Category: Hungary

Ivan Ferencz, former Senior Legal Advisor and Legal Director at Fundamenta-Lakaskassza Zrt., has joined Budapest’s Szabo, Kelemen and Partners as Of Counsel.

Ferencz graduated summa cum laude at Budapest’s ELTE Faculty of Law in 1995. He started working at Lakaskassza Zrt, the predecessor of Fundamenta, in 1998 as the Head of Legal. In 2003 he participated in the successful merger of Fundamenta and Lakaskassza, and he became the Legal and Compliance Director of Fundamenta-Lakáskassza Zrt — one of the largest credit institutions in Hungary — in 2013.

In 2014, Ferencz received the “Aranykaptar Dij” (an award established by the Hungarian Banking Association to celebrate exceptional personal achievement and to foster the development and operation of the credit institutions sector), and in 2017, in recognition of his activities in the buildings societies sector, he received the Hungarian Golden Cross of Merit.

Oppenheim has advised Immofinanz on the sale of the Central Business Center office building in Budapest’s 2nd district to ConvergenCE. Bird & Bird reportedly advised ConvergenCE

The building, which contains 10,000 square meters of office space with 156 parking spaces in an underground garage, also has an 800-square-meter courtyard complete with its own restaurant. 

The Oppenheim team consisted of Partner Mark Pinter, Senior Associate Janos Fodor, Associate Judit Haraszti, and Junior Associate Kata Szanto.

Editor’s Note: After this article was published Bird & Bird confirmed its involvement on behalf of ConvergenCE. The firm’s team consisted of Senior Associate Daria Szabo, Associate Adam Boross, and Junior Associate Petra Matuszka.

A common solution to the chronic workforce shortage seen in the entire region nowadays is that one company provides labour to another. However, one should be careful with these agreements: depending on the circumstances, the tax authority (NAV) may reclassify these contracts, which could result in major tax expenses.

Let is be security services, shelf-stacking or even seasonal agricultural work, many sectors in Hungary today lack a sufficient number of staff for the job. But it can also happen that a company is forced to find a temporary replacement for a female employee on maternity leave or a colleague who’s off work recovering from an illness. In such cases, an obvious solution is to use an external contractor to provide the missing personnel. This temporary arrangement often takes the form of a service or agency contract, whereby the contractor performs the requisite duties using its own employees – in most cases at the client’s head office or other permanent establishment.

The VAT problem

What could be the problem with such a contract? The fact that, upon a tax audit, the tax authority (NAV) may conclude that the contract is more of a workforce lending contract than a service or agency contract, and it may be tempted to reclassify it. However, service/agency contracts and workforce lending contracts are treated differently in terms of VAT. Whereas contracts belonging to the former category fall within the scope of the general VAT system, workforce lending services fall under reverse charge VAT.

These service/agency contracts entail, therefore, a significant tax risk for the client. If the tax authority (NAV) finds that the parties have in fact agreed to hire personnel, the client will not have the right to deduct the VAT charged by the service provider and will have a VAT shortfall as a result. If the service provider co-operates with the client during the tax audit and is willing to amend the invoice, the audit could lead to a smaller tax shortfall and a moderate fine. If, however, the contractor is no longer reachable, the contract in question dates back several years, the contractor was acting in bad faith or there is any other technical problem, it will be virtually impossible to avoid more serious pentalties.

When is it a workforce lending and when is it a service contract?

However, it’s not easy to determine where the boundaries of the two types of contract lie. On the one hand, a hint is provided by the Labour Code, which says that the employer has the right to second temporarily its employee at a different workplace or at another employer, as long as this secondment does not exceed forty-four days a year. Does this mean that employment beyond this period at another workplace or employer automatically classifies as the contract as workforce lending? Not necessarily. Other circumstances of the posting must also be taken into account, such as whether the employee was specifically recruited for that purpose.

Recent court rulings may also provide guidance on the matter. According to these, whether an agreement qualifies as a service contract or a workforce lending, it makes a difference whether the employee is only employed for a specific project at another workplace or to perform recurring tasks in general. When distinguishing between the two types of contract, it must also be taken into account whether the entrepreneur is represented at the client’s premises beyond the employee’s personal work. If the client is free to issue instructions to the employee without any restriction, that also reinforces the workforce lending character of the contract. It also makes a difference which contracting party organises the work of the employee, whether the contractor provides replacement in the event of illness or vacation, who provides the work equipment (e.g. who provides the cleaning tools) and, last but not least, the basis on which the parties calculate the contractor’s fee (on a project basis or in proportion to the number of employees posted). Unfortunately, in practice these conditions are not always coherent and therefore rarely point clearly towards one or the other type of contract.

How to proceed?

Workforce lending is an activity strictly regulated by law. The lender must be registered with the state employment body, and comply with various conditions. Therefore, unless the service provider expressly intends to pursue this activity on a commercial and regular basis, the parties should seek to formulate their agreement within the framework of an agency or a service contract. However, in order for this to stand the test of a tax audit – or even a labour inspection – it is advisable to avoid the above-described characteristics of workforce lending as much as possible. 

By Daniel Veres, Trainee, Jalsovszky

The Schmidt Law Office has successfully represented the interests of Hungary’s Tibor Trans Ltd. before the European Court of Justice in its demand for damages resulting from a purported cartel of six truck manufacturers that operated to fix prices of medium and heavy trucks between January 1997 and January 2011.

According to the Schmidt Law Office, in its decision of July 29, 2019, “the European Court of Justice held [that] the place where the harmful event occurred is the place where the market prices were distorted and in which the victim claims to have suffered that damage. This means that claimants may bring their claims in their home countries’ courts, rather than the courts of the cartel members. Pending procedures may be continued throughout Europe – as the procedures suspended due to this preliminary ruling procedure.| 

According to the Schmidt Law Office, Tibor Trans would have bought its trucks at lower prices without the cartel, with the difference between those prices and what it was forced to pay constituting the damages it sought. The firm reports that “the lawsuit was initiated in Hungary against a Dutch producer which was not a contractual partner of Tibor Trans, but a participant of the cartel. The Hungarian court dismissed Tibor Trans’ claim based on lack of jurisdiction, [but] the second instance court turned to the European Court of Justice with a so=called preliminary ruling procedure – a procedure of interpretation if the contents of a legislative act are not clear.”

According to the Schmidt Law Office, the ECJ’s ruling that Tibor Trans – and other claimants – may initiate lawsuits in their home states as a place “where the damage occurred” is important, “because the default rule in international litigation is that the lawsuit takes place at the home state of the defendant.”

Former Cellum Group Legal Director Balazs Ferenczy has joined the Kapolyi Law Firm.

Ferenczy, who has nearly 30 years’ experience as a lawyer, started his career in 1992 as a junior legal counsel at the Hungarian Credit Bank. He joined Credit Lyonnais Bank Magyarorszag Rt. in 1996 before moving to private practice as a Local Partner and Head of Banking/Finance in 1998 with Gide Loyrette Nouel. From 2010 to 2013 he worked for his own law firm, and from November 2013 until January 2019 he was the legal director of the Cellum Group, a secured mobile payment technical service provider in Hungary.

According to the Kapolyi Law Firm, which this year is celebrating its 20th anniversary, reports that it “has undergone a unique and cutting-edge rebranding.” According to the firm, it “renewed not only its logo and its brand image but its website and its office as well … to reinforce and emphasize its leading position in the domestic financial legal market. As a leading law firm in Hungary, we need to keep up with the market and the ongoing changes that characterize the business and economic environment.”

We would like the changes and the modernity to be reflected not only in our approach and in this year’s expansion with six people, but also in our appearance, therefore we considered it as important to renew our brand image,” said Managing Partner Jozsef Kapolyi.

During a posting, the employee is bitten by a tick. He throws his back out while loading. He gets sunburnt while working outside. A common feature of these cases is that they are all accidents at work. Yet, if the employer does not pay attention to these, he can find himself at a serious disadvantage.

If an employee becomes incapacitated for work purposes due to an accident at work, the health insurance company will pay him/her accident-related sick pay and, after two years, accident benefit. Meanwhile, the situation is not pleasant for the employer either, as the employee that’s now off work has to be replaced. However, according to current practice, unless the employee has filed a lawsuit to claim compensation for his/her additional damages not covered by the sick pay, the employer did not have to worry about any further financial consequences. At least not until now.

Government offices are getting tougher

According to a regulation that has long been in effect, if an accident at work is the result of an employer violating occupational safety regulations, the government office’s health insurance body may claim a refund to cover the cost of the healthcare services/benefits provided.

In the past, government agencies have only used this opportunity to a minimal extent. However, experience shows that this practice has changed significantly recently. Health insurance bodies regularly issue resolutions on reimbursement of healthcare services/benefits. Some of these concern smaller amounts not exceeding HUF 100,000; however, there has been a case where the government office imposed a payment obligation in the millions of forints.

Work safety rules – compliance is no easy task

The condition for the employee to be held liable in such cases is that he/she has violated the health and safety rules and that this is the reason why the accident happened. But it can be very difficult to fully comply with workplace safety rules. If, for example, the employer does not provide adequate safety equipment (gloves, helmets, boots, creams, etc.) and the employee is injured as a result, the employer is liable. But the employer is also in breach of work safety regulations if he does not regularly check the condition of the gloves, helmets or boots, and replace them at regular intervals, maintain them or provide training on work safety rules. The boundaries of work safety rules are extremely wide, and it’s often difficult to avoid breaking them even with the utmost care.

What should you do?

If an accident at work has occurred, the most important thing is to ensure that it is properly documented. Several years later, the circumstances of an accident may be difficult to ascertain. It is equally important to continuously document precisely how the employer has complied with the occupational safety rules (e.g. through training records). It should be noted that there are several situations in which the employer is exempt from liability – for example, if the accident suffered by the employee was not caused by the infringement of work safety rules, or if only the employee can be blamed for non-compliance with such rules (e.g. the employee failed to wear the safety boots in spite of having been instructed to do so).

In the event of an accident at work, it is always necessary to thoroughly investigate the circumstances. It is often the case that not everything in an accident happened the way it first seemed.

And, finally it’s worth not giving up, even if the government office has already passed a resolution on the matter. In many cases, the decision of the authorities is based solely on the testimony of the employee and other facts that have sporadically become known to it. In many cases, therefore, it is possible to successfully fight against the decision of the authorities and to refute the circumstances on which the decision was based. 

By Péter Barta, Attorney-At-Law Jalsovszky