Category: Czech Republic

As a capital gain arising from foreign exchange activities, the sale of bitcoin for Czech currency is not exempt from income tax.

The court argued that bitcoin does not constitute a foreign currency, as it is only a virtual currency, has no equivalent in the form of cash, is not legalised in the territory of any state and is not issued by any central bank. Bitcoin is therefore an intangible movable thing within the meaning of the Income Tax Act.

The nature of the transaction is also relevant. If bitcoin is used to pay for goods and services, the transaction will not be subject to income tax. However, if the bitcoins are not used to pay for goods and services but as an investment instrument, i.e. the transaction consists in the exchange of bitcoin for Czech currency, increasing the seller’s assets, such income will be taxed.

(Judgment of the Regional Court Brno of 17 February 2022, Case No. 30 Af 29/2020 – 48)

By Jana Pospisilova, Associate, PONTES 

Dunovska & Partners has advised Odyssey 44 on its financing for JSK Investments. Havel & Partners advised JSK Investments.

Odyssey 44 is a family office and was founded in 2014 in Prague. It manages the wealth of the Kusik family.

JSK Investments is a Czech family holding company. It was established by Simona Kijonkova and Jaromir Kijonka in 2017.

Dunovska & Partners’ team included Partner David Urbanec and Junior Associate Marketa Kolarikova.

Havel & Partners’ team included Partner Vaclav Audes and Senior Associate Veronika Filipova.

Act Randa Havel Legal has successfully represented Seznam.cz in a defamation dispute against Jan Hamacek regarding articles published on the topic of the former minister’s planned trip to Moscow.

According to Act Randa Havel Legal, “former Deputy Prime Minister Jan Hamacek failed to appeal a verdict against him, and the Prague 5 District Court ruling has become definitive as a result.” He had initially sued “news server Seznam Zpravy for CZK 10 million for defamation over articles about a planned trip to Moscow.”

“Seznam Zpravy said Hamacek planned to use findings about Russian involvement in the explosion in Vrbetice as leverage to get Sputnik V vaccine from Russia and other benefits,” the firm informed. “In the end, the meeting did not take place. Hamacek now must pay the court fees and also reimburse Seznam Zpravy for their legal expenses. A criminal investigation against Hamacek by the National Center Against Organized Crime (NCOZ) was previously dropped, as the trip was only in the planning stages.”

Kinstellar has advised the Genesis Private Equity Fund I on its acquisition of JP-Prolak from Jaroslav Prokop. Moore Legal CZ advised Prokop on the sale.

According to Kinstellar, “based in the town of Opatov u Svitav, Pardubice region, JP-Prolak specializes in the custom manufacturing of small and medium-sized batches of a wide range of industrial products. The firm caters to customers across various industries, including mechanical, agricultural, electrical, and automotive.”

Kinstellar’s team included Partner Jan Juroska, Counsel Martina Brezinova, Managing Associate Michal Kniz, Senior Associate Martina Mazurkova, Associate Denisa Simanska, and Junior Associates Jan Palko and Dominik Sevcu.

The Moore Legal CZ team was led by Partner Veronika Janysova.

Havel & Partners has advised the City of Prague on Passerinvest Group’s CZK 184 million investment to develop the area where its real estate project is being implemented, according to the new Prague methodology of investor participation.

According to Havel & Partners, this is the first agreement made “in accordance with the Prague Methodology of Investor Participation. On the basis of the methodology, developers financially contribute to the development of the area in which their development project is implemented.” Furthermore, “the developer will contribute nearly CZK 46 million to the development of the area [near the Roztyly metro station], and will build a traffic feeder, an extensive park, several elements of blue-green infrastructure and part of a cycle path in the same location for a further CZK 138 million.”

Havel & Partners’ team included Partner Frantisek Korbel, Counsel Jan Fikar, and Associate Tomas Kalensky.

In this article we provide a brief summary of the Czech dispute resolution landscape, focusing on commercial disputes.

Litigation Before State Courts

Most civil-law disputes – including commercial disputes – need to be initiated in one of the 86 District Courts. Based on local competence rules, the respective court then hears the case in the first instance. The second instance (appeal) proceedings are heard in Regional Courts. However, Regional Courts also act as the first instance court for selected agendas (e.g., intellectual property and corporate disputes). In these complex cases, High Courts function as courts of appeal. Above this structure stands the Supreme Court, which deals with cassation requests (extraordinary remedies). The highest court in the system is the Constitutional Court, which stands outside this general structure. According to statistics, the Czech judicial system continuously ranks among the fastest in the EU, with an average duration of less than one year in the first instance. But the reality is different. If the disputes are more complex, first instance proceedings extend to several years. Although improvements are visible, the slowness of justice is often frustrating for entrepreneurs.

An area that could be improved is digitalization. Although this topic is intensively discussed and certain projects for improvement are in progress, Czech courts currently still mostly use physical files. Although submissions can be made electronically, judges (and parties) still need to work with physical case files, which can’t be accessed outside the court’s building. A limited electronic filing system is currently only used in insolvency proceedings because of publication requirements.

In terms of witness testimonies, a relatively recent change in legislation has finally established a much-needed framework for examinations via video conferencing, which has been used during the lockdowns of recent years.

Arbitration and ADR – a Reasonable Alternative?

In the two decades following the fall of communism, arbitration became a popular alternative to the general state court system – especially among commercial entities. However, this instrument was also misused to the detriment of consumers – leading to significant changes in legislation. As a result of these developments, arbitration is no longer available for consumer disputes.

The role of arbitration in commercial disputes is also not as prominent as it used to be. Local arbitration, whether institutional or ad hoc, has undergone a crisis of confidence, resulting in a decline in interest in this dispute resolution framework among businesses. The initiatives in existing institutions and those aiming to establish new ones give hope that we could see changes in this area relatively soon. This is certainly positive news because arbitration can offer speed, flexibility, and expertise that state courts simply cannot compete with.

Aside from arbitration, Czech law also includes a framework for mediation – another method of alternative dispute resolution. Although the popularity of mediation for commercial disputes is not overwhelming, there’s a growing trend in this area. Agreements reached in mediation are not directly enforceable under Czech law unless they are subsequently approved by a court at the parties’ request. This flaw is being addressed (at least at an international level) by the Singapore Convention on Mediation, which opened for signature in 2019. But the Czech Republic is not yet a signatory and there’s no indication this will change anytime soon.

What to Expect in the future?

Possibly the most significant change in terms of civil-law disputes could be brought by the much-anticipated Class Actions Act. Czech procedural law does not currently make any provisions for class actions. The bill on class actions aims to change this area completely, most likely with the introduction of an opt-in mechanism for consumers. The bill is currently in the early stages of the legislative process, and it remains to be seen in which form it will be enacted. As the implementation deadline prescribed by the respective EU directive will lapse by the end of 2022, we expect to learn more in the coming months.

By Petr Sabatka, Partner and Head of Litigation and Regulatory, and Jan Karabeles, Associate, DLA Piper Prague

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Kocian Solc Balastik has advised the Bjarke Ingels Group on the agreement for the architectural study and project documentation regarding the Vltava Philharmonic Hall project. Havel & Partners advised the City of Prague on organizing an architectural competition for the selection of the hall’s design.

“The Vltava Philharmonic Hall by BIG will not only be a new concert hall offering world-class twenty-first century standards in terms of acoustics, capacity, layout, technical facilities, architecture, and urban design, but also a vibrant and open cultural space for all visitors,” KSB informed. “The Vltava Philharmonic Hall will confirm Prague’s international reputation as a cultural metropolis and symbol of the Czech musical tradition and will become a new landmark not only for Prague, but for the whole Czech Republic.”

“According to the plans of the city administration, the unique building, which will be built on the Bubenske nabrezi embankment near the Vltavska metro station, should be completed in 2032,” Havel & Partners reported.

The Bjarke Ingels Group is a Danish architectural studio.

The KSB team included Partner Vaclav Rovensky and Lawyer Tomas Travnicek.

The Havel & Partners team was led by Partner Josef Hlavicka and Managing Associate Kamila Kulhankova.

Cytowski & Partners has advised Kaya VC on a USD 1.05 million financing round for Upheal. Sparring advised Upheal.

According to Cytowski & Partners, the round included Credo Ventures, Calm/Storm Ventures, and several angel investors from CEE.

Upheal is a Prague-based company that has created an artificial intelligence-powered mental health notebook for health professionals.

Kaya VC is a Prague-based seed and series A venture capital fund focusing on companies from the CEE region.

The Cytowski & Partners team was led by Partner Tytus Cytowski.

The Sparring team included Attorneys Katarina Volna, Stephen Ruotsi, Ondrej Zemek, and Marek Brada.

PRK Partners has advised Karo Leather on the public subscription of its shares on the START market of the Prague Stock Exchange.

Karo Leather is a CEE leather processing company. According to PRK Partners, the company is “considering a future transfer to the regulated market of the Prague Stock Exchange and dual listing of its shares in Poland. Karo Leather successfully placed the entire issue of new shares, thereby obtaining CZK 132 million for its development.”

The START market is a segment of the Prague Stock Exchange focusing on small and medium-sized enterprises. 

PRK Partners’ team was led by Senior Attorney Jan Ditrych.

Inflation, the energy supply, and bankruptcy issues are having an enormous impact on Czech businesses and key sectors, with the government’s attention divided, according to Dubanska & Co Partner Barbora Dubanska.

In terms of workload and mandates, Dubanska highlights that there are a lot of ongoing restructuring and insolvency proceedings in the Czech Republic. “Recently, one of the biggest Czech fashion chains, Pietro Filipi, went through insolvency proceedings,” she says. “It’s a shame that it happened, as the company used to hire innovative fashion designers and was one of the few Czech fashion production companies.” 

“Similarly, Czech glass manufacturing companies are facing huge risks due to the high energy prices,” Dubanska notes. “Many glass manufacturers, producing both regular and glass art products, have announced that they would terminate their activity over the winter, not being sure if that will last for a few months, or whether they will come back at all.” Further, “we also have specialized schools for glass manufacturing, for both mass production and art products,” she says, noting that they are facing similar problems. “Considering the uncertainty about energy, these schools are changing their timetables to sustain activity,” Dubanska notes. “It is sad for the Czech Republic, as the country is famous for glass production and has famous manufacturers and artists. The current crisis is not affecting only businesses, but art as well.”

Additionally, Dubanska says that the crisis has an impact on healthcare – “medicines manufacturing is considered a priority sector now, in terms of energy distribution,” she notes. “An increase in energy prices will also have an impact on healthcare and hospital management. Hospitals now have to think twice about where to spend their money, to make sure that they can still supply healthcare to patients.”

Dubanska also highlights the potential impact of the draft Regulation for a European Health Data Space, introduced by the EU Commission as part of its transition to a digital economy. “One of the key features, in terms of data flow, could be having healthcare records in an electronic format, accessible for patients on the spot and free of charge,” she says. “This would simplify getting healthcare abroad for patients, and also be easier for healthcare providers. At the same time, anonymized and aggregated data could be available for policymakers, scientists, and businesses to undertake research projects, adopt policies, or come up with innovative solutions.” Dubanska notes that this is a significant topic on the EU presidency agenda, yet “there is pushback from the conservative side – there are some hospitals in favor of paper forms, as well as people and companies who would keep that anonymized and aggregated healthcare data from being freely available.”

“And there are supply chain issues as well,” Dubanska adds. “For example, Skoda’s manufacturing plants are suffering from a lack of supplies, such as chips. The production has slowed down but, luckily, there were no layoffs yet,” she notes, highlighting that the Czech Republic has “one of the lowest unemployment rates in Europe, however, there are prognoses that we’ll see a surge at some point.” In general, Dubanska says that there is a huge push from industry associations, such as the Chamber of Commerce and Confederation of Industry, for the government to be more involved in managing the impact of the crises. “The Czech Presidency of the EU Council is taking government focus away from domestic issues, and that’s far from an ideal combination of factors,” she notes.