Category: Czech Republic

Kocian Solc Balasitk has advised the Czech charity auction platform Dobrobot on its establishment and online auction-related tax matters.

According to KSB, “Dobrobot’s aim is to connect non-profit organizations, companies, and donors through digital technologies and online auctions. It also offers non-profit organizations a tool to increase their income and supports their operations and development.”

The KSB team included Partner Vlastimil Pihera, Tax Advisor Lucie Kretkova, and Legal Assistant Lubor Cerny.

An overview of important legislative changes in the Czech Republic

Another summer of grace

The government of the Czech Republic is preparing another so-called summer of grace from 1 July to 30 November 2023. It will be possible to apply for remission of accessories (penalties, interest, fines) of tax and social security payments, if the outstanding payment is paid, and for remission of minor arrears.

Increase in point value for work accidents

With effect from 1 January 2023, the government decided on a fundamental increase in the value of a point within the point evaluation of compensation for pain and social impairment in the event of work accidents or occupational diseases. Newly, the value of the point is variable and determined as 1% of the average wage in the national economy determined for the first to third quarter of the calendar year of the previous year. For 2023, this means an increase in the point value from CZK 250 to CZK 393.06.

The new decision-making practice on the moderation of contractual penalties

The Supreme Court deviated from the previous decision-making practice on the moderation of contractual penalties within the meaning of Section 2051 of the Civil Code. Newly, the unreasonableness of the contractual penalty agreement is not examined, but the unreasonableness of a specific right to a contractual penalty. To determine whether a claim is unreasonable, it is necessary to examine how and under what circumstances the breach of the contractual obligation establishing the right to the contractual penalty occurred and to what extent it affected the creditor’s interests protected by the penalty. The procedure for moderating the penalty is therefore such that the court first determines what function the contractual penalty was meant to fulfil. It then deals with specific circumstances at the time the contractual penalty was negotiated and at the time the contractual obligation was breached. If it finds that the penalty is inadequate given the circumstances examined, it can reduce it to a reasonable amount.

Discount on social security for employers

From 1 February 2023, employers can apply a 5% discount on social security premiums for certain groups of employees (e.g. people over 55 years of age, people caring for a child under 10 years of age, students, people with health disabilities or people under 21 years of age). The condition of the discount is, among other things, a work or service relationship with a shorter working time of 8 to 30 hours per week (for persons under the age of 21 years of age, it can even be applied for any working time) and timely application of the discount. The discount can also be applied only if the employee’s income does not exceed 1.5 times the average salary (currently CZK 60,486). Some other restrictions also apply.

Adequate minimum wage in individual EU countries

A new EU directive has been issued that sets out procedures to ensure an adequate level of minimum wages in individual EU states and to support collective bargaining on wage setting. The directive should be incorporated into Czech law by 15 November 2024.

Notification obligation of the assignor towards the debtor

Even though Section 1882(1) of the Civil Code does not contain an explicit order for the assignor to notify the assignment of a claim to the debtor, according to the Supreme Court, this obligation follows from the principle of protection of the debtor, whose consent to the assignment is not required (File 20 Cdo 1911/2022).

By Radek Matous, Partner, Barbora Safarikova, Senior Associate, Michal Ruzicka, Senior Associate, Sarka Kucharova, Associate, Marek Poloni, Associate, Ondrej Sudoma, Associate, Eversheds Sutherland

The Office for the Protection of Competition has recently published the results of a sectoral investigation in the pharmaceutical sector. The sectoral investigation is a tool used by both, national competition authorities and the European Commission to comprehensively investigate competition rules in a given sector, especially if they suspect that competition rules are being violated.

This time, the competition authority’s investigation was focused on drug distribution issues, probably in response to a number of initiatives raised by small pharmacies or their associations. However, practical issues, for instance related to pay-for-delay agreements (i.e. agreements between manufacturers of original medicines and producers of generics not to enter the market for a specific period of time), were not covered by the investigation this time.

The Office for the Protection of Competition also addressed potential problems causing shortages of certain medicines on the market. One of its proposals to resolve this problem was to adopt an active ingredient prescribing system. In other words, doctors should prescribe an active substance instead of a specific drug to patients. This system has already been implemented in countries such as Slovakia, Spain, France, Portugal, Canada, New Zealand and the USA.

It has been pointed out, however, that such a newly created legal regulation of an active ingredient prescribing system would need to be quite complex, as there are approximately 9,600 registered active substances in the Czech Republic. It would need to specify in a detailed way whether prescribing a medicine by brand name in addition to the active ingredient name would be preferrable in some circumstances, for clinical reasons and/or patient safety. It would also need to set the rules for high-risk medicines such as insulin. Moreover, it is not only the active substance that is decisive for the patient, but also its amount, dosage and possible side effects. Such a “newly created” system would in most cases leave the final decision on which drug to issue to pharmacists instead of doctors. This could raise concerns as to whether it would lead to a more intensive pharmaceutical lobby.

In addition, the competition authority suggested to prioritise the prescription of generics and biosimilars. This recommendation can be disputable in situations where a producer of an original drug devotes years to expensive clinical research. The high investment often does not return even within the patent protection period. Should the generics be prescribed preferentially in such cases? Does such a recommendation really promote free competition on the market?The Office for the Protection of Competition also suggested fixing the cap of the trade margin for reimbursed medicines for certain levels of the distribution chain. If we thought about harmonizing the prices of medicines across Europe, then a fixed cap on the trade margin would certainly be a step in the right direction. Nevertheless, part of the price of the drug also includes VAT, which varies from country to country. Will determining the maximum cap of the trade margin contribute to uniform drug prices on a global scale to avoid, for example, parallel exports of medicines to neighbouring countries? In any case, it could be a tool to motivate pharmacies and hospitals, which are often in a worse position because they are dependent on the “remaining” part of the surcharge.

The Czech competition authority also recommends introducing online sales of prescription drugs to make them available even in small villages or remote places with less infrastructure. 

Reimbursement of drug prices is one of the most important items of the state budget and the availability of pharmaceuticals on the market is undoubtedly a public interest of the highest priority. Therefore, the investigation of particular levels of drug distribution chains deserves adequate attention. The increased level of cooperation between the national competition authority, the State Institute for Drug Control and the Ministry of Health is certainly useful. It remains to be seen how many practical questions the sectoral investigation in the pharmaceutical sector actually answered. 

By Tomas Dolezil, Partner, and Vladena Svobodova, Senior Associate, JSK, PONTES

With the new year, a significant amendment to the Czech consumer protection laws came into force that further strengthens consumer rights and increases transparency in providing information to consumers. But there are also important changes in the marketing area, including tighter restrictions on using influencers to promote products and services.

Here the amendment introduces a new unfair commercial practice. This can be committed by a seller who publishes false consumer reviews or recommendations to promote a product or service or instructs another person to provide such consumer reviews or recommendations. It limits the previous practice circumventing the obligation to indicate a paid promotion by publishing seemingly objective reviews or recommendations. With the newly introduced right of consumers to withdraw from a contract or claim a reasonable discount where their decision to purchase a product or service has been affected by an unfair commercial practice, uncontrolled use of influencer marketing appears to be very risky.

Therefore, an adequate contract between the advertiser and the influencer is more important than ever. Such a contract should consider not only the form of promotion, the number of posts published or the obligation to indicate the cooperation, but also the compensation in case of a fine imposed by a supervisory authority or if the consumer withdraws from the contract.

By Jiri Benes, Junior Lawyer, Tomas Klima, paralegal, JSK Law Firm

REALS has advised the Redside investment company and its Nova Real Estate fund on the sale of the Baumax DIY store in Hradec Kralove to a company from the Baumax group. Siwy & Co advised Baumax.

According to REALS, “Redside provides investment solutions and know-how for institutions and individual investors in the dynamically growing area of alternative investment fund management. The company is responsible for managing client assets of EUR 500 million allocated to its five investment funds.”

The REALS team included Partners Miroslav Dudek and Pavlina Tejralova and Attorney Filip Balousek.

The Siwy & Co team included Senior Attorneys Oskar Povetz and Andrzej Czeczotka and Attorney Piotr Mendrek.

Eversheds Sutherland has represented Itaka in the settlement proceedings with the minority shareholders of Czech travel agency Cedok.

According to Eversheds Sutherland, the “former minority shareholders of Cedok have settled with the Polish business Itaka on a final price for their exit from the Czech travel agency’s ownership structure after years of litigation. The Polish owner of Cedok will pay significantly less than the minority shareholders originally demanded the purchase of their minority shares.”

According to the firm, the court-approved settlement deal indicated that “Itaka will pay only roughly CZK 40 per share, as opposed to CZK 570.”

Eversheds Sutherland’s team included Prague-based Co-Managing Partner Borivoj Libal and Attorney Marek Poloni.

The Ministry for Regional Development of the Czech Republic will soon decide whether to pay for the Czech Republic to become part of the prestigious MICHELIN Guide. The MICHELIN Guide is asking for CZK 10 million for this “service” for the next three years.

Such a payment coming from public funds to one particular entity undoubtedly confers a so-called selective advantage and could therefore be regarded as state aid within the meaning of Article 107 of the Treaty on the Functioning of the European Union.

In case of this payment, we could think of a specific category of so-called operating state aid. In this way, undertakings cover their production costs. But even such state aid is almost always incompatible with the EU internal market and, therefore, prohibited. The exception might be the reimbursement of operating costs in case of support for renewable energy sources or support for environmental projects, which is hard to imagine in the case of MICHELIN Guide.

One of the few ways to legalise public support is to apply the de minimis rule, which provides that state aid of up to EUR 200,000 paid over three consecutive fiscal years to a single undertaking will not be considered “dangerous” and will therefore be “authorised”.

To sum up, it would be highly problematic to assess such a payment as legally compatible with the European market and the legal rules on state aid. Given that this sum has been recently paid by Hungary, Slovenia and Estonia, the evolving practice will be of considerable interest.

Another scenario might arise if the gastronomic guide were to compete for an objectively set amount in a public tender, which would have to meet relatively strict criteria.

By Vladena Svobodova, Senior Associate, JSK, PONTES

On 24 January 2023, a new law called LEX OZE I. (Act No. 19/2023 Coll.) entered into force. The goal of this law is to remove obstacles and speed up the construction of renewable energy sources (“RES”).

LEX OZE I. introduces an amendment to the Energy Act, according to which power plants producing electricity from renewable sources with a total output of more than 1 MW are established and operated in the public interest. In practice, this will mean that the relevant authorities will have to take this public interest into account during the permitting process, and the mere existence of another public interest (in the construction of wind and solar power plants, for example, the interest in nature and landscape protection) does not mean that this other public interest will automatically prevail.

Another important change is the possibility to operate RES with an output of up to 50 kW without a licence from the Energy Regulatory Office.

The construction of RES will also be facilitated by the change in the Building Act, according to which these facilities are now considered public technical infrastructure. This change has a major impact on spatial planning, as it allows these facilities to be built even in undeveloped territory, if it is in accordance with its character, unless the spatial plan expressly excludes it. The obligation to have a zoning decision and building permit for the construction of small renewable energy plants with an output of up to 50 kW will also no longer apply, if these plants are in accordance with the spatial planning documentation. For most of these buildings, as well as for the construction modifications necessary for their installation, there will be no need to notify the building authority as long as the buildings do not interfere with the supporting structures of the building and do not change the way it is used. The exception is mainly buildings in specially protected areas, heritage reserves and heritage zones, for which the obligation to notify will remain.

By Vit Inquort, Junior Associate, Eversheds Sutherland

Kocian Solc Balasitk has advised real estate rental start-up Flatform on its establishment and partnership agreements with insurance companies. 

According to KSB, “the platform gives prospective tenants a chance to rent an apartment or living premises without having to pay large security deposits and allows landlords to screen tenants and gives them higher damage coverage through the platform’s financial guarantee.”

KSB’s team included Partner Vlastimil Pihera, Lawyers Ota Mach and Jaroslav Zahradnicek, and Junior Lawyer Josef Novotny.

Former White & Case Associate Ondrej Barton has joined the Dentons Prague office as a Partner, starting on April 1, 2023.

Specializing in corporate and M&A and banking and finance, Barton previously spent over 11 years with White & Case from 2012 to 2023. Between 2011 and 2012, he was a Junior Associate with Weil Gotshal and Manges. Earlier still, he was a Law Clerck with Squire Sanders.

“With his experience in both transactional financial and regulatory matters, Ondrej will make a great addition to our Banking and Finance practice, while also strengthening our Restructuring, Insolvency, and Bankruptcy offering,” Dentons Co-Head of Banking and Finance in the Czech Republic Jiri Tomola commented.

“His recruitment supports our long-term goal of investing in talent to maintain the top position of our existing practices and expand our service offering for clients in the other areas,” Dentons Czech Republic Managing Partner Petr Zakoucky added.