Category: Hungary

Taylor Wessing has advised Recorde Asset Management and Forestay Group on the acquisition of a building in Budapest’s Gellert Hill area set to become the Moricz Student Living student residence and office building. Taylor Wessing, working with Kalman & Partners, also advised Recorde and Forstay on the acquisition financing obtained from Hypo Bank Noe.

Recorde Asset Management is an alternative fund management company.

Forestay Group operates in investment management and property development.

According to Taylor Wessing, the building in question is set to become the Moricz Student Living student residence and office building, after renovations. “The 15,440-square-meter building is undergoing partial internal renovation supervised by Forestay. It will include 72 double rooms for long-term stays and traditional short-term rentals. The dormitory will include study and relaxation areas and a laundry room. Existing offices, meeting rooms, auditoriums, and catering facilities will be retained, and 48 underground parking spaces will be available, and will be managed by Forestay Group.”

The Taylor Wessing team included Partner Daniel Odor, Senior Associate Kinga Harza, and Associates Petra Szoke and Adel Kovacs.

From 29 July 2024, the administrative service fees relating to procedures for land registry, plot formation, land surveying and mapping, and the provision of data from the land register and the state databases will be increased significantly.

The fee for registration of changes in the land registry will change from HUF 6,600 to HUF 10,600 per property affected by the change. The fee for the registration of a mortgage and (excluding the cancellation of a mortgage) the fee for the procedure to amend the registration will increase from HUF 12,600 to HUF 20,000 per property affected by the change. The registration fee for the foundation of a condominium and the amendment of the articles of association of a condominium per condominium title deed will change from HUF 6,600 to HUF 10,600, but must not be more than HUF 160,000 in total.

The fees for the procedure for the authorisation of plot formation will also be increased, for instance, in the case of 2-5 parcels of land concerned, the fee will increase from HUF 12,000 to HUF 19,000 per parcel.

For a certified copy of a title deed provided as an electronic document, a fee of HUF 4,800 will be charged from 29 July 2024 instead of the current HUF 3,000.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

In its latest decision of May 16, 2024 the European Court of Justice (ECJ) reflected on the Hungarian foreign VAT refund regime. ECJ established once again that non-compliance with formal requirements should not prevent reimbursement of VAT provided that substantive requirements can and have been satisfied.

Background

A Slovak company (Company) – not established in Hungary for VAT purposes – purchased various goods and services in Hungary and incurred Hungarian VAT on its incoming invoices, accordingly. In order to recover the Hungarian VAT charged to it, the Slovak Company submitted a so-called foreign VAT refund claim to Hungarian tax authorities on the basis of Directive 2008/9. The Hungarian tax authority issued a request for documents to be presented by the Company within a one-month deadline. The Company did not respond to the request and as a consequence the tax authority dismissed (discontinued) the proceedings without granting (or denying) the refund.

The Company filed an appeal against the decision together with all the materials previously requested by the tax authority in the annex. The Hungarian tax authorities – both in the first and second instance – denied the appeal and upheld the original decision of dismissal. Finally, the Company filed and action at the competent Hungarian court, and the court referred the following questions for preliminary decision to the ECJ with regard to the applicable Hungarian rules on VAT refunds:

Questions to be considered

(1) – (2) Whether the Hungarian legislation precluding the provision of additional evidence at the stage of the complaint before a second-tier tax authority is compatible with Article 23(2) of Directive 2008/9 and with the principles of VAT neutrality and effectiveness; and

(3) Whether the Hungarian legislation providing for the dismissal of a VAT refund procedure where the taxable person has not provided, within the time limit additional information requested by that authority – in the absence of that information, the VAT refund application cannot be processed – is compatible with the Article 23 of Directive 2008/9?

Decision by the court

With regard to the first two questions, the ECJ – after reiterating the basic principles and well-established case-law – firmly confirmed, that such national regulation is contrary to the EU law, namely, the Council Directive 2008/9/EC and the corresponding principles of value-added tax (VAT) neutrality and effectiveness. It also follows that

(i) Hungarian legislation should not preclude taxpayers from providing the necessary information and documents even at the stage of the complaint (appeal) before a second-tier tax authority; and

(ii) the one-month period set by the tax authority for the provision of documents should not be considered as constituting a limitation period.

Regarding the third question, the ECJ found that the EU Directive allows national legislation to close (discontinue) the VAT refund procedure if the taxable person does not provide the requested additional information within the prescribed period in the absence of that information, the VAT refund application cannot be processed, provided that

(i) the discontinuation decision is regarded as a decision refusing that refund application, therefore

(ii) it can be the subject of an appeal.

Conclusion

The ECJ confirmed that the Hungarian legislation is non-compliant with the EU rules with regard to the foreign VAT refund claims and taxpayers should be permitted to provide additional documentation even after the first instance decision has been made. This should serve as a significant step forward relating to foreign VAT refund claims, however, the question still remains, whether, by analogy of principles, a similar approach would not be applicable to domestic, Hungarian VAT reclaims as well?

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

High-quality, diverse, and extensive datasets are fundamental for improving machine learning model performance, and web scraping helps gather the necessary data to develop more robust and generalizable models. Web scraping pose different legal challenges, such as data protection, copyright and contractual law related issues. Intellectual property concerns arise as website content, like text, images, and data, is often copyrighted, and scraping without the copyright owner’s permission may lead to infringement claims. Further to this, many websites prohibit scraping in their terms of service, and violating these terms can also result in legal action against the operators of web scrapers.

Data Protection Implications of Web Scraping

The General Data Protection Regulation (GDPR) defines personal data as “any information relating to an identified or identifiable natural person.” Web scraping poses significant data protection challenges because it often collects personal data, including sensitive data without individuals’ knowledge or consent. In the EU, data protection laws limit the legal use of web scraping. The GDPR defines processing as any operation on personal data, including collection, organization, storage, modification, retrieval, use, and dissemination. Since web scraping involves these activities, operators are considered data controllers. This means they must comply with controller obligations, including having a lawful basis for data processing, a legitimate purpose (e.g., training a model), and adhering to principles of transparency, data minimization, storage limitation, accuracy, security, confidentiality, integrity, and accountability.

Under the GDPR, any processing of personal data must be justified by a legitimate legal basis. While the European AI Act aims to establish a comprehensive legal framework for the deployment and operation of AI systems, it currently does not provide a specific legal basis for the initial collection of personal data for training AI tools. Instead, the AI Act focuses on data processing within AI sandboxes and development environments, leaving the justification for initial data collection to be governed by the GDPR. Organizations using web scraping therefore must ensure a lawful basis under GDPR for processing both ordinary and special categories of personal data, considering various legal bases:

• Consent: Consent is unlikely to serve as a valid legal basis for web scraping, as it requires the informed and voluntary agreement of the individuals whose data is collected. Obtaining such consent is practically impossible in the context of automated and large-scale data collection, particularly given the “black box” nature of AI. This complexity further complicates the issue of consent for subsequent data processing.
• Contractual necessity: Processing based on contractual necessity requires a direct contractual relationship between the data controller and the data subject. In the context of web scraping, there is typically no such relationship with the individuals whose data is being collected. Consequently, this legal basis is generally inapplicable for justifying web scraping activities.

Further to this, when web scraping captures special categories of personal data, such as health information, additional constraints under Article 9 of the GDPR apply. These constraints include the necessity for explicit consent or meeting specific conditions, such as processing for substantial public interest or scientific research purposes.

Legitimate Interest of Web Scrapers in Data Collection

The EDPB’s ChatGPT Task Force Report clearly points out that collection of training data, pre-processing of the data and training are different data processing purposes that require their own established legal basis. This aligns with the CNIL’s “Using the Legal Basis of Legitimate Interest to Develop an AI System” that differentiates between the different phases of training and using AI systems with data scraped from the Internet identifying risks with each phase of the training and utilisation process. 

The Task Force reminds us that the legal assessment of legitimate interest legal basis must consider three key criteria: (i) the existence of a legitimate interest, (ii) the necessity of processing, ensuring the data is adequate, relevant, and limited to what is necessary, and (iii) balancing the interests. This requires a careful evaluation of the fundamental rights and freedoms of data subjects against the controller’s legitimate interests, taking into account the reasonable expectations of data subjects. The Task Force suggests that safeguards could include technical measures like defining precise collection criteria and ensuring that certain data categories or sources (such as public social media profiles) are excluded from data collection.

The Autoriteit Persoonsgegevens [“AP”], in its Guidelines, states that only legally protected interests qualify as legitimate interests, and purely commercial interests are insufficient [note that the CNIL says that “The commercial aim of developing an AI system is not inherently contradictory to using the legal basis of legitimate interest.”]. The AP also precise and says that if an organization or a third party has an additional legally recognized interest, such as improving systems for fraud prevention or IT security, then a legitimate interest may be established. The AP’s position indicates that establishing a legitimate interest for web scraping is challenging and often impractical. In contrast, the EDPB’s ChatGPT Task Force emphasizes the necessity of a case-by-case evaluation, considering both the collection and processing of “ordinary” personal data and special categories of personal data, for which additional safeguard apply.

The AP, the EDPB’s ChatGPT Task Force Report and the CNIL also recommend using specific safeguards to favour the relevant data controller relying on web scraping techniques. These safeguards, as listed by the CNIL include: (i) mandatory measures to ensure data minimization, such as setting precise criteria for data collection and applying filters to exclude unnecessary data (e.g., bank transactions, geolocation, sensitive data), and promptly deleting irrelevant data once identified (e.g., collecting pseudonyms on forums when only comment content is needed); and (ii) applying supplementary guarantees. 

These supplementary guarantees may be: (i) excluding data collection from predefined sites with sensitive information, such as pornographic sites, health forums, and social networks primarily used by minors, as well as genealogy sites or those with extensive personal data; (ii) avoiding data from sites that explicitly prohibit scraping through robot.txt or ai.txt files; (iii) implementing a blacklist for individuals who object to data collection on specific websites, even before collection begins; (iv) ensuring individuals’ rights to object to data collection; (v) limiting data collection to freely accessible data and explicitly public user data, thereby preventing loss of control over private information (e.g., excluding private social network posts); (vi) applying anonymization or pseudonymization measures immediately after collection to enhance data security; (vii) informing users about affected websites and data collection practices through web scraping notifications; (viii) preventing cross-referencing personal data with other identifiers unless necessary for developing AI systems; and (ix) registering contact details with the CNIL to inform individuals and enable them to exercise their GDPR rights with the data controller.

Conclusions

Web scraping is integral to the development of AI but poses significant legal challenges, particularly regarding data protection. While the controller’s or a third party’s legitimate interest as legal basis under the GDPR can justify data collection if a legitimate interest is established and balanced against data subject rights, comprehensive safeguards must be implemented to mitigate legal risks on a case-by-case basis. The evolving regulatory landscape, including the AI Act, will likely provide further clarity on permissible data collection practices, but current uncertainties necessitate cautious and responsible data handling practices.

Originally published by IAPP.

By Tamas Bereczki and Adam Liber, Partners, Provaris

 

Schoenherr has advised Bontexgeo on the sale of an industrial asset in Tiszaujvaros. The undisclosed buyer was reportedly advised by sole practitioner Livia Bretscher.

According to the firm, Bontexgeo specializes in producing high-quality geotextiles and technical textiles. The gross leasable area of the asset is 21,000 square meters.  

Earlier this year, Schoenherr advised Bontexgeo on its industrial lease agreement renewal with Cordys (as reported by CEE Legal Matters on April 5, 2024).

The Schoenherr team consisted of Partner Laszlo Krupl and Lilla Szepsi-Szucs.

In a recent judicial case, the courts examined the legality of a termination notice delivered via postal service, where the core issue revolves around whether the employer fulfilled the legal requirement of notifying the employee of the termination of employment according to the Hungarian Labor Code.

The employee moved from his registered address without notifying the employer but arranged mail forwarding with the Hungarian Post. The employer issued a written termination notice and sent it via registered mail. The postal service marked the notice as delivered. The employer notified the employee that the termination was effective, despite having it disputed by the employee.

The court heard the postal worker as a witness, who confessed that the signature on the receipt is his and has no knowledge on the identity of the person who the mail was actually delivered to. The court did not pay importance to the fact that the employees of the post office stated that acknowledgement of receipt did not have to be signed by the addressee during the epidemic situation and it was also not important whether the confirmation of the postal delivery complied with the laws and internal instructions of the Hungarian Post, but whether the employer could credibly prove that, through his agent, the employee actually received the notice containing the termination. Also, significance was not attributed to the employee’s failure to update the employer on his address, as it did not absolve the employer of ensuring proper delivery according to the postal forwarding agreement.

The courts therefore ruled that the employer failed to properly notify the employee of the termination. Consequently, the termination was deemed wrongful, and the employer was required to address the employee’s claims for reinstatement and compensation. The case underscores the importance of strict adherence to procedural requirements in employment terminations, particularly concerning the delivery of legal notices, as in the case of irregular delivery of the legal declaration terminating the employment relationship by post, the burden to prove that the delivery actually took place falls on the person making the legal statement.

By Borbala Maglai, Attorney at Law, KCG Partners Law Firm

Some segments of the real estate market are expected to improve slowly, while ESG considerations are becoming increasingly important, according to the DLA Piper Hungary Real Estate Intelligence Report 2024. These are the key trends shaping the Hungarian real estate market.

The hotel industry is the winner in real estate development

Last year, office developments were less significant than in previous years, with developers mainly completing developments already started and underway, as well as built-to-suit projects. Although vacancy rates remain high and economic uncertainties do not support a significant rebound in office development, some experts expect a slow improvement in 2024.

In 2024, growth trends in the logistics and industrial markets look set to stabilise after the increased demand during and after the pandemic. A clear market trend over the past year has been the significant volume of investment from Asian countries in this segment, with 67.5% of investors based outside the EU for cases handled by DLA Piper Hungary. In contrast, in the retail market, the vast majority of real estate transactions were carried out by domestic investors. In 2024, rising consumer incomes and declining inflationary pressures are expected to lead to an improvement and turnover in the retail sector, which could contribute to a slow but steady recovery.

The hotel segment is the only one where development trends are not only stable but clearly on the rise during 2023 and 2024, a trend that is expected to continue.

Real estate development: tenant demand is gaining ground in the office market

The market, previously dominated by landlords, is transforming into a market where tenants have a much more advantageous position in negotiating leases than in the past.

Around 70% of office leasing transactions involving DLA Piper Hungary have been for the extension of existing leases, with many tenants also requesting a reduction in the space they previously leased. This is in line with a growing trend in tenant demand for leases that offer them greater flexibility. It is also typical that the sustainability and energy efficiency requirements of tenants are becoming increasingly important in development and use.

In the industrial and logistics market, pressures are easing following the dominance of renewals and pre-lets in 2023. From 2024, developers expect the market to stabilise and demand for new leasable space to moderate, with manufacturing and green transition-related manufacturers being the primary drivers of demand. At the same time, the development of integrated logistics parks can be a particularly beneficial opportunity for investors, helping them to adapt more easily to changing needs and tenant types, and to match developments to actual and future demand.

The expected growth in the number of mall visits will increase demand for retail space, leading to a gradual increase in rents. In order to take advantage of this trend, retailers are focusing primarily on prime locations that attract more shoppers.

In terms of hotels, there is a positive trend, with occupancy rates steadily increasing. Thanks to the boom in the tourism sector and events taking place across the country, the upward trend is expected to continue in 2024.

Real estate financing trends

External financing remains generally available and competitive. At the same time, financing reflects market interest in different asset classes of properties and investment volumes. Traditional commercial banks have maintained their position as the primary source of real estate finance vis-à-vis alternative financiers.

2023 was certainly not a year for new developments and real estate transactions, as can be seen in the share of project finance that reflects the number of these transactions in general. In terms of commercial real estate project finance volumes, office buildings are currently among the property types most in decline, while some caution has also hit logistics properties. The real winner in the development and utilisation trends for 2023 is the hotel market, where the upward trend is expected to continue.

Financiers are largely following sector trends and asset type preferences. The fundamentals of commercial real estate finance remain in place, with a continued focus on overall cash flow, while financiers are also seeking to show flexibility where segment trends and tenant and developer expectations demand it most, with the evolution of financing costs set to be a critical factor in the coming months.

Focus on ESG aspects in the real estate market

ESG considerations are becoming increasingly prominent in all sectors of the real estate market and influence decisions throughout the lifecycle of assets. Furthermore, the ambitious EU targets for the sector are driving significant change: the Energy Performance of Buildings Directive, adopted in April 2024, calls for zero-emission buildings by 2030 and a complete transformation of the EU building stock by 2050. Meeting these stringent requirements places responsibilities on investors, developers and tenants. At the same time, more than €100 billion in EU funding will help Member States to support renovation efforts between 2023 and 2030 to meet ambitious targets. In addition, the new Social Climate Fund, set up under the European Green Deal, will mobilise €86.7 billion between 2026 and 2032. These are expected to result in a surge in development and renovation projects to increase energy efficiency.

Property rights aspects of the take-up of renewable energy

The renewable energy market has seen significant growth in recent years, with solar parks dominating the market. However, due to the scarcity of capacity in the public grid infrastructure, grid connection may take up to 7-10 years. The take-up of rooftop solar PV systems will also be facilitated by the introduction of the building right in June 2023. This new legal instrument will provide greater certainty for investments in third party-owned buildings, as the building right can be registered in the land register and transferred or encumbered. However, there are challenges in establishing building rights, particularly for agricultural property, where in most cases solar parks will be established.

In the future, the end-of-year change in the regulatory framework restricting the establishment of wind farms and the complementary nature of wind farms is expected to lead to increased interest in wind farms.

By Gabor Borbely, Partner and Head of Finance and Real Estate, and Tamas Balogh, Lead Attorney, DLA Piper Hungary

To further safeguard Hungary’s natural values and resources, promote a greener economy, and enhance the circular economy, the Hungarian Government introduced the possibility of two-level proceedings in environmental authority cases starting from 1 July 2024. This measure aims to strengthen the protection of public health and the environment.

The national body of the second instance will serve as a preliminary legal remedy forum before judicial review. Once established, second-instance proceedings will be conducted within the framework of state administration. This second-instance authority will be a separate Deputy State Secretariat within the Ministry of Energy, responsible for handling appeals against preliminary and environmental impact assessments, as well as first-level integrated environmental management permits. It will also supervise first-instance environmental authorities to ensure uniform practices.

According to the Ministry of Energy, the new authority will address the shortcomings of first-instance permits by conducting procedures swiftly and resolving technical issues efficiently, thus avoiding long-term delays in significant investments crucial for Hungary’s competitiveness.

However, critics argue that the establishment of this new environmental authority, which replaces the existing system and allows for judicial review at the second instance, may have its drawbacks. They view this change negatively, particularly due to concerns regarding environmental permits and the operations of several battery manufacturing plants in Hungary. While the official communication frames this change as a step toward enhancing public health and environmental protection, critics suggest that the real motive is to mitigate the risk of prolonged shutdowns of battery factories under the new authority. They contend that this new system could make it extremely difficult for those protesting against polluting projects, such as battery factories, to prevent their construction near residential areas. Thus, the problem of giving an authority close to the government, the power to review environmental issues of projects it supports is likely to hinder effective opposition to such developments. Only time will reveal the real impact of this new system.

By Denes Glavatity, Associate, KCG Partners Law Firm

Wolf Theiss has advised the owners of Kecskemeti Konzerv on the sale of the company to Granit Group’s subsidiary Agrar-Finance. Jalsovszky advised Granit Group.

Kecskemeti Konzerv, founded in 2005, is a canning factory.

According to Wolf Theiss, the sellers were Germany-based Mahnke Group and five Hungarian private individuals. “The current management will retain a minority share in the company and the transaction will further increase the proportion of Hungarian ownership in the food and canning industry.”

The Wolf Theiss team included Partner Janos Toth and Senior Associate Zoltan Bodog.

The Jalsovszky team included Partner Agnes Bejo, Senior Attorneys at Law Gabor Kerekes and Adam Boross, and Trainee Lawyer Roxana Martinas.

The announcements made by the Hungarian Government on 8 July 2024 envisage a number of new and higher payment obligations, as well as other public taxes and restrictions, that will include a defence contribution, increased administrative fines, extra profit tax, changes to social contribution tax on entering the labour market, transaction and currency exchange levies

Defence contribution

In view of the Russian-Ukrainian war, the Hungarian Government has announced an anti-war action plan that imposes new public tax obligations on certain companies. According to the announcement, the Government will require all companies that made extra profits during the war to pay a defence contribution. The new special tax will mainly affect the banking sector, large multinational and energy companies. Details of the defence contribution are not yet public.

Increased administrative fines

As of 1 August 2024, the NCA may impose higher fines on businesses for breaches of competition law. The amount of the fine has increased from thirteen to fifteen percent of a business’ net turnover. This means that the fine can amount to fifteen percent of the net turnover of the business or any group of undertakings of which the fined business is a member in the financial year preceding the decision. The fine imposed on an association of undertakings may not exceed fifteen percent of the net turnover of the its members in the preceding financial year. In the case of an association of undertakings, the financial liability of each association member may not exceed fifteen percent of its net turnover in the financial year preceding the decision.

From 1 August 2024, additional fines will be increased pursuant to Government Decree no. 184/2024 (VII. 8). For example:

• Instead of HUF 50,000, a person performing energy certification activities may be subject to an administrative fine of up to HUF 60,000 if they breach their data provision obligation;
• A fine between HUF 2,000,000 and HUF 10,000,000 may be imposed on the publisher of an advertisement if it violates the provisions related to the protection of the townscape, and a fine of HUF 400,000 (increased from HUF 200,000) may be imposed on a media advertisement sales agent and an advertiser for every illegally placed placard.

Extra profit tax

Concerning the reduction of the extra profit tax payable by credit institutions and financial businesses, the Government has declared that the nominal value of government securities should be taken into account for the increase in the stock of government securities. This eliminates the possibility of swapping shorter-dated government securities for government securities due after January 2027.

Transaction and currency exchange levies

The financial transaction levy paid by banks will also be increased after completed transfers. As of 1 August 2024, the rate of the financial transaction levy will increase from 0.3 percent to 0.45 percent of the base of the financial transaction levy, but will be capped at HUF 20,000 instead of HUF 10,000 per payment. For cash withdrawals from a payment account or cash payments made by means of a cash substitute payment instrument, the financial transaction levy will be based on 0.9% instead of 0.6% of the financial transaction levy.

A currency exchange levy, (i.e., additional financial transaction levy), will also be introduced for so-called conversion transactions involving conversions between different currencies. The rate of the levy will be 0.45 percent, but will not exceed HUF 20,000 per payment.

Beneficiary employment – social contribution tax

As of 1 August 2024, employers can benefit from a social contribution tax credit for employees entering the labour market if the employee has been employed for a maximum of 92 days with social security obligations, or has been self-employed or in a partnership, for 365 days prior to the month in which the beneficiary employment begins, instead of the previous 275 days. The partial benefit is currently 100% of the social contribution tax on the gross wage (up to the minimum wage) for the first 2 years, 50% for the third year and no benefit after the third year. Pursuant to the new provisions, these periods will be reduced to 1 year and 6 months respectively (i.e. the partial benefit will be available for a shorter period for employees entering the labour market).

By Janos Toth, Partner, and Timea Csajagi, Bence Kalman and Dorottya Mercsek, Associates, Wolf Theiss