribery in the private
sector the most significant amendment is
the possibility to get immunity from
criminal liability by means of
self-reporting (Article 199.¹ of the
Criminal Law). Further, the definitions
of the “unauthorized receipt of
benefits” (Article 198 of the Criminal
Law), as well as definition of the
commercial bribery (Article 199 of the
Criminal Law), have been revised. Prior
to these amendments it was not enough to
prove the “wrongful agreement” between
the person offering/giving the material
benefit and the recipient of the
benefit, but the “bad faith” of the
recipient of the benefit also had to be
established. In practice it proved to be
very difficult to establish the “bad
faith” element on the part of the
recipient of the benefit. The new
wording of the Articles 198 and 199 no
longer contains a reference to the “bad
faith” of the recipient, which means
that the criteria for establishment of
the criminal offence with respect to
unlawful receipt of benefits and
commercial bribery have been materially
softened.
Ratification of the Patent Law Treaty
On 26 November 2009 the Latvian
Parliament has passed the law ratifying
the Patent Law Treaty adopted at Geneva
on 1 June 2000. In Latvia the Patent Law
Treaty has officially entered into force
on 16 December 2009. The Patent Law
Treaty aims at harmonizing the formal
procedures related to the submission and
handling of the patent applications in
order to ease the process of applying
for a patent in different jurisdictions.
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Dace Silava-Tomsone
(CV),
Partner at Raidla Lejins
& Norcous in Riga. |
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Lithuania
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Draft Law on Amendment of the Law on
Companies |
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In order to improve business
environment, encourage establishment of
private and public limited liability
companies, reduce certain
administrational burden, ensure
transparency, make the private limited
liability company a more attractive
legal form, and simplify certain rules
regarding limited liability companies
(i.e. rules regarding their
establishment, decision making
procedures and etc.), on 7 December 2009
the Government of the Republic of
Lithuania (the Government) submitted the
Draft Law on Amendment of the Law on
Companies of the Republic of Lithuania
(the Draft Law on Companies).
The authors of the Draft Law on
Companies offer to reduce the minimal
amount of the authorized capital as a
condition for establishment, from LTL 10
000 to LTL 1 000. The Draft Law on
Companies also suggests that in case of
reduction of a private limited liability
company’s authorized capital, the amount
of the capital after reduction should
not be less than LTL 10 000.
Furthermore, since the number of
shareholders is not a distinctive
feature between a public limited
liability company and a private limited
liability company, the Draft Law on
Companies proposes to withdraw the rule
regarding the maximum number of
shareholders allowed in private limited
liability companies.
The Draft Law on Companies also suggests
permitting conclusion of a civil
contract (instead of an employment
contract) with the head of the company
and refusing an obligation to conclude a
full material liability agreement with
the head of the company. In order to
simplify various regulations regarding
private limited liability companies, the
Draft Law on Companies also offers to
grant the shareholders of such companies
a possibility to agree on a more
comprehensible way to transfer their
shares, including the share acquisition
priority rule, instead of the
requirements for such transfer that are
laid down in the Law on Companies.
Moreover, despite these and other major
amendments, the Draft Law on Companies
provides for some minor amendments
regarding notification and access to
information, representation rules,
voting and etc.
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The Ministry of Finance Prepared a New
Version of the Draft Law on Amendment of the Law on Property and
Business Evaluation Outline |
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On 4 December 2009, the
Ministry of Finance of the
Republic of Lithuania
prepared a third version of
the Draft Law on Amendment
of the Law on Property and
Business Evaluation Outline
(the Draft Law on
Evaluation) and submitted it
to the Parliament. In order
to ensure international and
European property and
business evaluation
standards in Lithuania and
increase the credibility of
other property and business
evaluations, there is a need
to revise and amend the
current legislation on
property and business
evaluation. In order to
ensure that the suggested
law is in conformity with
the EC Services Directive,
the authors of the Draft Law
on Evaluation withdrew the
rules that demand
establishment of property or
business evaluation
companies within the
territory of Lithuania, and
the rules requiring that
only legal persons could
provide such evaluation
services. As a result, the
Draft Law on Evaluation
suggests that both natural
and legal persons shall be
able to provide property or
business evaluation
services.
Among other rules, the Draft
Law on Evaluation suggests
certain qualification
requirements for property
and business evaluators, in
order to ensure the quality
and reliability of such
evaluations. The authors of
the Draft Law on Evaluations
believe that the suggested
system of rules will not
only ensure appropriate
competence of evaluators,
but will discipline them.
Therefore, the Draft Law on
Evaluations offers
establishment of the
Property and Business
Evaluators’ Court and its
functions, as well as
establishment of
professional liability of
evaluators.
Property and business
evaluation directly
influences financial
markets: banks (in relation
to loans, mortgages, credits
and etc.), insurance and
investment companies, state
budget (in relation to taxes
and etc.). Therefore, if
there are enough legal
measures to ensure proper
rules applicable to property
or business evaluators and
an effective supervision
scheme of such evaluators in
Lithuania, we could expect
increase of the
international capital and
investment as a result of a
positive attitude to
evaluations and evaluators.
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Definition and Guidelines for Reasoning of
Abnormally Low Tenders |
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On 10 November 2009, Director of the
Public Procurement Office under the
Government of the Republic of Lithuania
adopted an order on guidelines for
reasoning of abnormally low tenders for
goods, services or works (the Guidelines
Order). The Guidelines Order together
with the order of 10 September 2009 on
definition of an abnormally low tender
(the Definition Order), not only specify
the provisions regarding an ambiguous
notion of abnormally low tenders
established in the Law on Public
Procurement of the Republic of Lithuania
(the Law on Public Procurement), but
also clarify in which situations the
contracting authority has an obligation
to request and the supplier has an
obligation to provide the reasoning of
an abnormally low tender.
Pursuant to the Definition Order, an
abnormally low tender means that the
price provided for in the tender might
be insufficient for the proper
performance of a public procurement
agreement: (a) if the price is at least
by 15 or more percent lower than the
arithmetic average of prices of other
tenders; or (b) if the price is at least
by 30 or more percent lower than
expenses originally scheduled for the
public procurement at issue. The main
purpose of the Guidelines Order is to
help the contracting authority to
identify whether an abnormally low
tender as defined in the Definition
Order may be objectively justified.
These guidelines are applicable to
international procurements as defined in
the Law on Public Procurement and
simplified procurements.
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further information please contact
Irmantas Norkus, (CV),
Managing Partner at Raidla Lejins & Norcous in Vilnius. |
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Finland
and Sweden
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Recent
Trends on the Nordic Markets -
Increasing IPO Activity |
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The rising and relatively stable stock markets indicate that confidence in the
valuation of the markets is in the process of being restored. The slow-down and
subsequent halt of the equity market in late 2008 and early 2009 lead issuers to
resort to alternatives, such as hybrid bonds. These were followed by other ways
of raising funds on the improving equity market during much of 2009. In 2009 we
have seen large rights offerings both in Sweden and Finland, initially by
financial institutions and subsequently by industrial issuers. The rights
offerings of 2009 have typically been fully underwritten, often involving fairly
complex underwriting structures. As a consequence of the improving markets, we
also see signs of re-awakening of the initial public offering (“IPO”) markets in
Sweden and Finland and expect IPO activity to pick up significantly during 2010.
The
IPO markets plummeted worldwide due to the severe economic downturn in 2008, and
also during 2009 there have been few IPOs worldwide, the Nordic countries being
no exception. With stock markets in free fall, going to the stock market for a
capital injection or exit has not been considered a feasible strategy for
companies and their shareholders. The companies introduced to trading on the
NASDAQ OMX Nordic main market during 2009 have previously been listed on minor
lists such as First North and Nordic Growth Market. Simultaneously, the
financial crisis has made bank financing very difficult to obtain for company
expansion or M&A transactions.
We expect private equity firms to be among the ones to lead the way in the
re-awakening of the IPO markets. Only through exiting investments private equity
managers show results and return cash to their investors. As the last couple of
years have been characterized by low M&A and IPO activity, there is a pent-up
need for exits of private equity held portfolio companies. An exit through an
IPO may be considered preferable to a trade sale as the conditions on the credit
markets are yet not back where they were before the crisis at least not for
large and medium-size acquisitions. Back then, a trade sale to another private
equity firm was often considered a more lucrative exit strategy than an IPO,
mainly due to the fact that the favorable credit market allowed private equity
firms to make large acquisitions without committing a lot of capital, something
that drove up acquisition prices. The IPO route may also be favored by the
company’s management, as it is likely to retain more control of the company post
IPO. Furthermore, pension funds and other institutional investors signal that
they have plenty of capital and a willingness to invest in the stock markets.
However and this is the key question it remains to be seen whether the
institutional investors are willing to buy into the private equity firms’
desired valuations of the typically highly leveraged portfolio companies and
invest at levels that provide private equity firms a decent return on their
investments, subsequent to the portfolio companies having made their debt
repayments to the banks. Therefore, we expect the most likely IPO candidates to
be the less leveraged among the private equity portfolio companies or companies
sold by owners less focused on obtaining a return on their equity investment,
such as companies taken over by banks that would typically rather have a primary
focus on loan repayment.
Furthermore, the extreme volatility of the financial markets has caused IPOs
that were already in the pipeline at the time of breakout of the crisis to be
delayed, forcing shareholders to focus on rationalizing and profit improving
measures in the companies in question. The most successful of these companies
have been able to take advantage of the tough times to become more attractive
for stock market investors and private buyers alike, particularly if they are
less leveraged. It can be expected that also these companies will be among the
first to go public as the markets become more stable.
A
trend that can be noted among private equity firms is to prepare exits as “dual
track processes” in which the relevant preparations for both an IPO and a trade
sale of a portfolio company are carried out in order to retain maximum
flexibility, should the credit market improve before the company in question has
been introduced to public trading.
The IPO process is intensive and time consuming for the company to be listed.
Making the proper preparations together with the right advisors is vital for a
successful IPO. This is especially the case in tougher times such as the
present, as investors are likely to be more risk averse. Companies that plan to
go public need strong fundamentals such as an effective growth and business
strategy, good corporate governance and transparence and a proven management
team. The company must be made ready to comply with the legal requirements on
public companies, most notably relating to disclosure.
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Our experienced Capital Markets team renders a wide range of services for
preparing and launching IPOs in addition to other forms of capital markets
transactions. Following recent recruitments of highly experienced professionals,
Roschier’s Capital Markets practice today employs 30 lawyers, equally split
between Helsinki and Stockholm. The clients of the Capital Markets practice
include a large number of listed companies, major banks, international financial
institutions, private equity houses and property investors active in the
Northern European market. The lawyers in the practice regularly act as lead
counsel in multi-jurisdictional transactions, drawing on their close
relationship with other top-tier firms throughout the rest of Europe.
For further information please contact
Dimitrios Himonas
(CV),
Partner at Roschier in Helsinki
and Ola Åhman
(CV),
Partner at Roschier
in Stockholm. |
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| This Newsletter is a
periodic publication of RoschierRaidla and
should not be construed as legal advice or legal opinion on any specific
facts or circumstances. We have used reasonable efforts in collecting,
preparing and providing the information in this newsletter, but we do
not warrant or guarantee the accuracy, completeness, adequacy or
currency of the information contained herein. The contents are for
general informational purposes only, and you are urged to consult a
lawyer concerning your situation and any specific legal questions you
might have. |
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