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May-June
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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Financial Stimulus Measures Introduced |
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On 11 March 2009, the Estonian Parliament (Riigikogu) adopted
amendments to acts aimed at strengthening the financial system. The
amendments simplify the granting of guarantees to troubled credit
institutions and the Riigikogu is given the right to process
the grant of state guarantees or loans to such credit institutions
as an urgent procedure. The new provisions also allow Stabilisation
Reserve Fund moneys to be used to prevent or resolve financial
crises. The amendments entered into force on 6 April 2009.
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Other Recent Legislative Developments |
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Gambling Tax Act
On 22 April 2009, the Riigikogu adopted the Gambling Tax Act.
The new act changes the current regulation of gambling taxes,
specifies tax rates and regulates several new types of games. As a
rule the calendar month is the period of taxation. Under the new
act, taxes are imposed on trade lotteries, gambling machines used
for organizing games of skill, totalisator and betting. The tax rate
for number lotteries is increased from the current 10% to 18%. The
existing Gambling Tax Act is repealed and the new act entered into
force on 1 June 2009.
Biocides Act
On 14 May 2009, the Riigikogu passed the Biocides Act. The new
act brings the legislation regulating the placing on the market and
use of biocidal products in line with Community law. The act sets
forth the requirements for and state supervision over biocidal
products, including their placement on the market and use, in order
to guarantee the safety of regulated products. Biocidal products are
defined as active substances or preparations containing one or more
active substances intended to destroy or render harmless harmful
organisms. Under the act, authorization must be obtained in order to
place any biocidal products on the market and the active substances
contained therein must be listed in the corresponding annexes of the
EU biocides directive. The act entered in to force on 19 June 2009.
Provisions of Building Act Specified
On 18 March 2009, the Riigikogu adopted the Building Act
Amendment Act. The aim of the amendments is to help resolve
practical problems that have emerged in the course of implementing
the act and avoid ambiguity in the interpretation of its provisions.
The changes pertain to the procedure for issuing documents
regulating building (building permits, and authorizations for use),
as well as the requirements for constructing and using construction
works. Pursuant to the amendments the requirement for a building
permit is lifted in certain cases (e.g. replacement of windows of a
building). At the same time the amendments introduce the requirement
for seeking written consent. The written consent of a local
government is needed for erecting small construction works (20-60
m²), building utility systems, constructing boundary fences, if
accompanied by earth-moving works, and in certain cases for
replacing outward openings (i.e. doors and windows) etc. The
amendments also add provisions regarding the regulation of energy
efficiency of buildings. The amended act entered into force on 1 May
2009.
Additions to Planning Act
On 11 March 2009 and on 20 May 2009, the Riigikogu passed
acts amending the Planning Act. The amendments aim to increase the
transparency of preparing detailed plans and ensure the involvement
of interested parties in the process. Under the new provisions local
governments must start putting up information boards at areas under
detailed planning that set forth their most important details. Local
governments must also involve persons concerned in the preparation
of detailed plans by notifying them as early as possible. Persons
concerned under the act include owners of neighboring immovables.
More stringent rules that apply to preparing detailed plans are
established for areas of significant public interest and value. More
precise rules apply to the process of selecting the location for an
object of significant spatial impact including who may prepare the
detailed plans. Provisions applicable to building bans and the legal
impact of a building ban are specified as well. The amended act also
provides for a simplified procedure for preparing a detailed plan,
subject to the written consent of the owners of neighboring
immovables. The amendments enter into force on 6 April 2009 and 1
July 2009, respectively.
Accounting Act Amended
On 11 March 2009, the Riigikogu adopted the Accounting Act
Amendment Act. The amendment repeals provisions requiring the
submission of a management declaration. However, the obligation to
submit a corporate governance statement is introduced for companies
whose securities giving the right to vote are admitted to trading in
a regulated market. Corporate governance statements should serve as
an important source of information about the management systems of
companies, that are required by interested parties for making
investment and financing decisions. The amendments entered into
force on 6 April 2009.
State Assets Act Supplemented
On 23 April 2009, the Riigikogu passed the State Assets Act
Amendment Act. The amendment introduces new provisions regulating
the transfer of woodlands that have remained in the ownership of the
state. Under the new provisions, upon the transfer of an immovable
with woodlands that have remained in the ownership of the state, a
right of pre-emption rests with the owner of an immovable whose
parcel of woodlands is adjacent to the immovable being transferred.
The amendments entered into force on 17 May 2009.
Environmental Charges Act Specified
On 13 May 2009, the Riigikogu adopted the Act Amending the
Environmental Charges Act and Fishing Act. The act specifies the
calculation and payment of pollution charges for waste disposal,
mineral resources extraction, and fishing. The amendments entered
into force on 6 June 2009.
Funded Pensions Act and Social Tax Act Amended
On 14 May 2009, the Riigikogu passed the Act Amending the
Funded Pensions Act and Social Tax Act. Pursuant to the act, from 1
June 2009 until the end of 2010 mandatory funded pension
contributions are suspended. During 2011 only half of the
contributions shall be made. From 2012 the regular system of
contributions is re-introduced. By way of exception persons may
apply for a continuation of contributions from the beginning of
2010. The amendments entered into force on 28 May 2009.
New Provisions in Support of Enterprise Act
On 7 May 2009, the Riigikogu adopted the Support of
Enterprise and State Loan Guarantees Act. The Act modifies the
conditions under which enterprises may qualify for loan guarantees.
The amendment lifts the restriction that previously did not permit
large enterprises to seek loan guarantees. The maximum guarantee
limits in guarantee contracts are increased as well. The amendments
entered into force on 29 May 2009.
Aliens Act Amended
On 7 May 2009, the Riigikogu passed an act which amends the
Identity Documents Act and the Aliens Act. The amendment introduces
the possibility of issuing digital identity cards. The issuance of
digital identity cards commences no later than 1 May 2010. In
another amendment the requirement for visa invitations is lifted and
the visa procedure is simplified. The amendments enter into force on
30 July 2009.
Singapore Treaty on the Law of Trademarks Ratified
On 17 March 2009, the Riigikogu adopted the Act Ratifying the
Singapore Treaty on the Law of Trademarks. The aim of the treaty is
to harmonize the formal requirements for applications to register
trademarks and the procedures for submitting applications. The
ratification of the treaty results in simplified and more user
friendly systems of registering trademarks. The Singapore Treaty on
the Law of Trademarks becomes applicable with respect to the
Republic of Estonia as of 14 August 2009.
Unemployment Insurance Premium Rates Increased
On 30 April 2009, the Government of the Republic adopted the
unemployment insurance premium rates for 2009 in its Regulation No
71. The regulation introduces new unemployment insurance premium
rates for insured persons and employers that are effective as of 1
June 2009. From 1 June 2009 until 31 December 2009 insured persons
shall pay an unemployment insurance premium of 2% instead
of the former 1% and employers shall pay 1% instead of the previous
1.5% during the same period.
The regulation entered into force on 1 June 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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New Restrictions on Mortgage Lending Imposed |
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On 21 May 2009, the Latvian
Parliament (Saeima) amended
the Consumer Rights Protection Law,
introducing new restrictions on
mortgage lending to consumers. By
the same amendments the Parliament
also granted more extensive rights
to the consumer protection
authorities to impose interim
measures in consumer rights breach
cases. The amendments will enter in
force on 23 June 2009.
According to the amendments to the
Consumer Rights Protection Law, the
lenders will be prohibited to
require additional collateral from
the consumer borrower if such
requirement is based on the reason
that the value of the real estate
mortgaged to secure the lender’s
claim has decreased due to change in
the real estate market, except in
cases when the borrower is in a
material breach under the loan
agreement. The lenders will also be
prohibited to pass-on to consumer
any costs incurred by the lender in
revaluation of the mortgaged real
estate during the lifetime of the
credit agreement. It is not clear,
whether the same prohibition would
also extend to provisions in the
consumer loan agreements under which
the consumer borrower would have an
obligation to carry out regular
valuations of its collateral at
his/her own cost. Similarly as in
case of rights to claim additional
collateral, the lenders will be
entitled to pass-on these costs if
the consumer borrower is in a
material breach under the loan
agreement.
An even more far reaching
prohibition is the prohibition to
accelerate the loan maturity under
the consumer loans (i.e., declare
the loan due and payable prior to
its term), unless the consumer
borrower is in a material breach
under the loan agreement.
The consumer will be deemed to be in
a material breach under the loan
agreement, only in one of the three
following cases – he/she is past due
on payment of principal or interest
for more than 60 days, or has been
late in paying principal or interest
at least three times within a year,
provided that each time the delay
has exceeded 30 days, or, finally,
if he/she has not used the loan for
the purposes for which it was
provided. Due to the mandatory
nature of the Consumer Protection
Rights Law, the lenders will not be
permitted to extend the definition
of material breach in the loan
agreements.
In addition to the above, all
consumer borrowers which are not in
a material breach under the loan
agreement will have a right to
request extension of the term of the
loan or change of the loan currency,
but not more than once a year. The
lenders may offer the terms that are
more adverse than market conditions
prevailing at the time of the offer.
No fees may be required for these
changes, except a reasonable
compensation for the administrative
costs.
The new provisions will apply not
only to the loans that are taken out
to acquire a real estate, but also
to other loans if they are secured
by a mortgage of a real estate.
These restrictions will not apply to
loans to consumers where the loan is
unsecured or has been secured by any
other form of collateral, nor to the
loans that are taken out by an
individual for a business purpose.
Under the Consumer Rights Protection
Law, a consumer is each individual
which is acquiring a good or service
for the purposes not related to
his/her business or professional
activities. Therefore, it will
become crucial for the lenders to
identify the purposes of the
mortgage loans granted to the
individuals and the proper legal
status of the borrower when entering
into the loan agreement. The lenders
should also be able to argue that
when the property that has been
originally acquired for a private
use has become used for the business
purposes, that change also affects
the borrower’s status of the
consumer vis-à-vis the lender which
financed that acquisition.
Therefore, there should be strong
incentive for the lenders to be able
to control and monitor the use of
the assets financed by them.
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Rights to Impose Interim Measures in Consumer
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The 21 May 2009, amendments to the Consumer Rights Protection Law have
substantially increased the powers of the Latvian Consumer Rights Protection
Center. Thus, in all cases when the Consumer Rights Protection Center has a
reason to believe that the consumer’s rights have been or may be breached, and
it may cause an immediate and substantial harm to economic interests a specific
consumer group, the center may order the relevant manufacturer, seller or
service provider to cease immediately the breach, or may prohibit the action of
the manufacturer, seller or the service provider which may cause the breach.
These measures may be appealed in the administrative courts but only within 10
days after they have been imposed. The appeal will not suspend the measure. The
court’s decision in the appeal is not subject to any further appeals.
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Law on Taxes and Duties Amended |
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On 21 May 2009, the Saeima amended the Law on Taxes and Duties,
introducing the rate to the State Revenue Service to claim additional taxes
based solely on the data at their disposal and without a need to carry a tax
audit, clarifying the tax payer’s rights to correct its tax declarations and
their impact on tax liability and penalties, as well as changing the rules of
liability applicable in case of tax avoidance in unregistered business cases.
According to the amendments, the State Revenue Service will be entitled to
compare the data at its disposal with the data indicated in the tax payer’s
statements and claim the tax difference, if such is established, within three
years from the date the relevant tax was due. In case any difference is
established, the tax payer will have 30 days to explain or correct it, making a
voluntary payment of the deficient tax and the applicable late payment fees. If
that is not done, the State Revenue Service will have a right to pass a binding
decision ordering the payment of the deficient tax. This procedure does not
require a formal tax audit of the tax payer.
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| For further information please contact
Dace Silava-Tomsone
(CV),
Partner at Raidla Lejins
& Norcous in Riga. |
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Lithuania
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Transposition of Directive 2007/44/EC into
the Law of the Republic of Lithuania |
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On 19 March 2009, the Lithuanian
Parliament (Seimas) adopted laws
on amendment and supplement to the Law
on Markets of Financial Instruments of
the Republic of Lithuania, Insurance Law
of the Republic of Lithuania, Law on
Banks of the Republic of Lithuania, Law
on Collective Investment Subjects of the
Republic of Lithuania (the “Laws”),
which came into force on 5 April 2009.
The purpose of the Laws is to transpose
into the national law of the Republic of
Lithuania part of the provisions of
Directive 2007/44/EC of the European
Parliament and of the Council of 5
September 2007 amending Council
Directive 92/49/EEC and Directives
2002/83/EC, 2004/39/EC, 2005/68/EC and
2006/48/EC as regards procedural rules
and evaluation criteria for the
prudential assessment of acquisitions
and increase of holdings in the
financial sector (the “Directive
2007/44/EC”).
The aim of Directive 2007/44/EC is to
introduce in all European Union member
states the comprehensive and uniform
criteria for acquisitions in financial
brokerage companies, regulated market
operators, credit institutions,
insurance and reinsurance companies, and
uniform procedural rules for application
of such criteria. Upon transposition of
the provisions of Directive 2007/44/EC
into the national law of the Republic of
Lithuania by virtue of the Laws, the
Republic of Lithuania will apply clear
and transparent procedural rules for
acquisitions identical to the procedural
rules applicable to regulated financial
market participants in other European
Union member states.
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Law on Amendment and Supplement to the
Competition Law of the Republic of Lithuania |
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On 9 April 2009, the
Seimas adopted the Law
on Amendment and Supplement
to the Competition Law of
the Republic of Lithuania
(the “Law”). The Law is
adopted to create legal
premises for more efficient
protection of fair
competition. This Law
enforces the Council
Regulation (EC) No 1/2003 of
16 December 2002 on the
implementation of the rules
on competition laid down in
Articles 81 and 82 of the
Treaty (the “Regulation No
1/2003”).
The Law says that particular
concentration performance
conditions and commitments
may be established not only
for the purpose of
prevention of creation or
strengthening of a dominant
position (as was till now),
but also seeking to avoid
too severe restrictions of
competition on a relevant
market.
The Law also establishes the
right of the Competition
Council to adopt
confidential resolutions. If
the Competition Council did
not have the right to keep
resolutions on initiation of
investigation confidential
for a certain time, the
Competition Council’s
investigations, in
particular as regards the
most severe violations of
competition (prohibited
agreements and abuse of
dominance), were inefficient
in the sense of evidence
collection, because the main
evidence of such violations
are located at the premises
used by business entities
and can be easily destroyed
if information of intended
investigation is known in
advance.
Regulation No 1/2003 grants
the European Commission
extensive authority when
performing the duties
imposed thereon by this
Regulation. The Commission
is vested with the right to
seal any business premises
and books and documents for
the period and to the extent
which might be necessary for
inspection, as well as the
right to carry out
inspections not only at the
premises used by a business
entity, but also in private
places of residence of
employees of the business
entity. Taking into
consideration such
provisions of Regulation No
1/2003 and the fact that
investigations by the
Competition Council are
becoming more complicated
and identification of
violation of competition
rules is becoming more
difficult, relevant rights
of authorized officers of
the Competition Council are
also established in the
Competition Law, according
to which private places of
residence may be inspected
only if there is suspicion
of breach of Articles 5 or 9
of the Competition Law or
Articles 81 or 82 of the
Treaty establishing the
European Community.
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Recommendations for Amendment to the Terms
and Conditions of Public Procurement and Sale Agreements |
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On 5 May 2009, Director of the Public
Procurement Office with the Government
of the Republic of Lithuania issued
Executive Order “On Approval of
Recommendations for Amendment to the
Terms and Conditions of Public
Procurement and Sale Agreements” (the
“Recommendations”). The purpose of the
Recommendations is to help a contracting
party to implement a provision under the
Public Procurement Law of the Republic
of Lithuania stating that “terms and
conditions of a procurement agreement
may not be amended during the validity
of the agreement, except for the terms
and conditions the amendment of which
would not cause breach of the principles
and purposes of public procurement and
which have been approved by the Public
Procurement Office”.
If a contracting party is amending the
term and conditions of the public
procurement and sale agreement (the
“Agreement”) during its validity, it
must ensure that amendment of the terms
and conditions of the Agreement: (i)
will not breach the principles of equal
rights, non-discrimination, mutual
recognition, proportionality and
transparency, and other requirements of
the Public Procurement Law of the
Republic of Lithuania; (ii) will be in
compliance with the Civil Code and other
legal acts of the Republic of Lithuania,
and the principles of good business
practice, justice, common sense and
fairness; (iii) will condition rational
use of funds intended for acquisition by
a contracting party or third persons of
necessary goods, services or works.
The Recommendations provide for the
guidelines, grounds, circumstances and
procedural rules for amendment to the
terms and conditions of Agreements
during the validity thereof.
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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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Alternative Investment Funds -
New Regulation in the Pipeline |
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There is new EU regulation related to so-called alternative investment funds in
the pipeline, which is likely to require the private equity industry to increase
its focus on regulatory and compliance issues.
The
EU Commission’s proposal for a new Directive
On 30 April 2009, the European Commission presented a proposal for a new
directive, the Alternative Investment Fund Managers Directive (the “Draft
Directive”), intended to regulate activities specific for managers of
alternative investment funds and their businesses. The intention of the European
Commission is that the Draft Directive shall provide for (i) a secure and
harmonized EU framework for monitoring and supervising the risks that
alternative investment fund managers (“AIFM”) pose to their investors,
counterparties, other financial market participants and to financial stability
and (ii), subject to compliance with certain requirements, permit AIFM to
provide services and market their funds across the EU.
From a general point of view, investment funds acting within the EU can be
divided into two categories. The first category includes so called UCITS
(Undertakings for Collective Investment in Transferable Securities) funds. Funds
belonging to this category are those complying with the harmonized requirements
set out in the UCITS Directive (85/611/EEC) and are authorized for sale to the
retail market. The second category is so called non-UCITS (or non-harmonized)
funds. Funds included in this category are often referred to as alternative
investment funds (“AIF”).
The Draft Directive will apply to all legal or natural persons within the EU
whose regular business is to manage one or several AIF. This irrespective of
where the AIF is located in the world, whether the AIFM provides its services
directly or by delegation, whether the AIFM belongs to the open-ended or
close-ended type and irrespective of the legal structure of AIF and the AIFM.
The Draft Directive, thus, has a broad coverage and includes, inter alia,
managers of private equity and hedge funds. However, for reasons of
proportionality the scope of the Draft Directive is limited to such AIFM
managing portfolios of AIF whose assets under management exceed EUR 100 million
or, if the portfolio of AIF consists of AIF that are not leveraged and do not
grant investors redemption rights during a period of five years following the
date of constitution of each AIF, EUR 500 million.
Summary of some of the key provisions of the Draft Directive
Authorization and operation requirements: In order to be allowed to operate
within the EU, all AIFM subject to the Draft Directive will be required to
obtain authorization from the competent authority of their home Member State and
also have to comply with ongoing regulatory requirements. In order to obtain the
necessary authorization, an AIFM must show the competent authority that it is
suitably qualified to provide AIFM services and also provide said authority
with, inter alia, detailed information on the identities of the AIFM
shareholders and their respective holdings, the planned activity and governance
mechanism of the AIFM, the identity and characteristics of the AIF to be
managed, internal arrangements related to risk management, valuation and
safe-keeping of assets, audit and regulatory reporting arrangements.
Capital requirements: AIFM must hold and retain a minimum level of capital of
EUR 125,000 plus 0.02% of the amount by which the value of the manager’s
portfolios exceeds EUR 250 million.
Marketing requirements: The Draft Directive permits an authorized AIFM to market
its AIF to professional investors domiciled within the EU, although marketing of
an AIF domiciled in a non-EU country requires that the latter country has signed
an agreement with the Member State in question and that said agreement (i)
complies with the standards for tax transparency set out in the OECD Model Tax
Convention and (ii) ensures an effective exchange of information on tax matters.
The Draft Directive further permits Member States to decide on an individual
basis whether to allow AIFM to market AIF to retail investors.
Reporting and disclosure requirements: an AIFM will on a regular basis be
required to report to the competent authorities of the Member State where it is
domiciled. Such reports shall include information regarding, inter alia,
the principal markets and instruments in which it trades, its principal
exposures, performance data and concentrations of risk. In addition the AIFM is
obliged to disclose the identity of the managed AIF, the markets and assets in
which the AIF will invest and the organizational and risk management
arrangements set up for the purpose of the AIF. In addition to the general
requirements summarized above, AIFM (i) managing high-leveraged AIF and (ii)
holding controlling stakes in non-listed companies will be subject to specific
requirements involving further reaching disclosure obligations.
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AIFM managing high-leveraged AIF (i.e. where the combined leverage from all
sources exceeds the value of the equity capital of the AIF in the two past
quarters) are obliged to disclose to both regulators and investors the
maximum level of leverage that the AIFM may employ on behalf of the AIF as
well as any right of re-use of collateral or any guarantee granted under the
leveraging arrangement. Said AIFM are on a quarterly basis further obliged
to disclose to investors the total amount of leverage employed by each AIF
in the preceding quarter. In addition an AIFM is required to report to the
competent authority of its home Member State the identity of the five
largest sources of the borrowed cash or securities for each of the AIF
managed as well as the amounts of leverage received from those sources.
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An AIFM managing AIF holding controlling stakes (i.e. when in a position to
exercise 30% or more of the voting rights) of certain non-listed companies
and certain other issuers is required to notify the issuer and its
shareholders of its position and control. Such AIFM is further required to
make annual disclosures regarding the investment strategy and objectives of
the AIF as well as general disclosures concerning the performance of the
portfolio companies.
Potential implications of the proposed directive on Finnish and Swedish law
Although the Draft Directive still has a way to go before it can be adopted on
the EU level (it is currently being processed in the European Parliament and the
European Council under the co-decision procedure), it has ever since it was
released to the public been subject to intense debate. On the one hand the
private equity and fund industry are criticizing the Draft Directive as too far
reaching, while other interest groups argue that the Draft Directive does not go
far enough. It is expected that this debate will continue as the legislative
process continues.
Managers of private equity and venture capital funds are normally excluded from
regulatory supervision in Finland and Sweden. Thus, regardless of the final
scope and content of the Draft Directive, it is safe to state that if the Draft
Directive is implemented it will impose a number of new administrative and
regulatory burdens on the private equity houses. Should the Draft Directive be
adopted in its current form the regulatory requirements set by the proposal will
not only significantly stiffen up the fund raising processes and portfolio
management of the private equity and venture capital funds but may also increase
the costs thereof. To a large part the proposed regulations would seem to be
aiming at managing risks associated with the hedge fund industry while the scope
of the Draft Directive, however, captures also the private equity industry,
where similar risks have not been identified. As an example, the Swedish Private
Equity and Venture Capital Association has pointed out that if adopted
as is, the Draft Directive will impose reporting requirements on the private
equity fund managers that in certain regards are more far reaching than those
that apply to listed companies.
Although the Draft Directive most likely will be subject to revisions in the
remaining legislative process, it is already at this stage reasonable to believe
that the private equity industry will end up being subject to some regulatory
framework, which, in a reasonable form, may be in the interest of the industry,
also.
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For further information please contact
Dimitrios Himonas
(CV),
Partner at Roschier in Helsinki
or Axel Calissendorff
(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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