Category: Czech Republic

An amendment to the VAT Act in e-commerce is expected to come into effect in the coming days as part of the ongoing law-making process. The amendment implements the EU Council’s tax package into the Czech system of laws. It also introduces significant changes to imports, cross-border trade within the EU and extends the possibilities for the use of the special one-stop-shops.

LOW-VALUE IMPORTS 

Once effective, the amendment will lift the VAT exemption for imports of goods with a value of up to EUR 22. At the same time, to prevent a significant increase in the administrative burden, a new special regime is introduced for low-value imports under which the post office or the carrier, for instance, can assess the VAT on behalf of the recipient of the goods.

In addition, VAT can also be assessed via an extended special one-stop-shop. This change will have a direct impact on the imports of low-value goods especially from e-shops in the US and China, which are very popular in the Czech Republic.

DISTANCE SALES OF GOODS FORMERLY CALLED FORWARDING OF GOODS

With the amendment, the limits for sending goods in individual members states will be lifted. As for the distance supply of goods, the country of the recipient of the goods is automatically considered the place of supply.

The amendment, however, introduces an exception from this rule under which the country of the supplier can be considered the place of supply. To benefit from this exception, the supplier must be established in a single member state and may not exceed an annual limit of EUR 10,000 throughout the EU in respect to the distance sales of goods and provision of telecommunication services, radio and television broadcasting services and electronic services to the end customer.

ELECTRONIC INTERFACES AS DEEMED SUPPLIERS OF GOODS

Legal fiction will start to apply to electronic platforms: the electronic interface facilitating the sale of goods will be considered to have supplied the goods to the end customer. Therefore, the supply is divided into two transactions:

1. Supply of goods to the electronic interface by the supplier;
2. Supply of goods to the end customer by the electronic interface.

The shipment is assigned to the supply from the electronic interface to the end customer. The supply of goods from the supplier to the electronic interface is therefore considered the supply of goods without shipment.

These rules only apply to the distance sales of imported goods worth up to EUR 150, i.e. the supply of goods to the end customer from a non-EU member state, and also to the distance sales of goods from a supplier not established in the EU when the goods are already physically present in the EU at the time of sale.

ONE-STOP-SHOP

Another major change is the extension of the special one-stop-shop regime to other types of transactions. Until now, the regime has applied to the supplies of telecommunication services, radio and television broadcasting services and electronic services provided to end customers.

The regime will from now on also include low-value imports consisting of the distance sales of imported goods worth up to EUR 150 and the distance sales of goods. For reasons of simplification, electronic interfaces acting as deemed suppliers of goods can also apply this regime to the above transactions.

By David Krch, Partner, and Kristyna Slehoferova, Tax Adviser, Havel & Partners

Former Havel & Partners Partner Josef Adam joined CZG – Ceska Zbrojovka Group SE as the Group General Counsel.

CZG is a manufacturer of firearms and tactical accessories for military and law enforcement, personal defense, hunting, sport shooting, and other civilian uses. The Group includes companies such as Ceska Zbrojovka, Colt Manufacturing Company (acquired this year as reported by CEE Legal Matters on June 7, 2021), Colt Canada Corporation, CZ-USA, Brno Rifles, 4M Systems, and CZ Export. CZG also holds a minority share in Spuhr i Dalby, the Swedish manufacturer of optical mounting solutions for weapons. CZG is headquartered in the Czech Republic and has production facilities in the Czech Republic, the United States, and Canada.

Adam joins the group from Havel & Partners, which he first joined in May 2019 as a Counsel, and where he was promoted to Partner in January this year. Prior to the firm, he was the CFO and Executive Member of the Board of Directors at Czech Airlines between 2014 and 2018. Earlier still, he was the CLO & CIO of Cesky Aeroholding between 2011 and 2014. Between 2009 and 2011 he was the CLO, CHRO, and CIO of Czech Airlines and also served as the Legal Affairs Manager at Prague Airport between 2007 and 2010. 

Originally reported by CEE In-House Matters.

Kocian Solc Balastik has advised Czech technology accelerator AI Startup Incubator on its investment in US-Bangladeshi OpenRefactory.

OpenRefactory is a start-up incorporated in Santa Clara and operating in Dhaka, among other places. The company’s main product is Intelligent Code Repair – a system used for automated detection and correction of errors in software development.

KSB’s team included Lawyers Ota Mach and Josef Kriz.

KSB did not reply to our inquiry on the matter.

Kocian Solc Balastik has advised accounting program developer Solitea on its acquisition of Czech logistics information systems supplier Prytanis.

The transaction remains contingent on regulatory approval.

Prytanis is a Czech supplier of information systems for road haulers, passenger transport operators, and forwarding and logistics companies.

KSB’s team was led by Partner Drahomir Tomasuk.

KSB did not respond to our inquiry on the matter.

On 14 September 2021, the Chamber of Deputies approved the long-awaited amendment to Act No. 48/1997 Coll., on Public Health Insurance (the “Act”), as returned by the Senate (the “Amendment”). It now awaits signing by the President of the Czech Republic. The Amendment brings a wide range of changes and innovations, such as rules for the entry of innovative drugs and orphan drugs into the reimbursement system, the creation of centres for rare diseases and mental health centres, and the introduction of a definition of a patient organisation.

CHANGES IN HIGHLY INNOVATIVE MEDICINAL PRODUCTS AND ORPHAN DRUGS

The most significant change will affect so-called highly innovative medicinal products (“HIMP“) and orphan drugs. The availability of these medicinal products is often very limited and their entry into the system is very complicated due to their specific nature.

HIMP – TEMPORARY REIMBURSEMENT

For HIMP, which have also received an updated definition, the Amendment should streamline reimbursement approvals, making these medicinal products more accessible for patients.

The Amendment will extend the period for temporary reimbursement (from the original 2 years with the possibility of an extension by another year to the new 3 years with the possibility of an additional 2-year extension).

A legal mechanism will also be set up to allow patients who have been treated with this medicinal product to be treated at the expense of the marketing authorisation holder (the “holder“), pending a switch to comparably effective and safe treatment covered by health insurance. The Senate’s amending bill limited that period to a maximum of 24 months. Patients’ right to receive treatment arises directly from the Act, and it does not therefore require a contract to be concluded between the health insurance company and the holder.

ORPHAN DRUGS

Regarding orphan drugs, the Amendment introduces a completely new system for approving their reimbursement.

Until now, these medicinal products have in practice been funded by health insurance through an extraordinary reimbursement under Section 16 of the Act. At the request of the holder or the health insurance company, the reimbursement will be approved in a special procedure by the State Institute for Drug Control (in Czech Státní ústav pro kontrolu léčiv) (the “SIDC“).

The parties to the proceedings will also be scientific societies and patient organisations, an element that is completely new to the Czech reimbursement system. The law defines so-called soft criteria, which should be used for the assessment of an application for orphan drugs reimbursement (including the importance of the possibility of affecting a disease throughout society). After the SIDC has issued its assessment report, the Ministry of Health (within which a new advisory body is being set up for this purpose) will issue an opinion binding on the SIDC. At the same time, the SIDC will be required to initiate a procedure to review the maximum price of the product within a maximum of 3 years.

For both the HIMP and orphan drugs, the cost of their reimbursement from health insurance must not exceed the amount indicated in the budget impact analysis. If an overrun occurs, the holder will be required to reimburse the amount that exceeded the budget impact analysis figure. It is for this purpose that each health insurance company enters into a contract with the holder containing a provision on how to compensate for costs that would exceed the anticipated level of reimbursement.

FIXING MAXIMUM PRICES

On the other hand, thanks to the Senate amendment, the Amendment does not exempt the SIDC from basing the so-called reference basket on foreign prices for actual medicinal products sold on the market and from verifying their actual presence on the market.

The legislative proposal specifically sought to relieve the SIDC of this obligation, in response to judicial practice which criticised the SIDC for taking into account the price of a medicinal product in a given foreign database without examining whether the product was actually marketed in that country. In response to Brexit, the Amendment places Germany among the countries of the so-called reference basket as a replacement for the exiting United Kingdom.

STANDARD REIMBURSEMENT FOR MASS-PRODUCED ADVANCED THERAPY MEDICINAL PRODUCTS

In response to the growing number of mass-produced advanced therapy medicinal products, the reimbursement of these medicinal products will be re-established in the standard administrative procedure after the Amendment enters into force, that is to say, no longer through measures of a general nature.

INDIVIDUAL AND EXTRAORDINARY REIMBURSEMENT – CHANGE IN SECTION 16 

The Amendment further makes uniform the decision-making process for individual health insurance companies regarding applications for extraordinary reimbursement under Section 16 of the Act and promises to speed up the procedure, reduce administrative burdens for health insurance companies and improve the status of the insured person.

As a matter of fact, clear rules are currently absent for situations where the provision of health services is linked to a prior decision of the medical officer, with a large number of such requests being made annually. These applications relate not only to non-reimbursed health services, but also to medicinal products and medical devices. The Amendment introduces the possibility of providing some health services without prior approval by a health insurance company, for example in the case of urgent care.

An application for reimbursement under Section 16 of the Act will be sent to the health insurance company by

(i) the patient himself/herself or

(ii) the health service provider (in practice, the treating physician will act on behalf of the health service provider).

This reflects current practice, given that it is usually the treating physician who makes the claim for reimbursement.

The Amendment gives the insured person the opportunity to defend himself/herself if the health insurance company rejects his/her claim for reimbursement under Section 16 of the Act. Now, many insured people go to the general courts, but they decide on this matter in a highly ambiguous way. This procedure will now be brought first and foremost to the level of an administrative procedure, and each health insurance company will have to set up an appeal body, a so-called review board.

NEW DEFINITION OF PATIENT ORGANIZATION

The Amendment also provides a definition of a patient organisation, meaning “a registered association whose main activity is to help patients and protect their rights and interests”[1]. The patient organization status pertains not only to associations, but also to other legal forms of non-profit organizations, such as an institute or a beneficiary society.

SOME OTHER CHANGES

Nurses will be given the authority to prescribe certain medical devices and physicians the authority to prescribe new medicinal products under the Amendment.

The Amendment further increases women’s limit age for paid IVF by one year, from 39 to 40. The age of patients to receive a reimbursed vaccination against meningococcal infections has also been extended. It could also bring more affordable care to patients with severe orthodontic defects, such as clefts, congenital or systemic defects, and extend reimbursement to non-basic dental replacements.

The Amendment also legislated highly specialized health care centres for patients with rare diseases, mental health centres, emergency admissions, and screening centres.

Finally, it is worth mentioning that some other laws will be amended in connection with the Amendment, notably Act No. 592/1992 Coll., on Public Health Insurance Premiums, and Act No. 372/2011 Coll., on Health Services and Conditions for their Provision.

By Vaclav Audes, Partner, Katerina Slavikova, Senior Associate, and Sabina Skoumalova, Junior Associate, Havel & Partners

The Czech Chamber of Deputies approved an amendment to Act No. 127/2005 Coll., on Electronic Communications (hereinafter referred to as the “ECA”), after the Czech Senate returned it earlier. The purpose of this amendment is primarily to harmonise Czech legislation with the European Electronic Communications Code. However, the amendment will also affect other areas that are not directly related to the Code. One of the most significant changes will affect anyone who operates a website or mobile application and uses statistical, analytical or advertising tools. The change is to move from the current opt-out principle for the use of cookies and similar tracking technologies to an active user consent regime, the so-called opt-in regime.

Briefly on cookies

Cookies are small text file that are stored on the user’s device and are used, for example, to ensure the technical functioning of website. Without them, it would be much more difficult to know that a user browsing the web is still the same user. Otherwise, the website would “forget” this information with each reload, which would make it difficult, for example, to add items to the shopping cart, which would be emptied each time the user moved to another page.

In addition, cookies can also be used for statistical and analytical purposes, specifically, for example, to measure traffic, track how users click through the pages of a website, and even how they move their mouse cursor around the page.

However, cookies are also widely used for marketing purposes, as they can be used to associate information about what a user is browsing and what they are likely to be interested in. He or she is then shown advertisements on various websites that correspond to the pages they visited in the past. So, if you were choosing a destination for your summer vacation, it is likely that you will be seeing offers from travel agencies or travel insurance on other sites.

Current legal framework

The legal regulation of cookies is contained in Section 89(3) of the ECA and is based on the European ePrivacy Directive. However, it does not apply only to the use of cookies but applies generally to any technology that can store data on or read information from user’s device. The most typical example is cookies stored on the user’s device. Other technologies such as web beacons, tracking pixels or web trackers use, for example, a ‘device fingerprint’, which does not store any data on the user’s device, but identifies the user by reading data such as the operating system, screen resolution, browser label or language setting from the user’s device. As the legal framework does not differ for these technologies, we will include them under the term cookies in the following section of this article for simplicity.

According to the current wording of the ECA, the owner of a website or mobile application is obliged to “inform subscribers or users in advance of the scope and purpose of their processing in a demonstrable manner“. As a result of this legislation, websites in the Czech Republic display so-called cookie bars that warn about the use of cookies, sometimes those information are provided in the footer of the website or are available on a separate subpage as a cookie policy.

However, the website owner is also obliged to offer users “the possibility to refuse such processing“. We refer to this as an opt-out regime and it consists in the fact that the use of cookies. Therefore, the measurement of traffic and tracking of the user’s movements on the website is possible until the user expresses his or her disagreement. According to the draft recommendation of the Czech Office for Personal Data Protection, it is possible to express consent with the use of cookies, and in our opinion also to express possible opt-out, through the settings of the web browser. In simple terms, if you do not want cookies to be used on the website you are viewing, change settings of your browser.

It should be added that this regime is not in line with the amended wording of the ePrivacy Directive, which has abandoned the opt-out regime since 2009 and introduced the obligation to obtain user’s active consent to the use of cookies. Now, the Czech legislator reacts belatedly to this amendment of the directive by amending the ECA.

Changes from 2022

The forthcoming amendment to the ECA introduces the obligation to obtain the user’s prior provable active consent to the scope and purpose of processing for the use of cookies from 1 January 2022. We are talking here about the opt-in regime, where the use of cookies can only be activated on the basis of an active act (consent) of the user. Cookies cannot be used before consent is given.

There are several exceptions to the need for consent to use cookies, but these are defined quite narrowly. These include situations where the use of cookies is necessary for technical storage or for the provision of a service that is provided at the user’s request, i.e. it is not an ancillary service that is not requested by the user. The fact that cookies are necessary for the provision of a service means, among other things, that the use of cookies is limited in time to the provision of the service in question. The line between when cookies are necessary for the provision of a service and when they are no longer necessary may be unclear in some cases and will depend on the nature of the service provided. However, statistical and analytical tools do not generally fall within the exceptions.

As it follows from the above-described changes introduced by the amendment to the ECA, the passivity of the user will not be desirable in most cases from 2022, or certainly not sufficient, but on the contrary, it will be necessary to obtain the active consent to the use of cookies. Until this consent is granted, it will not be possible to store cookies or activate other technologies, unless one of the exceptions applies.

In addition, consent to the use of cookies should be of the quality required by the GDPR. In particular, there is a requirement for voluntary consent, which should not be enforced by blocking access to the website or otherwise making it difficult to use the website in order to force the user to give consent. Consent should be informed, i.e. it should be clear what its content is and what the data collected will be used for. Today’s often very general formulations of ‘I agree to the use of cookies’ in the Czech Republic will no longer be sufficient. Similarly, consent should be expressed by an unambiguous expression of will, and this should put an end to the current practice whereby consent is given, for example, by continuing to browse a website – this does not constitute an unambiguous act by the user to consent to the use of cookies. It is also the case that giving consent should be as simple as withdrawing it.

Impacts and practical recommendations

The amendment, once signed by the President, is expected to take effect on 1 January 2022, so it is advisable to start preparing for the change right now. It affects anyone in the Czech Republic who operates a website or mobile app and uses tools to track traffic or target ads, and its implementation could represent a fairly significant disruption to existing websites and impact online marketing.

The first step to do is to identify all the tools used on websites that use cookies or other similar technologies and to find out what they are used for. Based on this, it is then necessary to decide whether it is necessary to obtain user consent. If so, existing cookie bars will need to be modified from opt-out to opt-in mode. At the same time, the correct storage period for each cookie needs to be set. Various solutions are available on the market that promise to meet the requirements of the new legislation. However, attention should be paid to its specific settings. Even the best tool may not ensure compliance with the new legislation if, for example, it is set up in such a way as to enforce consent.

In order to comply with the GDPR’s requirement to provide informed consent, website and mobile app owners will also need to create cookie policy containing a clear description of what each cookie is used for and make this policy easily accessible to users.

In the context of screening individual tools used on the web, we also recommend addressing the issue of personal data transfers to countries outside the European Union or the European Economic Area, which are often closely linked to usage abovementioned web tools. Following the decision Schrems II ruled by the CJEU, this area is increasingly in the crosshairs of the Czech Data Protection Authority and foreign supervisory authorities. Non-profit organisations are also trying to initiate authorities’ activity, of which probably the most active, the Max Schrems’s nyob, has sent dozens of complaints against controllers and processors to supervisory authorities across the European Union.

The amendment to the ECA thus catches up with the European standard in approaching cookies, but this means a significant tightening of the previously benevolent rules. In this context, it is worth mentioning that in the future, both the ePrivacy Directive and the relevant provisions of the ECA should be replaced by the ePrivacy Regulation[9], which in its current proposal contains similar provisions but allows, for example, the use of certain cookies for statistical purposes without consent. However, the approval of this Regulation has already been postponed several times, and in the meantime the amended ECA must be followed in the Czech Republic.

By Michal Nulicek, Partner, Jan Tomisek, Managing Associate, and Filip Benes, Junior Lawyer, Rowan Legal

Taylor Wessing has advised UBM Development on the sale of a Lipno lake holiday resort to Austrian Gruppe Dorn-Fussenegger member Lipno Invest Vision. Neubauer Partner reportedly advised the buyer.

The transaction closed in August 2021. Financial details were not disclosed.

Lipno Invest Vision focuses on the selling and construction of resorts, houses, and apartments located near Lipno lake, in the southern Czech Republic.

UBM Development is a real estate developer, providing office and residential properties in European metropolitan areas such as Vienna, Berlin, Munich, and Prague.

“We are pleased to have once again had the opportunity to cooperate with UBM Development on this important transaction, which confirms the continuing interest in holiday properties in attractive locations. Despite the coronavirus constraints, we managed to successfully complete the transaction to the satisfaction of all parties involved,” commented Taylor Wessing Partner Jakub Adam.

Taylor Wessing’s team was led by Adam and included Senior Associate Marek Stradal and Associates Radim Dolezal and Martin Serak.

Petr Soucek has joined Kinstellar’s Prague office as a Managing Associate and Head of the local Dispute Resolution practice.

According to Kinstellar, Soucek is “a litigation expert with over 10 years of experience in Dispute Resolution, including more than seven years at White & Case.” His expertise includes domestic and cross-border dispute resolution, shareholder and company disputes, administrative proceedings, and contentious regulatory matters.

Soucek joining the firm “further strengthens our excellent position in the Czech market,” said Kinstellar Prague Managing Partner Lukas Sevcik. “We see great potential in the dispute resolution area and believe that Petr will help us achieve our firm-wide ambition of becoming a leader also in this area.”

“I am delighted to be joining such a dynamic and highly respected law firm and look forward to adding value to both the firm and the clients we represent,” Soucek added.

The Czech Republic is experiencing strong positive winds, irrespective of the severity with which the pandemic struck, and there are things aplenty to be happy about, according to Kocian Solc Balastik Partner Dagmar Dubecka.

“It’s really been exciting to be back in the office in full swing over the summer – there’s been a very positive mood in the air in the Czech Republic, as both domestic and international investors have been keen to get back to restored business operations,” Dubecka begins. “We’ve seen pent-up demand and strong competition amongst buyers and strong growth trends – the Finance Ministry is now predicting GDP growth of 3.2% in 2021, driven by all components of domestic demand, mostly investment and household consumption.”

Dubecka reports that, while growth has been evident in a variety of business sectors, the clear exceptions are travel and hospitality. “Both were severely hit by COVID-19 restrictions and will take some time to recover, dependent on global travel trends,” she says.

On the other end of the spectrum lie IT/technology and real estate, according to Dubecka, as the most active sectors. “Our firm has seen a lot of action here, especially with advising the Arete Invest Group in one of the largest Czech-Slovak real estate transactions in 2020, the sale of a portfolio of 11 logistics and industrial parks in the Czech Republic and Slovakia to the Australian Cromwell fund,” she reports. As for IT/technology, she reports a swath of webhosting and domain registration acquisitions, cybersecurity acquisitions, as well as information system and CRM platform transactions.

“The pandemic accelerated digitalization in all sectors of the economy and the excellence of the Czech tech sector as well as the motivation of companies not to fall behind in adopting digital solutions makes it likely that the tech sector will continue to be a key driver of M&A activity,” Dubecka continues. A strong trend in the last couple of years, despite the Covid era she says, has been a “rising share of investments with high value-added, i.e. investments focused on technology and R&D in strategic sectors. CzechInvest notes that, in 2018, only 20% of investment projects it arranged fulfilled the high value-added criteria. In 2020, this jumped to two-thirds of investment projects,” Dubecka reports.

Finally, tackling current regulatory issues, Dubecka mentions a “very new and untested area” of the new Foreign Direct Investment Act, which took effect in the country on May 1, 2021. “Lawyers and their clients will need to pay due attention from the point of view of M&A practice implications, to assess whether an investment under consideration requires prior consultation with the respective responsible authority of the Czech Republic, or whether other aspects of a client’s existing business operations in the Czech Republic may be subject to review,” Dubecka says, “even potentially such matters as a change in company directors. It will be interesting to see this evolve,” she concludes.

Allen & Overy has advised Accolade Fund SICAV on the up to EUR 120 million refinancing of its entire Czech real estate portfolio provided by Ceskoslovenska Obchodni Banka and UniCredit Bank Czech Republic and Slovakia. Dentons advised the lenders on the transaction.

According to A&O, the loan will be used to refinance the existing indebtedness of Accolade’s Czech Republic real estate portfolio and for the development of certain logistics assets.

The Accolade Group invests in warehousing facilities focusing on sustainable development in the Czech Republic, Poland, Germany, Slovakia, and Spain. An industrial real estate fund, Accolade Fund SICAV was launched in 2014.

The Allen & Overy team was led by Counsel Silvie Horackova and included Counsel Petra Mysakova, Associates Lucie Siva and Barbara Midova, and Junior Lawyer Viktor Vrablik.

Dentons’ team was lead by Partner Daniel Hurych and included Counsel Jana Malkova Zelechovska, Senior Associate Martin Mandulak, and Associates Eva Klimova and David Sutko.