“The recent tax amendments introduced at the local level by the Estonian government have created a lot of buzz in the legal market,” says Risto Agur, Managing Partner of KPMG Legal in Estonia.
There are at least three significant amendments to the tax laws, according to Agur, “which have caused a lot of controversy within the Estonian business community.” These legislative initiatives relate to the application of tax to daughter company loans made to a parent or sister company, a new sugar tax (which the President did not approve), and the increase of the alcohol excise duty. The initial idea for the tax on daughter company loans to parent companies was basically to restrict hidden profit distribution and apply advance payment of tax on all upstreamed loans from the Estonian subsidiary (or security provided by the subsidiary) in excess of all equity and loan payments made into the subsidiary, which tax would be returned if the loan was repaid or security returned within two years, but as a result of its stringent nature the amendment generated an unfavorable reaction from the business community. As a result, according to Agur, “to avoid the misuse of the law, the regulation to be passed as things stand now merely requires a declaration of all loans made by daughter companies, the adoption of a general provision restricting misuse of the loan to the parent company, and the application of additional guidelines.”
The EU General Data Protection Regulation is also generating a high volume of work for data protection, IP, and IT lawyers in Estonia, Agur says. “The legal teams and IT experts are actively pursuing the demand in this area because it affects entrepreneurs on a large scale.”
Other major legislative developments, according to Agur, include the changes brought about by the Markets in Financial Instruments Directive, together with the applicable regulation scheduled to take effect from January 2018, as well as the EU’s Fourth Anti-Laundering Directive, which came into force on June 26, 2017. “Both of these require a wide range of financial institutions to extensively revise their internal rules and procedures, and will of course be a source of business for the legal community” he explains.
The Rail-Baltica infrastructure project, involving the construction of a railway connecting the Baltics, Poland, and Germany, continues to move forward. Although Estonian society is still divided on the implications of the project for investment and the environment, Agur says, “the project is clearly likely to increase the economic security of the country as it will increase the connections between the Baltics and Poland to Central Europe.”
In general, Agur reports, “it’s been quite an active M&A year, both in terms of corporate and real estate M&A, and our firm has advised on a number of significant deals both in the retail and real estate sectors.” The financial regulatory sector has been busy for lawyers in Estonia as well, he says, noting that “quite a number of financial institutions are pursuing licenses from the state’s financial supervisory authority.”
In respect of the legal market itself, Agur noted that 13 lawyers from the Glimstedt law firm joined PwC Legal in Estonia this April. “Basically,” he says, “this development probably means a double turn over for PwC Legal Estonia.” Otherwise, Agur says, the Estonian legal market has been thriving. “We are currently on a growth path of 35% year on year,” he says, enthusiastically.
