Category: Hungary

The EU’s headline target for its Member States is to have a climate-neutral economy by the year 2050. To reach this goal, the European Commission have called on Member States to prepare their National Energy and Climate Plans (“NECPs”) as the first mandatory step towards the Energy Union.

As for Hungary, the key targets of its NECP are to decarbonize the energy production and to increase energy efficiency.

As part of the decarbonisation objective, the NECP aims to reduce greenhouse gas emissions by at least 40% by 2030 compared to 1990 levels. To achieve this, it identifies a number of strategic priority areas, both existing and to be developed in the near future.

• The NECP points out that the Hungarian Development Bank already offers a loan programme to provide funds for energy efficiency investments in residential buildings.

• It considers the maintenance of nuclear capacity a priority and points to the key role of the Paks-2 project.

• Reductions in agricultural emissions are to be achieved through the regulation of good agricultural practices and through various support instruments.

• In the field of transport, it aims to promote the uptake of electric vehicles and to shift traffic towards low-emission methods.

The second key element of the decarbonisation objective is the development of the electricity sector. In this context, the NECP aims to achieve a share of renewable energy sources in gross final energy consumption of at least 21% in Hungary by 2030.

Reaching this goal, the expandation of solar panel capacity is a key element. It is projected to grow from 680 MW in 2016 to 6,500 MW in 2030, according to the NEPC. It also intends to encourage the installation of solar panel systems to partially substitute the source of own electricity consumption. The aim is to have at least 200,000 households with 4 kW roof-mounted solar panels in average by 2030.

The NECP also supports the take-up of electricity in the transport sector. The aim is to achieve at least 14% of transport energy from renewable energy sources by 2030 by promoting the uptake of electric vehicles and increasing the share of first and second generation biofuels.

The NECP foresees the transformation of energy use and production to be based on the local use of electricity by consumers, with the establishment of energy communities as unique consumer-producer units and accounting entities. It sets a three-point objective in this respect. Firstly, it aims to extend balance billing to condominiums; secondly, it seeks to establish transformer districts as communities; and thirdly, it aims to develop “village heating networks” as energy communities.

Within the dimension of energy efficiency, the NECP promotes ESCO-type financing solutions, which refer to a contractual arrangement whereby an ESCO (Energy Service Company) upgrades and operates at its own expense the energy supply system of a customer with typically outdated heating or lighting systems.

The scheme is outstanding from an energy efficiency point of view because the refurbished systems enable the customer to operate the facility more cost-effectively using less energy, and the ESCO is only paid for its services from the costs saved, typically over a period of 5-20 years.

The NECP notes that this solution could minimize or even eliminate the need for budgetary resources and EU funds when it comes to the refurbishment of governmental institutions, and could thus contribute significantly to reduce government debt.

In addition to maintaining energy-intensive sectors, the NECP also sets as an energy strategy objective that further industrial investments should take place in low energy and greenhouse gas intensive, high-tech industries, thus supporting the sustainable and competitive development of the Hungarian economic structure.

Considering the aforementioned, it is safe to say that ESG related regulations will take place in the very near future, and these regulations will change the economic activities thoroughly. However, many questions arise. To what extent and when will the objectives be achieved? What type of legislative action will take place? Can economic operators expect to be penalized in the event of non-compliance? If so, in what manner and to what extent? These questions remain to be answered.

By Patrik Kiss, Junior Associate, act Ban & Karika Attorneys at Law

Non-competition agreements are popular for protecting the employer’s economic interest in Hungary. While employers try to secure their businesses as much as possible by stipulating excessive restrictions in the non-compete clauses, it is not always the right tactic, as shown by a recent decision of a Hungarian appellate court. The analysis of this decision provides a perfect opportunity to see how not to fall into the pitfall of an invalid non-competition agreement in Hungary.

Facts

The defendant worked as a recruiter at the claimant, a private healthcare provider. Based on the non-competition agreement concluded by the parties, the defendant, among others, undertook not to be employed at a domestic or foreign company carrying out a similar activity as the claimant, or at any other company having a business interest in or a business relationship with such company. Under similar activity especially the activity of private healthcare and dental service providers, health insurance providers and welfare funds shall be understood.

After the defendant terminated his employment relationship, the ex-employer claimant informed him that it partially withdrew from the non-competition agreement and reduced the non-competition period. The defendant notified the claimant that he considers the agreement null and void and established an employment relationship at the competitor of the claimant.

First instance judgement

The claimant sued the defendant for penalty and damages claiming that he breached the non-competition agreement as he established an employment relationship at the claimant’s competitor, a Hungarian private health service provider.

The defendant requested the court to dismiss the claimant’s action since the restriction of the non-competition agreement was unfair and disproportionate both geographically and in terms of the scope of the prohibited activity.

The first instance court dismissed the claimant’s action. In the court’s view, the agreement did not clearly define what the parties understood under foreign company, so the geographical scope of the agreement is unclear.

In addition, the court found that the restriction based on which the defendant could not be employed at a company who has a business relationship with a domestic or foreign company carrying out a similar activity as the claimant, is way to excessive. The court therefore found that the non-competition agreement shall be considered as null and void.

The decision of the appellate court

The appellate court agreed with the findings of the first instance court and dismissed the claimant’s appeal.

The second instance court established that the non-competition restriction does not comply with the principle of fairness.

First, it prohibits the employment at a foreign company engaged in the similar activity as the claimant, without delimiting its geographical location. Second, although the agreement regulates the scope of forbidden activities, it does not define them clearly, but only contains a specific list. Finally, it also prohibits the employment at companies which have business relationship or interest in companies carrying out similar activities as the claimant which is a too broad definition.

Altogether, the activity covered by the non-competition clause could not be clearly identified by the defendant, and therefore the claimant could basically decide at his own discretion, whether the employment at a particular company infringed the non-competition clause or not.

According to the appellate court, the agreement contained further unfair terms. The contractual condition stipulating that first half of the compensation shall be paid within 60 days as of the termination of the employment, while the other half shall be paid at the end of the non-competition period, was unbalanced and highly detrimental to the defendant. The clause which provided the possibility only to the claimant to withdraw from the agreement even during the notice period was also regarded as unfair.

Comment

The above case is a perfect example of the slogan ‘less is more’. As the facts show, the defendant established an employment relationship at the competitor of the claimant, a private healthcare provider in Hungary. The defendant did not even dispute that his new employer was the claimant’s competitor. However, the agreement could not protect the interests of the employer in this rather clear situation as it contained vague terms and a too wide range of restrictions without geographical limitation.

Thus, in case of non-competition clauses, instead of using way to broad definitions and excessive restrictions, it is better to limit the restriction the area and activities which could really endanger your business.

By Anita Vereb, Attorney-at-law, SmartLegal Schmidt & Partners

On 11 April 2023, the Hungarian Parliament adopted a whistleblower protection act setting aside the previous one first adopted back in 2013.

The new rules aim to finally transpose EU Directive 2019/1937 into the Hungarian legal system and impose substantial obligations on employers. The amendment will enter into force on the 60th day after its publication, which is expected in the upcoming days.

This means that all employers concerned must be prepared to apply its new provisions during the summer.

What should employers do?

One of the key obligations imposed by the new act is that employers with 50 or more employees must set up an internal whistleblowing system. Employers with at least 50 but no more than 249 employees have the option to establish a whistleblowing system jointly. By the internal whistleblowing system, the employer may decide to handle the incoming report fully internally (e.g. via HR) or include a whistleblower protection attorney.

How to handle the report and personal data?

The whisleblowing system must be designed in such a manner that the personal data of the whistleblower and of any person affected by the whistleblowing may not be disclosed to anyone other than the authorised persons. A key obligation is that a whistleblowing report may only be transferred to a third (non-EU) country if the recipient agrees to fully comply with the rules of the Hungarian whistleblowing act.

In other words, if a Hungarian company that is a member of an international group of companies wishes to transfer the whistleblowing report to a third country, the recipient may wish to make a written declaration of its commitment to comply with the Hungarian whistleblowing act and to conclude a contract to this effect. If the employer engages a whistleblower protection attorney to handle the whistleblowing reporting, the attorney is obliged to maintain confidentiality with regard to the personal data that allow the whistleblower to be identified, i.e. the attorney may only forward the whistleblowing report to the employer by concealing the identity of the whistleblower.

The whistleblower may waive the confidentiality obligation in writing. In such a case, the identity of the whistleblower may also be transferred to the employer along with the report.

What can be reported?

The act lists some grounds for this (e.g. sexual harassment, corruption, discrimination, etc). In addition, employers are allowed to establish special rules of conduct, the breach of which may be reported by employees within the framework of the whistleblowing system. These can be employerspecific grounds, e.g. violations of internal expense policies or conflict of interest rules.

The employer must publish these rules in the locally usual manner.

By Kinga Hetényi, Partner, Alexandra Bognár, Attorney at Law and Áron Hegyi, Associate, Schoenherr

The specific connection procedure of power plants based on the requests of 2 May 2022 has been amended again, as a result of which deadlines set for authorized network operators are also amended. According to the government decree published on 29 March 2023, the new deadline to provide the technical and economic conditions for industrial-size power plants and electricity storage facilities as well as for all investments with a connection needed to a medium voltage network is 10 May 2023, while for the rest of the power plant investments it is 30 June 2023.

Before the amendment, the investors whose connection requests were submitted before 2 May 2022, were required to submit a statement about their intention to maintain their investment. Nearly 5000-megawatt size mainly weather-dependent solar panel investments were involved and almost all investors confirmed their investment will. The declaration procedure was necessary so that the authorized network operators could get a clear picture and are now able to plan the necessary developments according to the actual needs.

Apart from the introduction of the two-term scheduled issuance of the technical and economic conditions, the government decree also states the order how the free capacities becoming available as a result of the network developments are published for each category to the applicants by the authorized network operators.

Furthermore, the deadline for payment of the supplement financial security due in 2023 was also amended. Since applicants with connection claims submitted before 2 May 2022 would receive information on the possible connection date the soonest after 23 April 2023, the new deadline for payment of the relevant supplement financial security is 60 days following the determination of the connection date.

By Gabriella Galik, Partner, KCG Partners Law Firm

Social and economic changes in 2022 have broken a long downward trend recently, with the number of tax categories increasing from 51 to 59 last year. We give you the latest lowdown.

After 2016, the number of taxes in Hungary steadily decreased – from 60 in that year, it had fallen to “just” 51 by the end of 2021. Sadly, this trend did not continue in 2022 – in fact, we saw the opposite: the number of taxes increased again, up to nearly sixty. What’s more, the number 59 is the result of a somewhat conservative and restrained count, as we will explain below. The increase is not surprising, of course, when seen in the context of wider social and economic developments: the budget deficit has grown, inflation is high and we are also facing a very specific energy-market situation characterised by both a shortage of energy and, at the same time, genuinely “extra” profits being earned by certain energy companies.

And extraordinary situations have clearly called for extraordinary measures.

KATA – gone, but not really

It had been a long time since taxation was so much at the fore of public debate as it was when KATA, the flat-rate tax on small businesses, was (almost) scrapped. While whether this tax served to whiten black incomes or increase grey incomes is a moot point, the legislator saw it as a hotbed of trickery and deceit and thought it better to severely limit its applicability. Contrary to popular belief, however, the KATA tax has not disappeared, but has instead been drastically reformed, so that only a very narrow circle can now benefit from it. In other words, although for many it has ceased to exist, it has not meant that we now have less tax to pay.

A special tax on special taxes is not a new tax

In our country, it is virtually coded into us that there’ll be a pretty large number of taxes, as the system of “special taxes” as they’re known has become almost a traditional feature of our tax policy. And last year, we were introduced to a new term, the “supplementary tax”, which is actually a special tax on the special tax. This none-too-noble bunch includes the retail supplementary tax and the insurance supplementary tax.

These could be considered completely new taxes, but for technical reasons, we did not regard it justified to do so. These levies, albeit under a new name and enacted in new legislation, have increased the rate of existing taxes without changing the tax object, or the tax subject, or even the tax base. For this reason, they cannot theoretically be considered as separate, standalone taxes, and therefore do not add to the already significantly increased number of taxes.

The “real” special taxes

However, last year there were also some “real” special taxes; those that either had not existed before or that revived moribund taxes of old. These include the special tax on credit institutions, the special tax on petroleum-product manufacturers, the special tax on KÁT/METÁR producers, a special tax on the supply of balancing energy capacity and a special tax on pharmaceutical producers. But, to add to the definitional confusion, the government has also introduced a (securities) transaction tax and a telecoms supplementary tax as such special taxes. The latter were already considered as separate tax types, as their tax base (and to some extent their taxable object) is different from that of their namesake relatives.

An interesting feature of the special taxes is the “airline contribution”, introduced last year, which has taken on an importance that extends beyond itself. While the tax has been the focus of a war of words between the airlines and the government, it has also captured the imagination of one of Budapest’s municipalities, part of whose territory is occupied by Liszt Ferenc International Airport. The municipality in question probably drew inspiration from this special tax when it tried to introduce a municipal tax based on passenger traffic. Although these efforts have not proved successful, as the Supreme Court has suspended its applicability at least for now, it does illustrate the conventional wisdom that, given enough creativity, there are very few things that cannot be taxed.

By Tamas Feher, Partner, Jalsovszsky

Despite the war still impacting the Hungarian market, there are also opportunities in the green economy and energy, as well as the Hungarian start-up scene, according to Bird & Bird Head of Energy & Utilities and Competition & EU Daniel Aranyi.

“The war in Ukraine continues to have a significant impact on the Hungarian market, affecting politics, business, and daily life,” Aranyi says. “Energy security has been a primary focus, and the prolonged state of emergency has a strong influence on the country’s economic development.”

According to Aranyi, emergency regulations in the form of government decrees can be difficult to follow, which creates a volatile environment that is not particularly helpful for foreign investors. “For example, the solar industry was shaken by a series of legislative changes enacted in close succession which caused uncertainties and delays concerning grid connection for solar projects under development,” he notes. “As a result, investors in this sector, whether foreign or domestic, have needed to rethink their business plans. The introduction of windfall profit taxes and subsequent changes to such rules had a similar deterring effect. Nevertheless, in our experience, investors are quick to adapt and accommodate to the new changes.”

Additionally, Aranyi says that the changes at the EU level, such as the implementation of the European Green Deal and the REPowerEU Plan, have had a considerable impact on Hungary. “There is a hopeful expectation for strong development and opportunities for companies operating in the energy industry, despite the current challenges in the Hungarian market,” Aranyi highlights. “At the same time, the industry’s responses to sanctions at the EU level, such as restrictions on the import and export of crude oil and mineral oil products, are only now taking shape.”

“In line with EU policies, there is a greater emphasis on the green transition of oil and gas companies as well as on energy efficiency through, for example, digitalization and the development of new services and products,” Aranyi continues. “Solar is currently the strongest subsector, and both Chinese and EU investors are involved in Hungarian solar projects, with government and political support for this sector. There is expected to be a revival of wind energy in Hungary in the near future, with lifting restrictions on wind developments as one of the EU’s prerequisites for Hungary to utilize the RRF funds.” According to Aranyi, “the Hungarian Competition Authority is keeping a watchful eye on the green economy and is closely monitoring compliance with greenwashing guidelines.” He also adds that “to ease Hungary’s dependence on Russian natural gas, MOL is ramping up exploration projects in Hungary, with promising findings and future developments announced.”

Additionally, Aranyi highlights that the Hungarian start-up scene also proves to be resilient. “There are a significant number of new ideas and business opportunities to pursue, especially in the software development and cybersecurity sectors,” he notes. “This presents a welcoming environment for foreign investors, mostly from the EU but also the US, channeling in funds to scale up. As a result, for example, SEON Technologies has now become a global player in the cybersecurity industry.”

Aranyi also points to recent developments in the automotive industry: “Despite the challenges faced by the automotive industry in general, due to continued government support, developments have not ceased. To highlight a few, battery manufacturing plants are currently under construction, with a new one planned in Debrecen, BMW is continuing the construction of its factory, also in Debrecen, and Audi is expanding its manufacturing facilities in Gyor.”

“Overall, the challenges of the energy crisis have not put a hold on Hungary’s economic development, although it might require a flexible approach to be able to adapt, from both the government and the stakeholders of the industry,” he concludes.

 When a plaintiff decides to litigate only part of his claim, the question arises whether the ‘res judicata’ effect of the final judgment precludes a new lawsuit for the unclaimed part of the claim? The Hungarian Supreme Court’s recently issued a uniformity decision on this question. What will be the impact of this ruling? We address the question by analysing the uniformity decision.

Previous contradictory decisions

In recent years, the Hungarian Supreme Court has issued contradictory decisions regarding the question whether the preclusive effect of res judicata (re-litigation of the same subject matter between the same parties) of the final judgment applies to that part of the claim which was not pursued in the litigation by the plaintiff.

In a case decided in 2019, the Supreme Court ruled that a final judgment decides the legal basis of the entire claim arising from the same legal relationship between the same parties, irrespective of the fact that the plaintiff has not claimed his entire claim.

However, in a 2021 decision, another chamber of the Supreme Court ruled that, in a case like the above, a new action may be brought for a claim that was not previously sought by plaintiff as the preclusive effect of the judgment extends only to the claim sought and adjudicated in the “first” procedure.

Uniformity Decision of the Supreme Court

Due to the diverging case law, the Hungarian Supreme Court delivered a uniformity decision on this matter.

The Supreme Court laid down that according to the provisions of the Hungarian Civil Procedure Code (“CPC”), the res judicata effect of a judgment relates to the right enforced in the action, and the diverging court decisions interpreted this concept in a different manner.

According to the Supreme Court the problem shall be approached in the light of the “principle of free disposition” which is a fundamental principle of litigation.

Based on this principle, the plaintiff determines the extent of the legal protection he seeks from the court in connection with the enforced right. According to the CPC, the court may (and must) decide on the right enforced in the procedure within the limits of the Plaintiff’s action.

Based on the above, the res judicata is related to the judicial decision, consequently, if a party decides to enforce only part of his claim in a litigation, the res judicata effect of the judgment extends to the amount of the claim sought by the plaintiff, however, it cannot extend to that part of the claim which was not subject matter of the litigation.

Minority Opinion

According to the minority of the judges of the Supreme Court, based on the principle of free disposition, it is the plaintiff’s choice to pursue its claim partially, consequently, he shall bear the consequences of that decision.

Besides, the minority opinion also highlighted the majority decision may lead to longer legal uncertainty and it allows starting “test cases”.

Furthermore, based on the majority decision, the plaintiff may bring several actions for each of the individual claims at the same time, even before separate courts in case of an alternative jurisdiction.

Finally, the majority decision may raise the risk of conflicting decisions in cross-border situations, for example because the defendant changes his place of residence, and the court of another Member State has jurisdiction over the subsequent action.

Comments on the decision

It can be concluded that uniformity decision is favourable to would-be plaintiffs, who plan to launch test cases in Hungary, by litigating only a smaller portion of the claim with a view to mitigate court cost exposure.

For example, when the legal basis of a given claim is doubtful, the plaintiff can opt to start litigation for only a symbolic amount (eg, €1) to mitigate the risk of losing the case and paying a huge amount of court costs.

In case the Supreme Court establishes the legal basis of the claim in a “precedent judgment”, the plaintiff can pursue the bigger part of their claim on the same legal basis with reduced risk in a second litigation, since the lower courts will have to follow the precedent judgment under the same factual basis.

Even if the recent uniformity decision brings a potential risk to the good administration of justice as it can fuel bad-faith litigation tactics, however, it is out of question that due to this uniformity decision restricting the res judicata effects of judgments, the right to court, which is a fundamental right under Article 6 of the European Convention of Human Right will be better enforced.

By Richard Schmidt, Managing Partner and Peter Korozs, Junior Associate, SmartLegal Schmidt & Partners

The Central Bank of Hungary (MNB) is encouraging the banking sector to increase the level of green loans. To this end, significantly reduced capital requirements have been put in place when applying for loans, and green company bonds were introduced in summer 2020 as part of the MNB bond funding for growth scheme. The Hungarian government is now ready to intervene to achieve climate neutrality.

Green lending trends in the banking sector – a breakthrough in Hungary

When it comes to sustainable development goals, Hungary ranks 19th in Europe. While it faces major challenges in areas, such as affordable and clean energy, climate protection and protection of terrestrial ecosystems, the country’s financial system has recently begun to consider issues of environmental sustainability.

It is important to note that most of the credit institutions sector in Hungary sees the greatest commercial potential in the financing of renewable energy production. Therefore, the MNB is currently encouraging the banking sector to increase the level of green loans. In April 2021, the MNB issued a green proposal to encourage Hungarian credit institutions to adapt their operations to sustainable development, including strategy formulation, corporate governance and risk management.

Preferential capital requirements

The MNB has published new regulatory guidelines (Green Preferential Capital Requirement Programme for Corporates and Municipalities) for credit institutions on climate and environmental risk management, which came into force in June 2021. The new guidelines encourage banks to evaluate environmental risks when assessing their impact on operations and their financing portfolios using measurable and reliable indicators and methods in accordance with the recommendations of the task force on climate-related financial disclosures. However, the guidance goes well beyond climate information, requiring banks to create a dedicated unit to manage environmental risks and develop climate-neutral plans in line with the goals of the Paris Agreement.

Therefore, Hungarian banks are entitled to request significantly reduced capital requirements for loans for the purchase and construction of energy-efficient properties. This also applies to solar power plants, sustainable agriculture, energy efficiency and electromobility. The capital discount is 5% or 7% of each eligible gross exposure, which reduces the participating institution’s Pillar II capital requirement. The new capital requirements cover more than 85% of the banking sector.

It is safe to say that the green corporate loan portfolio in Hungary is growing dynamically in relation to the overall business credit portfolio. In addition, the MNB launched a programme for environmentally friendly housing in summer 2021. As part of the scheme, the MNB provides refinancing to banks that finance the construction and purchase of green housing.

Green bonds

The MNB has published guidelines that define the main standards for green bonds, provide issuers with a list of tasks to be performed, and define required documentation and reporting obligations. In addition, the Budapest Stock Exchange is supporting the development of the green bond market bypublishing guidelines for environmental, social and governance (ESG) reports, introducing internationally accepted content and format standards; and
providing practical assistance in the preparation of ESG reports.
The MNB has also launched a green mortgage bond purchase programme for the purchase of green-rated mortgage bonds to facilitate the issuance of green housing loans.

Green company bonds were first issued in summer 2020 as part of the MNB’s bond funding for growth scheme. The start of the Hungarian corporate green bond market was marked by the issuance of bonds worth HUF 30bln (approx. EUR 78.8m), followed by more green bond issuances by several other companies. All bonds issued comply with the corporate green bond regulation and have been verified by an external testing body to meet international standards, namely green bond principles (GBPs). Therefore, the Hungarian GBPs comply with the 2014 International Capital Markets Association Principles.

Additionally, the Hungarian Green Bond Framework was introduced in May 2020. The Ministry of Finance in cooperation with the government debt management agency of Hungary has set up a steering committee. The GBPs include:

• the use of proceeds;
• overall investment eligibility;
• reporting of total inflows;
• management of inflows; and
• impact reporting.

State aid in green finance

According to the National Clean Development Strategy 2020-2050, the government is ready to intervene to achieve climate neutrality and is choosing the path of early action, even if it costs approximately HUF 24.7bln (approx. EUR 64.9m) more than a more relaxed timeline.

The Hungarian State has already enacted – and the European Commission has already approved – the EUR 2bln scheme aimed at providing investment support towards a sustainable recovery. The scheme was approved under the State aid Temporary Framework.

Comment

Green finance is taking significant hold in Hungary and gives hope for a smooth transition to ESG, which often gets pushed aside by pressing social objectives that lending businesses must satisfy in order to stay relevant. Even though it is becoming increasingly clear that environmental and social factors genuinely count, while greenwashing will not be tolerated, it is investors that will ultimately determine the future of ESG in Hungary.

By Gergely Szaloki, Partner, Schoenherr

The European Court of Justice established in its ruling of 28 February 2023 that online platform OnlyFans is liable for value added tax (VAT) on the full amount paid by subscribers to content creators, not only on the 20% fee that the platform is charging creators of the sums paid by fans. This decision supports the position of the UK tax authority (HMRC) and further emphasizes the tax obligations of online platforms, regardless of their place of establishment.

Background

Fenix International, a company which is registered in the United Kingdom, operates an online platform widely known as Only Fans that is offered to ‘users’ from around the world, who are divided into ‘creators’ and ‘fans’. Creators post content such as photographs and videos to their respective profiles and can also stream live videos to their respective profiles and can also stream live videos to their fans or send private messages to them. Each creator determines the amount of the monthly subscription, although Fenix sets the minimum amount payable both for subscriptions and for tips.

Fenix provides not only the Only Fans platform but also the device enabling financial transactions to be carried out. Fenix is responsible for collecting and distributing the payments made by fans, using a third-party entity which supplies payment services. Fenix also sets the general terms and conditions for use of the Only Fans platform. Fenix levies 20% on any sum paid to a creator to whom it charges the corresponding amount. On the sum which it levies in this way, Fenix applied VAT at a rate of 20%, which appears on the invoices which it issues. All payments appear on the relevant fan’s bank statement as payments to Fenix.

Marketplace=intermediary for VAT purposes?

In accordance with Art. 9a(1) of Implementing Regulation No 282/2011, where electronically supplied services are supplied through a portal such as a marketplace for applications, a taxable person taking part in that supply shall be presumed to be an intermediary (acting in his own name but on behalf of the provider of those services, unless that provider is explicitly indicated as the supplier by that taxable person and that is reflected in the contractual arrangements between the parties).

In line with the opinion of the Advocate General of the European Court of Justice of the European Union, the Court of Justice established that, where a taxable person taking part in the supply of a service by electronic means, by operating, for example, an online social network platform, has the power to authorize the supply of that service, or to charge for it, or to lay down the general terms and conditions of such a supply, or generally the rules forming the general framework of that service, it is correct to state that the taxable person must be regarded as the supplier of services pursuant to the VAT Directive.

It is important that in the given case it was the platform provider who set the general terms of the agreements, invoiced and collected all payments from the ‘fans’. This implies that under such conditions OnlyFans is to account for VAT on the total amount charged and collected, not only on the 20% commissions.

Further context

ECJ ruled against another platform provider, Airbnb, twice recently, as well. In cases C-674/20 and C-83/21 under somewhat different scopes the ECJ found that electronic platform operators’ reporting and/or disclosure obligations are consistent with EU law, regardless of the fact whether the platform provider is registered/established in the given jurisdiction. The ECJ, however, also set limitations to the tax obligations in the latter case, stating that the requirement of a tax representative in the Member State in question might be necessary but unproportionate and thus in breach of EU law.

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

Schoenherr has advised the China-based Shanghai Electric Power Co. Ltd. on its full acquisition of two project companies developing a PV project portfolio with a total capacity of 100 megawatts in Inarcs, near Budapest, from a Greencells Group subsidiary. Erdos Katona reportedly advised the sellers.

The Shanghai Electric Power company is a listed company owned by State Power Investment Corporation Limited. According to Schoenherr, “with sustainable development of thermal power generation as main business, SEP has been committed to the development of clean energy, new energy, modern power service, circular economy, etc. The company has transformed into a modern energy enterprise integrating high-parameter and large-capacity coal-fired power, gas-fired power, wind power, solar power, and distributed energy supply.”

The Greencells Group is a European provider of PV power plants.

According to Schoenherr, “the Inarcs project is currently in the start of the construction phase and is expected to become operational until 2024. SEP is looking forward to adding further projects to its Hungarian portfolio and actively contributing to the country’s green energy transition.”

Earlier this year, Schoenherr advised Shanghai Electric Power on its acquisition of a 200-megawatt PV project in Hungary (as reported by CEE Legal Matters on January 16, 2023).

Schoenherr’s team included Partners Laszlo Krupl and Gergely Horvath and Associates Viktoria Magyar and Zsofia Rideg.

Editor’s Note: After this article was published, Erdos Katona confirmed it had advised the seller. The firm’s team included Partner Balazs Varszeghi, Counsel Orsolya Szilagyi, and Associate Kinga Mate.