Category: Hungary

Former Hogan Lovells Senior Associates Tamas Halmos and Zoltan Janosi have established Halmos & Janosi Law Office which will operate in partnership with the Niveus Group under the Niveus Legal | Halmos and Janosi Law Office brand.

The Niveus Group, which offers “tax, accounting, transfer pricing, audit, and advisory services in various strategic areas,” established its legal consultancy business in 2019 under the lead of Adam Fischer of Fischer Law Firm.

Janosi joined the Budapest office of the international firm in 2006 as a Trainee Lawyer. He was promoted to Associate in 2010 and was appointed to Senior Associate in 2017. He specializes in corporate/M&A, restructuring, and real estate.

Halmos first joined Hogal Lovells in 2011, also as a Trainee Lawyer. In 2015 he was promoted to Associate and became a Senior Associate in 2022. He specializes in dispute resolution, real estate, public procurement, and data privacy.

 

DLA Piper lawyer Gabor Simon has been promoted to a Partner position with the firm’s Budapest office.

Simon, who has been a part of DLA Piper for 14 years, will lead the firm’s Energy and Procurement practice. Before joining the firm in 2009, he spent two years as a Senior Legal Counsel at the Mavir Hungarian Transmission Operator and, earlier, five years as Legal Counsel with Magyar Villamos Muvek.

In its recent judgment of 2 March 2023, the CJEU ruled on the concepts of daily and weekly rest period and their relation. The judgment fundamentally contradicts the approach reinforced in the Hungarian Labour Code this year; therefore the legislator has to change the concept of rest periods to comply with the EU Working Time Directive.

(In this article, we analyse the judgment 02/03/2023 – MÁV-START Case C-477/21)

The decision by the CJEU

A train driver employed by MÁV-START, the Hungarian national railway company, challenged before a Hungarian labour court the decision of his employer not to grant him a daily rest period of at least 11 consecutive hours (which the worker must be granted during each 24-hour period under the Working Time Directive) when that period precedes or follows a weekly rest period or a period of leave.

MÁV-START claimed that it grants a minimum weekly rest period of at least 42 hours, that is well in excess of that required by the Directive (24 hours), its employee is not in any way disadvantaged by its decision.

The Hungarian court asked the CJEU, in particular whether, under the Directive, a daily rest period granted concurrently with a weekly rest period forms part of that weekly rest period.

The CJEU noted that daily and weekly rest periods constitute two autonomous rights, which pursue different objectives. Consequently, the daily rest period does not form part of the weekly rest period but is additional to it, even if the daily rest period directly precedes the latter.

The Court also noted that the more favourable provisions laid down in Hungarian law, in comparison with the Directive, in respect of the minimum weekly rest period cannot deprive a worker of other rights which that directive confers on him or her, and in particular of the right to daily rest. Therefore, daily rest must be granted irrespective of the length of the weekly rest period provided for by the applicable national legislation.

Analysis

In many EU countries, the minimum weekly rest period is described as a set at 35 consecutive hours, which consists of the weekly rest of at least 24 consecutive hours, in addition to the daily rest period of 11 consecutive hours (before the weekly rest). Therefore, the two different rests are provided under a separate legal title.

In contrast, according to the general rules of the Hungarian Labour Code, the weekly rest period is stipulated in calendar days (Saturday and Sunday), so the weekly rest period in itself is 48 consecutive hours, but at the same time, the Labour Code states that daily rest period shall not be provided, in case no work is scheduled on the next day (i.e. before the weekly rest period).

Although it is apparent that the approach of the Hungarian legislator was to set forth a longer weekly rest period (two calendar days), which in fact covers the minimum 24 hours weekly rest + the preceding 11 hours daily rest, required by the Directive, the Hungarian legislation does not reflect the approach of the Directive, i.e. that daily rest and weekly rest has to be treated as separate rights and shall be provided under separate titles.

Since the CJEU confirmed that the approach reinforced in the Hungarian Labour Code this year is not in line with EU law, the lawmakers will have to amend the Labour Code again and introduce a new concept regarding daily and weekly rest periods that corresponds to the approach of the Directive.

By Peter Gritta, Attorney-at-law, SmartLegal Schmidt & Partners

From 1 January 2028, e-invoices will be mandatory for cross-border supplies of goods or services. with corresponding ‘near-real time’ reporting. The current maximum issuance requirement of 45 days post-taxable event is proposed to be shortened to just two days.

VAT in the Digital Age

On 8 December 2022, the European Commission proposed a series of measures to modernise and make the EU’s Value-Added Tax (VAT) system work better for businesses and more resilient to fraud by embracing and promoting digitalisation under the project name ‘VAT in the Digital Age’. The first pillar of the package is the new real-time Digital Reporting Requirements.
According to the estimation by the Commission, the move to e-invoicing should help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years.

Digital Reporting Requirements

In order to achieve the above ambitious goals, the following measures are aimed to be implemented, if the proposal is accepted:

• All B2B Intra-community supplies (ICS) will be subject to e-invoicing and digital reporting for all companies, including non-residents, as of 1 January 2028. Accordingly, all businesses will be obliged to issue and receive e-invoices for ICS’s based on a European standard for e-invoicing (EN 16931) for intra-community supplies.

• This also implies that from 2028, as a general rule, paper and basic PDF invoices will not be acceptable as VAT invoices. Instead, there will be a header-level transaction reporting schema based on the European standard for e-invoicing (EN 16931) and structured formats – such as XML; UBL; PDF/A3 – will be required.

• Whilst e-invoicing is not being mandated for domestic supplies on an EU level, from 2024 Member States will be free to impose such requirements without prior approval from the Commission;

• Reporting deadline will be within two working days of a chargeable event, basically near-real-time.

• The introduction of the new intra-community reporting regime will render EC Sales Lists (ESL), summary invoices obsolete and those will be withdrawn, accordingly.

Next steps

The feedback period for the proposal has just been closed in the first weeks of April 2023. Whilst supportive of the DRR objectives – efficiency and anti-fraud – and of the package, many parties made remarks about the ambitious timetables, particularly with regard to the mandatory acceptance of e-invoices from next year and generally the two-day reporting requirement.
From a Hungarian point of view, most parts of the initiative should not pose a special challenge: the Hungarian tax office has set the goal of digital taxation previously and real-time online invoice data disclosure requirement had been implemented in Hungary gradually even from 2018. Notwithstanding, businesses will certainly need to adjust their day-to-day operation to comply with the general e-invoicing, the corresponding data schema and the tight deadlines, if accepted. Now the proposal is still subject to the EU protocol (VAT Expert Group, Member States, EU Parliament, etc.) before the implementation.

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

The procedural rules applicable to the registration of companies in Hungary have been largely unchanged since the entry into force of the present Company Act of 2006 (Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings). Now, these long-established practices are about to change, as a new Company Act (Act XCII of 2021 on the Registration of Legal Persons and the Registration Procedure) is being introduced by the legislator.

The new Company Act was originally expected to enter into force on 1 July 2023. However, an amendment bill is currently being debated in the Hungarian Parliament that would postpone the entry into force of the law until January 2026.

This article will introduce the most important practical changes brought about by the new Company Act.

The objective behind the new rules is to ease the burden on company court judges by introducing an automatic decision-making procedure for registration. In the automatic decision-making procedure, the role of the company court judge is significantly reduced by the legislator; however, the new law places greater responsibility on lawyers and in-house counsels.

As of July (or as of the postponed entry date), lawyers and in-house counsels will be required to make an additional statement on the specific content of the documents submitted with the registration application, confirming that they have carried out a legal review of the documents. The aim is to replace legal review by a company court judge. This means an increase in the responsibility of lawyers and in-house counsels for the legality of the registration procedure.

A further aim of the reform is to standardize and speed up the registration procedure.

Companies will no longer be permitted to remedy deficiencies in their registration applications during the registration procedure upon individual court order (in Hungarian: ‘hiánypótlási végzés’) of the acting judge. Under current practice, such individual orders have been issued by company court judges at their discretion, creating a diverse legal practice that varies from court to court. By eliminating individual orders, the new rules are intended to provide more standardized court practice.

Technical errors will still block the registration procedure. If the system detects an error in the application for registration, the application will be rejected automatically, and the application will have to be resubmitted by a short deadline. The exact scope of errors the system will be able to detect is yet to be known, but we will probably be able to answer this question when the new application forms are published.

Another intention is to put more emphasis on and define a different role for the judicial oversight procedure. Rather than being used as a ‘last resort’ to restore lawful operation, as it has been until now, this procedure will take over the role of remedying procedural shortcomings upon judicial request, which was common in the registration and registration amendment procedures in the past.

During the post-judicial inspection, the company court judge will randomly perform the same formal and substantive inspection that it currently performs each time the court receives a registration application.

As a result of the automatism introduced by the legislator, registration is expected to be almost immediate. However, if the court detects an error during the post-judicial inspection, post-registration procedural tasks may arise, and companies may find themselves facing judicial oversight procedures or even procedural fines. Such post-registration processes could increase the legal costs of registration procedures for the companies as compared to current practice.

Adjustments that have been long-anticipated for privacy reasons will include that the ‘address of the natural person’ (e.g. managing directors and shareholders) listed in the new register will no longer be public information. It will be replaced by the ‘place of birth of the natural person’ (the date of birth of the natural person is currently mandatory information to be published in the company register).

The new Company Act will no longer make a difference between premises (located in the same city as the registered office, in Hungarian: ‘telephely’) and branch offices (located in a different city but within the country’s borders, in Hungarian: ‘fióktelep’), which also aims at a much simpler procedure, more in line with EU practices.

The importance of the Company Gazette will also be reduced, as the new Company Act links the public authenticity of the register to the registration of the data rather than to its publication in the Company Gazette.

The regulatory environment for the new Company Act is far from complete. Additional legislation is expected to be adopted before the entry into force in July (or as of the postponed entry date) (e.g. on the list of mandatory documents to be submitted in the registration procedure, standard documents, or the detailed rules on winding-up procedures).

We are closely monitoring changes and emerging legislation related to the new Company Act. Whether as a client or an in-house counsel, if you have any questions regarding the practical implementation of the new Company Act, please do not hesitate to contact us.

By Eszter Hegedus, Senior Associate, and Virag Ablonczy, Legal Advisor, Noerr

In a recently published judgment, the Curia ruled that a private e-mail address containing the full name of a natural person qualifies as personal data. However, the unlawful processing of personal data does not automatically constitute a violation of the right to the protection of personal data in the absence of other elements.

The natural person concerned has used his personal e-mail address since 2004. The company concerned published an incorrect e-mail address as its electronic address, which was the same as the e-mail address of the natural person, except for one character (a dot). The dot between the names had not been recognised by senders as part of the e-mail address, so in several cases, e-mails sent to the company’s e-mail address were delivered to the natural person’s e-mail address.

In 2020, the person concerned became aware that the company was the addressee of the letters and informed the company’s legal representative of the situation, and sent a letter requesting the company to stop the infringement and pay financial compensation. The company had its e-mail address amended as an official contact address but did not comply with the person’s further requests. The person claimed that his right to privacy had been violated by the fact that, for years, he had been receiving unsolicited e-mails, which he was forced to tolerate and deal with, causing him constant discomfort. In his application, the person concerned asked the court to order the company to pay restitution.

Point 1 of Article 4 of the GDPR defines personal data as any information relating to an identified or identifiable natural person. According to the Curia, an e-mail address containing the full name of a natural person constitutes personal data, and this is not undermined by the fact that the person’s name is considered to be common in the country. The Curia has maintained its previous opinion as expressed in several decisions.

The provisions on the protection of personal rights provide legal protection against direct attacks on the personality of a natural person, which violate one of his or her personal rights deriving from human dignity. Consequently, the unlawful processing of personal data does not in itself, in the absence of an additional element, constitute a ground for the protection of personality.

By Rita Parkanyi, Partner, KCG Partner

Former Counsel Miklos Kadar – Head of Allen & Overy Hungary since May 1, 2021 – has been promoted to a Partner position with the firm starting May 1, 2023.

Specializing in banking & finance, Kadar has been with Allen & Overy for over 16 years. He began his career as a Junior Associate at the firm’s Budapest office in 2006 and was promoted to Associate in 2008. In 2013, Kadar moved to Allen & Overy’s Warsaw office as a Senior Associate and became a Counsel in 2018. Between 2019 and 2020, he served as a Counsel in the firm’s London office. He returned to the Budapest office in 2020, and, in 2021, he became the Head of Allen & Overy Hungary (as reported by CEE Legal Matters on February 12, 2021).

“This promotion is a clear indicator that we are strengthening our position on the Hungarian legal market and reinforcing our presence in the CEE region,” Allen & Overy Managing Partner for Central Europe Arkadiusz Pedzich commented. “I would also like to take this opportunity to thank Miklos for all his contributions to the development and management of the Budapest office over the past two years.”

On 28 March 2023, the Curia established that certain provisions of the municipality decree of the 18th District of Budapest on local taxes are contrary to other legislation, and therefore annulled the provisions on air passenger tax with retroactive effect to 1 January 2023.

On 30 November 2022, the municipality of District 18 of Budapest created a municipality decree that introduced the air passenger tax. The tax obligation was based on the arrival, departure, transfer and transit journeys made by private individuals as civil aviation from the airport in the jurisdictional territory of the municipality concerned, provided that they are not subject to a statutory public tax and that the air travel is not used by the individual for business activity. The Decree stated that a tax of HUF 1,000 per person per air journey must be collected jointly by the ground-handling service provider and the passenger air carrier. In addition, these parties were required to keep a register of the subjects of the air passenger tax.

On 25 January 2023 the Capital Government Office claimed the Municipality Council of the Curia to establish that the provisions of the decree relating to the air passenger tax are contrary to other legislation and to annul of these provisions. The Curia imposed a provisional application prohibition on the concerned parts of the decree, as it needed more time to reach a final decision. The Curia examined the objections raised by the Capital Government Office and found them to be well-founded. Accordingly, the municipality did not fully comply with its obligation to carry out a prior assessment of multiple taxations, the regulation of the decree also raises data protection concerns and it does not regulate fundamental issues such as the method and due date of the tax liability, the way to tax exemption, rules for recording and documenting collected tax and tax exemptions and the rules for assessing tax in foreign currency.

The Curia found the Capital Government Office’s concerns well grounded, therefore, with retroactive effect to 1 January 2023, annulled the provisions on air passenger tax of the decree. In its decision, the Curia stated that a municipal decree that does not specify how the tax is to be paid, when it is due, how tax exemptions are to be evidenced, the rules for recording and proving the tax collected and the tax exemptions, and the rules for assessing the tax in foreign currency, violates the requirement of clarity and creates legal uncertainty for the recipients (taxpayers and those liable to collect the tax).

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

Under a law passed by Parliament yesterday, all companies with more than 50 employees will be obliged to have a whistleblowing system in place from December. Employers with 250 employees cannot wait any longer, as they will have 60 days to implement the system. The question is, of course, whether companies will see the regulation as another unnecessary administrative burden or whether it will trigger an avalanche of internal investigations.

Is the new GDPR here?

Under the legislation recently passed by Parliament, all companies with more than 50 employees will be required to set up a system by December to report unlawful or suspected unlawful acts by employees. Employers with more than 250 employees will have to set up the system within 60 days of the law’s publication, rather than in December. Employers covered by the Money Laundering Act – including credit institutions, auditors, fiduciaries and even law firms – will have to set up a reporting system (also within 60 days of the publication of the Act), regardless of the number of employees,.

According to preliminary calculations, in Hungary, in the private sector, around 7-8,000 companies are affected by the obligation. Around December, we can therefore expect a similar rush to the one that took place when the GDPR obligations were set up – again, those who see setting up the system as a compulsory homework exercise are likely to come to their senses at the last minute.

The regulation includes an easing for employers with 50-249 employees. They can also operate a so-called joint notification system. However, no information has yet emerged on how this joint system can be implemented, who will set it up and how it can be joined. It is expected that for the sectors most targeted by the regulation (accountants, auditors, lawyers) the relevant chambers will set up such a system.

What exactly needs to be done?

The employers concerned will be required to establish an internal procedure, i.e. rules on where complaints can be lodged and how they will be dealt with. There are no specific formal requirements for a whistleblowing system, which can be set up by setting up a dedicated email account or complaints box, but a telephone line or dedicated platform may also be appropriate.

At the same time, the employer must also designate a person or organisation responsible for the operation of the system, to whom the reports will be sent in the first instance. The expectation is that this person should be independent and without conflict of interest. It is for the individual to assess whether there is a person within the company’s organisation who meets this independence criterion. As with the Data Protection Officer, this position may be outsourced to a whistleblower protection lawyer or other independent company.

What happens when a notification is received?

As a general rule, the employer is obliged to investigate all complaints and inform the whistleblower of the receipt of the complaint and the procedure followed. In a few specific cases, the employer is exempted from the obligation to investigate the merits of the complaint, for example in the case of manifestly unfounded complaints (e.g. someone makes the same complaint again with the same content as before). Complaints do not have to be made by name, but the law allows anonymous complaints not to be investigated unless they indicate a serious breach of rights or interests. The person against whom the complaint has been made may also be informed of the investigation – but he or she may not know the identity of the person making the complaint.

Will the system work?

The commitment of the employer, the level of trust within the company and the IT and whistleblowing investigation method chosen will probably determine whether the new system will really change the culture of a company. If a potential whistleblower does not believe that his or her complaint will be truly impartial and without disclosure, he or she is unlikely to engage in such an ordeal. However, for those companies that have paid serious attention to the IT and organisational implementation of the system, the new rule is likely to represent not only a compulsory homework exercise to be ticked off, but also a potential increase in internal ethical standards.

By Dora Agnes Nagy, Attorney, Jalsovszsky

What does the new whistleblowing system entail?

In line with Directive (EU) 2019/1937 of the European Parliament and of the Council on the protection of persons who report breaches of Union law, the Hungarian Parliament adopted a new law on complaints, whistleblowing and rules for reporting breaches, which replaces previous legislation. Below we have summarized the key points of the new rules. This information has been prepared for private sector actors.

The new law establishes a three-stage reporting system in line with EU requirements:

• the first stage is the so-called internal reporting channel, which refers to the reporting of the breach within the entity;
• the second stage is the so-called external reporting channel, whereby the whistle-blower communicates the breach to the competent national authority designated by the Member State;
• the third stage is the public disclosure of the breach.
  Of these, it is the so-called internal reporting channel that employers are obligated to establish.

What kinds of employers are required to set up an internal whistleblowing channel?

The provisions are applicable

• from the 60th day after promulgation for employers with 250 or more employees;
• from the 60th day after promulgation for certain employers to whom specific legislation applies (e.g. money laundering law), irrespective of the number of employees;
• from 17 December 2023 for employers with at least 50 but no more than 249 employees.

Employers with fewer than 50 employees, to whom the above obligation is not applied, may set up such a system on a voluntary basis.

To summarise, all employers with at least 50 employees, and in certain sectors regardless of the number of employees, should establish an internal whistleblowing reporting channel. The latter category includes, for example, service providers subject to the money laundering law.

It is important that employers with at least 50, but no more than 249 employees, be able to set up the whistleblowing system jointly, which could simplify the process significantly, particularly for employers in a joint group of companies.

Who should operate the internal whistleblowing channel?

In essence, there are two ways the channel may be operated:

• By a person or department designated for this purpose by the employer, who cannot be instructed in this task, which means that employees in other job positions may also perform this function, subject to training and appropriate contractual guarantees.
• By an external whistle-blower protection lawyer or other external third party, in which case the requirements and safeguards will of course apply to the whistle-blower protection lawyer or other external third party as well. This option eases the burden on employers, as they do not have to ensure the operation of the whistleblowing reporting channel within their own organization and by their own staff.

Who is entitled to make a report?

The new law contains a broader list than the current Complaints Act, taking into account that it is appropriate to extend the range of persons who despite not being employees, could play a key role in the detection of breaches and may find themselves in an economically exposed position in relation to their work-related activities. In addition to employees, other persons who are entitled to report breaches include former employees, persons with whom the procedure for the establishment of an employment relationship has been initiated, interns, volunteers, self-employed persons, sole proprietors if they have a contractual relationship with the employer, employer shareholders and members of the employer’s administrative, management or supervisory board, including non-executive members.

In which cases can a report be made?

Unlawful or allegedly unlawful acts or omissions, or other breaches, may be reported. Pursuant to the current legislation, employers can set rules of conduct for their employees to protect the public interest or significant private interests. In the event that the employer has laid down said rules of conduct, any breach of these rules may also be reported. Such rules of conduct must be made public in advance in order to ensure that the restrictions on employees’ rights do not go beyond what is strictly necessary and proportionate, and to ensure that the rules of conduct are communicated to a wider audience.

How are reports made?

A report can be made in writing or orally by telephone; through other means capable of reproducing the communication, or in person.

Employers can decide for themselves the specific type of internal reporting channel they want to set up. Examples include postal channels, actual complaint boxes, online platforms – intranet or internet and telephone hotlines – provided that the confidentiality of the identity of the whistle-blower is guaranteed. An important point for compliance is how the channel is set up by the employer.

How should reports be investigated?

The new law is based on the existing rules for the employer whistleblowing system under the Complaints Act, making it easier for employers who already operate said system to comply with the law.

The employer is obligated to:

• send an acknowledgement of receipt of the written report to the whistle-blower within 7 days of receipt;
• provide the whistle-blower with general information on the procedural and data protection rules under the act in the context of the acknowledgement;
• investigate the allegations in the report within the shortest time possible under the circumstances, but no later than 30 days from the receipt of the report.

In particularly justified cases, the investigation may be extended, but in no case should it exceed 3 months.

What could be potential consequences?

The investigation shall include the assessment of the relevance of the circumstances set out in the report and the adoption of appropriate measures to remedy the breach. If, based on the report, initiating criminal proceedings is needed, a police report should be filed. If the investigation reveals that the conduct in the report is not a criminal offence, but violates the employer’s rules of conduct, the employer may take employer action in accordance with the rules governing the employment relationship.

Data protection

The protection of personal data is particularly important because, if it is not guaranteed, it may discourage whistle-blowers from reporting breaches.

Beyond the protection of whistle-blowers’ personal data, there should also be safeguards in place for those individuals that are the subject of reports, as they may be adversely affected by a lack of protection of their personal information.

The scope of the personal data that is processed is determined by the data controllers. Only data strictly necessary for the investigation of the report may be processed for this purpose.

To do’s

Employers to whom the legislation applies should establish an internal reporting channel or, where one is already in operation, review it to ensure compliance with the new provisions.

By Barnabas Buzási, Counsel and Head of Employment and Data Protection, and Helga Szkok, Associate, Wolf Theiss