Category: Czech Republic

Dear readers, during the New Year’s rush, it may have escaped your attention that on 29 December, the Amendment to the Medicines Act was published in the Collection of Laws, in volume 203 under number 456/2023 Coll. Barring one exception, which we discuss below, the amendment already went into effect on 1 January 2024.

Let us take a brief look at the amendment and on few of the new obligations, as the changes will have a fairly significant impact on the pharmaceutical market.

A. Supply obligations after an interruption or discontinuation of medicinal products already put on the market

Regarding medicinal products that have a maximum price or are reimbursed from public health insurance, marketing authorization holders (MAHs) will be obliged to continue the supply of the statutory minimum quantity of the medicinal product on the market after the date of interruption or termination of supply.

In such cases the volume of medicines that MAHs will have to supply will depend on past interruptions. If the medicine in question has been placed on market without interruption or if supply was interrupted for no longer than 20 days in the last two years (cumulatively), the required quantity will be the average monthly supply. If the interruption was longer, it will be up to double of that volume.

The Ministry of Health is currently preparing a decree with a list of medicines that are exempt from this obligation. In general, however, an exemption from the above will apply across the board to all medicines for the first 12 months after being placed on the market in the Czech Republic.

B. Medicinal products reserve system

The Ministry of Health is now authorized to monitor, with the help of data obtained by the State Institute for Drug Control (SÚKL), whether the planned supply of medicinal products corresponds to the predicted need of the Czech Republic. If it concludes that a particular medicinal product is at risk of a shortage, it will include it in the so-called “reserve stock system.” For distributors, this step automatically implies an obligation to establish and maintain stocks of the medicinal product in question in a quantity corresponding to the average monthly supply of the product to Czech pharmacies as well as abroad.

The amendment does not specify the exact location or nature of the stockpiles but, according to the Ministry of Health, the stockpiles may be located in another member state.

It is clear from the above new stipulations that MAHs will have to adjust their production, supply and storage plans in order to maintain sufficient quantities of medicinal products. Distributors, on the other hand, will incur new costs to establish and maintain mandatory reserve stocks. Compensation for these costs will be in accordance with the conditions and regulations set out in the Ministry of Health’s price regulation. Distributors can expect a special surcharge for packaging medicines included in the reserve stock system.

A breach of the new stock obligations can result in a maximum administrative fine of CZK 20 million. Distributors that do not comply with the obligations related to the reserve stock system and those who violate the obligations related to medicines labelled as “restricted” can also face penalties in the same amount.

C. Possibility to import prescription and over-the-counter medicinal products with foreign language information or labeling

SÚKL is newly explicitly authorized to permit the supply medicinal products whose labelling and package leaflet is not in Czech. In contrast to the interpretation of the law to date, this now explicitly allows for the authorization of import of a foreign language batch even for OTC medicinal products, as some necessary OTC products have recently been unavailable on the Czech market and their provision for the needs of Czech patients was difficult to resolve under the previous legislation.

The considerable amendments to the Public Health Insurance Act should not be overlooked either. Most significant is SÚKL being newly authorized to issue, in price and reimbursement regulations, “measures to maintain the availability of non-substitutable reimbursable medicines and measures to ensure the availability of medicines important from the point of view of public health protection.”

Finally, it is worth mentioning the introduction of an “e-prescription monitoring service,” which will allow the professional providing the prescription to have up-to-date information on available quantities of the prescribed medicine as well as which healthcare providers (pharmacies) have this medicine in stock.

One change brought by the amendment to the Medicinal Products Act has yet to come into effect. After the date a MAH interrupts or terminates placement on the market of a particular medicinal product, it will obliged to continue to supply medicines and to label them with “restricted availability.” This change will come into force on the first day of the sixth calendar month following the date of promulgation of the amendment; that is 1 June 2024.

By Tomas Bilek, Partner, Adam Prerovsk, Senior Associate, and Anna Urbanova, Associate, Dentons

Effective 1 January 2024, the Czech Energy Act (No. 458/2000 Coll.; “EA”) mandates notification to the Ministry of Industry and Trade for both direct and indirect acquisitions of elements of energy critical infrastructure. The parties will be under a standstill obligation until the transaction is cleared. Notably, the triggering event is set to 10 % of shares or voting rights or even lower. Let’s take a closer look at the new transaction review feature.

What targets?

The EA imposes a notification obligation on transactions relating to elements of critical infrastructure in the energy sector, namely in the area of electricity, natural gas or central distribution of heat. Infrastructure is designated an element of critical infrastructure by the decision of a government authority. In general, it only covers businesses that have a significant impact on Czech energy infrastructure.

What investors?

Here the answer is simple: all investors. Hence, even simple domestic-to-domestic transactions fall within the EA. This is the main conceptual difference between the EA and the Czech FDI screening regime, which will often overlap. Advisors accustomed to working with screening regimes focusing on non-EU entities will have to adapt their mindset and approach.

What level of influence?

The influence of the Czech FDI screening regime is evident here. The triggering event can be either the ability of the investor to dispose of at least 10 % of voting rights or shares or a seat on the board in the company owning the critical infrastructure element. For asset deals, the trigger is simply the ownership rights. Moreover, there is an alternative triggering event of “another type of influence, which results in an ability to gain access to information, systems or technologies relating to the critical infrastructure element, which are relevant for the energy safety or public order of the Czech Republic”. While essentially the same trigger is used in the Czech FDI screening regime, it remains an extremely vague criterion.

What process?

A filing must be submitted prior to the implementation of the transaction. During the proceedings, the parties are under a standstill obligation. There is only one phase, and the ministry should decide within 60 days. The EA contains little in the way of procedural guidance, posing potential practical obstacles especially concerning matters like safeguarding business secrets.

What remedies can be imposed?

The palette of remedies is also remarkably narrow. The ministry can either clear or prohibit the transaction. Surprisingly, in the latter case it is the seller who is obliged to offer the shares or assets in question to the Czech state for a standard price. The offer will stand for at least six months. If the seller fails to do so, any later transfer to a third party is invalid.

Moreover, if the investor fails to notify the transaction, every exercise of its voting rights in the target is invalid and any disposal with target’s property is null and void.

Impact

The new regime swiftly became effective without any discussion. As such, the notification obligation is little known and may come out of the blue. While it does share much in common with the FDI regime, its applicability to investors of all sorts and nationalities may come as a surprise. The ministry’s ability to effectively expropriate assets raises questions about the impartiality and underlying motives of screening decisions. The lack of procedural rules is also disturbing. All these factors are likely to heighten uncertainty, causing investors and potential sellers to think twice before engaging in transactions in the Czech energy sector.

By Jan Kupcik, Attoreny at Law, Schoenherr

Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 (the “Regulation”) establishes a carbon border adjustment mechanism. The Regulation imposes new obligations on importers of selected goods from third countries into the EU. The aim of this article is to help entrepreneurs identify whether the Regulation applies to them and, if so, what are the most important obligations it imposes on them.

Who does the Regulation apply to

The Regulation applies to anyone who is:

• an importer established in the EU who imports from a third country into the EU the goods listed in Annex I of the Regulation (in particular aluminum, cement, iron and steel, fertilizers, electricity and hydrogen), or processed products thereof (the “Goods”) and lodges a customs declaration with a proposal to release the Goods into free circulation;
• a holder of a permit to lodge a customs declaration, who declares the import of the Goods;
• an indirect customs representative who lodges a customs declaration with a proposal to release the Goods into free circulation for an importer established outside the EU.

The Regulation does not apply to entrepreneurs importing the Goods exclusively within the EU.

Entrepreneurs who import the Goods from countries outside the EU can use a third party to lodge the customs declaration for them, and in this case the obligations set out in the Regulation will be fulfilled by such third party (customs representative).

What obligations does the Regulation impose

Obligations under the Regulation can be divided into two phases, depending on the time frame in which they need to be fulfilled.

Phase 1: Obligation to report embedded emissions

This phase already started on October 1, 2023 and will last until December 31, 2025. The essence of this first phase is the obligation to report on so-called embedded emissions. The Regulation uses the abbreviation “CBAM report”.

According to the Regulation, embedded emissions are direct and indirect emissions related to the production of imported Goods. The Regulation establishes specific methods and procedures that must be followed when calculating embedded emissions.

The first reporting period is the fourth quarter of 2023. The CBAM report for the first reporting period must be submitted no later than January 31, 2024.

The CBAM report must be submitted to the transitional CBAM registry (CBAM Trader Portal) under the European Commission. The transitional CBAM registry has been launched.

In order to ensure identity verification, access to the registry is only allowed to importers or indirect customs agents who are registered in the UUM&DS system (the EU-wide Uniform User Management and Digital Signatures system). Registration in the UUM&DS system is carried out by the Customs Administration of the Czech Republic, therefore it is necessary to apply for access to the CBAM Trader Portal via an electronic form available on the website of the Customs Administration.

CBAM reports are submitted electronically.

Sanctions for non-compliance, incorrect or incomplete submission of the CBAM report are determined by individual Member States. According to the Regulation, however, it must amount to EUR 10 to EUR 50 per ton of undeclared embedded emissions. These sanctions have not yet been established in the Czech Republic, but it can be expected that they will be established in the future.

Phase 2: Obligation to pay for certification of embedded emissions (carbon tax)

This phase will start on January 1, 2026. Therefore, the obligations applicable to this phase do not apply yet, but it makes sense to start preparing for them now.

In this phase, in addition to the above-mentioned obligation to report the embedded emissions, the obliged persons will also have the obligation to purchase certificates to take into account the emissions embedded in the imported Goods, i.e. to pay the carbon tax.

Recommendations

At this point, entrepreneurs can be advised to answer the following questions:

• Which of the products that the entrepreneur imports from third countries does the Regulation apply to?
• Entrepreneur who do not import any such products will not be affected by the Regulation.
• Entrepreneurs who import such products should:
  • Identify which specific requirements for reporting greenhouse gas emissions apply to individual types of products.
  • In case of a group with several entities that import goods from third countries and are subject to the Regulation consider simplifying the structure of the import, whereby all matters related to the Regulation, including the processing of CBAM reports, calculations, etc., would be arranged for only by selected entity(s).
  • Consider changes in the supply chain that could reduce the number of entities affected by the Regulation.

It follows from the above that the first step should be to assess to what extent and regarding which products (if any at all) the Regulation applies to the entity in question.

On the basis of this assessment, it is also necessary to identify specific obligations and select a corresponding approach for the future, or adapt.

Conclusion

The Regulation is effective as of October 1, 2023, and obliged entities must submit the first CBAM report by January 31, 2024. From January 1, 2026, the obligation to pay the carbon tax will apply. Importers of the Goods from third countries should therefore assess as soon as possible the extent to which they are subject to the CBAM reporting obligation and should ensure access to the CBAM transitional register as soon as possible. It is also recommended to consider the possible introduction of additional measures for maximum efficiency and minimization of costs.

By Vit Inquort, Junior Associate, Eversheds Sutherland

CMS has advised Komercni Banka on its financing for the acquisition of the Mercedes Benz Praha car dealerships. Badokh reportedly advised the borrower – the RCM Group.

According to CMS, “the new owner, the French RCM Group, acting via its Czech company RCM Praha, is also a distributor of the Toyota, Lexus, Porsche, and Beneteau brands.”

The CMS team included Partner Petra Mysakova, Senior Associate Pavel Srb, and Lawyer Andrea Haushalterova.

A long-awaited amendment to the Czech Medicines Act came into force on 1 January 2024. What practical impact will it have?

The amendment addresses the recurring and extended shortages of certain medicinal products on the Czech market over recent months or years. It gives the Ministry of Health a previously unavailable tool to more effectively prevent shortages in the supply of medicines on the Czech market.

Crucially, marketing authorisation holders are now obliged to supply the medicinal product for two more months after the actual interruption or termination of supplies to the Czech market.

Distributors of “restricted availability” medicinal products, i.e. medicines that are listed by the Ministry of Health, must maintain reserve stocks of the medicine corresponding to an average monthly supply. In so doing, the Ministry of Health hopes to bridge short-term as well as longer-term shortages of some medicine supplies.

The amendment also mandates an information obligation, requiring entities in the distribution chain to report current stocks of medicinal products at risk of scarcity to the State Institute for Drug Control.

Nonetheless, the attentive reader will notice that the “stock” obligation applies only to medicinal products for human use that are covered by public health insurance or for which a maximum price has been set. Put simply, over-the-counter drugs such as Nurofen or Ibuprofen will not be subject to the stock obligation, but, for instance, antibiotics will be.

A penalty of up to CZK 20,000,000 maybe imposed for a breach of the newly introduced obligations.

By Vladena Svobodova, Senior Associate, JSK, PONTES

On 1 January 2024, an amendment to the Labour Code came into force that introduces final liability of the construction contractor for wage claims filed by third parties against its subcontractors. This includes wage claims from any employment agencies, up to the amount of the statutory minimum wage for each employee engaged in activities for the subcontractor.

The amendment is intended to remedy the incomplete implementation of EU regulations. However, this liability applies not only to the contractor but also to subcontractors, who are jointly and severally liable for the wage claims of employees. If a subcontractor’s employee is not paid their wages, salary or remuneration under the agreement, the employee may, within three months of the due date of the wages, salary or remuneration, call upon the guarantor (the supplier and/or other subcontractors) to satisfy their wage claims up to the amount of the minimum wage.

If an employee who has been adversely impacted in this way makes a claim against the guarantor, the latter will be obliged to pay the claim within 10 days and to inform the employer for whom the employee carried out work. However, the guarantor will be obliged to make deductions and contributions to health and social insurance and the state employment policy, and to pay income tax advances or income tax on the wage claims being satisfied, in addition to the employee’s wage claim. In view of the amount of information required for the correct calculation and disbursement of these payments, the employee is obliged to provide the guarantor with the necessary information with the request for payment.

Moreover, in addition to the expected particulars and the information on the debt, the employee’s request must also contain the information necessary for the calculation of the advance payment of income tax or income tax on the wage claims to be satisfied. It must also contain the identification of the health insurer in whose favour the corresponding payment is made.

The construction contractor may avoid liability for wage claims if, before commencing performance, it secures confirmation from its subcontractors not older than three months of their non-payment of social security contributions and penalties and contributions to state employment policy and public health insurance. It must also secure confirmation that the subcontractor has not been fined more than CZK 100,000 for violating labour law regulations in the two months preceding the commencement of contractual performance.

Prior to commencing the performance of construction contracts, contractors should ideally inspect their subcontractors or request the aforementioned confirmations from them. Where appropriate, they should also require contractual security by means of appropriate subcontractor declarations and warranties, contractual penalties and their possible security. Conversely, the employer’s liability for the wage claims of employees posted in the Czech Republic pursuant to Section 319(3) of the Labour Code as in force until 31 December 2023 has been abolished.

By Katerina Leheckova and Pavel Bederka, Attorneys at Law, Schoenherr Attorneys at Law

Last year’s “digital amendment” introduced many changes to Czech corporate law. But one change that is often overlooked is the amendment to the Czech Public Registry Act.

For example, a crucial adjustment has been made to Section 48 (2), which now requires branch offices (including those located abroad) to be registered directly in the Czech Commercial Register together with the entry for the respective company. This amendment will make corporate structures more traceable and responds to the European directive on digitisation.

One significant element of this amendment is the automatic registration of changes within the establishment of a new branch or its modification, eliminating the need to submit additional separate applications. At the same time, there was to be an automatic registration of already existing branch offices. Information for automatic registration was obtained both from the Commercial Register and, in the case of foreign branches or companies, from the European Business Registers Interconnection System (BRIS). For businesses with branches in theEU, the BRIS system is a key element for automated information exchange betweenregisters. However, it should be noted that this system only contains information about capital companies, i.e. joint-stock companies and limited liability companies. Other types of companies (limited and general partnerships) and cooperatives cannot rely on automatic updates.

The obligation to update foreign branches also applies to branches outside the EU. Despite the mid-July 2023 deadline, we have observed that the automatic transfer of information may not have occurred correctly in all cases.

We recommend that all entities registered in the Commercial Register who may have branch offices in the Czech Republic or abroad carefully review their records and ensure they are updated.

By Lukas Tomanek, Junior Lawyer, JSK, PONTES

CEE Attorneys has advised the BPower Group on the sale of BPower to Bitzer.

Bitzer is a Germany-based refrigeration, air conditioning, and heat pump company.

BPower is a Czech Republic-based organic Rankine cycle systems specialist. Organic Rankine cycle technology is used to recover energy from waste heat and is suitable for lower-temperature applications.

According to CEE Attorneys, “the acquisition allows Bitzer to offer components and organic Rankine cycle systems for generating power from waste heat, thus making an important contribution to decarbonization, as well as enabling system integration.”

The CEE Attorneys team included Partner Lukas Petr and Senior Associates Veronika Fabian and Jakub Chvatal.

CEE Attorneys was unable to disclose further information on the deal.

Anticipated completion of the European NIS2 Directive’s integration into Czech law is set for late 2024, facilitated by the new Czech Cybersecurity Act (CSA) and associated decrees. This legislative shift will impact an estimated 6,000 to 10,000 Czech companies, formerly exempt from cybersecurity regulations, necessitating the adoption of measures for compliance. Since the CSA is a complex legal regulation, it is advisable to engage a spectrum of experts, extending beyond IT to include legal and compliance professionals, in this transformative process.

The spectrum of potentially affected companies generally encompasses medium to large enterprises across 60 services and almost 20 sectors. These services span from ICT and digital services providers to traditional sectors such as energy, transport, healthcare, water supply, automotive and food processing.

Compliance Measures

Companies falling under the regulation are mandated to adhere to several sets of measures. The first set encompasses organizational and operational measures, ensuring a baseline of cybersecurity, defining security roles, establishing incident-handling processes, maintaining documentation, and managing suppliers and access. The second set involves technical measures, such as using cryptographic algorithms and ensuring service availability. The extent of obligations depends on whether the entity falls under a lower or higher obligations regime, as defined by the law.

Penalties 

Companies failing to comply with the stipulated obligations may face substantial penalties, including fines of up to EUR 10 million or 2% of the net worldwide annual turnover.

Moreover, managers, including executive directors or Board of Directors members, bear the direct accountability of closely overseeing the implementation, given the CSA’s proposal of personal liability. The National Cyber and Information Security Agency (NÚKIB) may conduct cybersecurity inspections, potentially resulting in the prohibition of individuals from exercising management positions. According to the CSA and NIS2 Directive, top management must regularly undergo cybersecurity training.

Implementation and Expert Engagement

Implementing the CSA necessitates a meticulous evaluation of regulatory applicability, definition of specific obligations, and execution of required measures. A recommended approach is to involve a team of legal and IT experts for effective implementation, covering aspects like supplier management, corporate governance, risk analysis, documentation modification, process management, incident reporting, and training.

By Jaroslav Tajbr, Partner, Eversheds Sutherland

Former PRK Partners Co-Head of Corporate and M&A has joined Excelia Legal as the firm’s Managing Partner.

Sivy had been with PRK Partners since 2019, first joining the firm as a Senior Associate and being appointed to co-lead the M&A practice in June 2022. Before that, he worked briefly for Skils in 2019 and for Weil Gotshal & Manges between 2009 and 2018, first joining the firm as a Paralegal in 2009 and being appointed to Junior Associate in 2011 and to Associate in 2014.

“I am honored to assume the role of Managing Partner at Excelia Legal, a dynamic law firm specializing in banking & finance, capital markets, and related regulatory matters,” Sivy commented. “Our firm is driven by ambition and a commitment to excellence, and I am excited to lead a team that shares this commitment. Our focus on financing, coupled with expertise in regulatory matters and securities, positions us uniquely to navigate the complexities of the legal landscape. As we embark on this journey, we are dedicated to delivering top-tier legal services to our clients. Our vision extends beyond the present, as we actively seek to expand our team with talented lawyers who share our commitment to excellence. I look forward to contributing to the growth and success of Excelia Legal!”

A recent interview with Sivy on the last decade of M&A in the Czech Republic is available here.