Category: Hungary

Baker McKenzie has advised the Szechenyi Funds and Lead Ventures on the sale of their shares in aiMotive to Stellantis in a transaction that saw Stellantis acquire aiMotive. Dentons reportedly advised Stellantis.

“Stellantis is an automotive manufacturing corporation that aims to enhance its artificial intelligence and autonomous driving core technology with the acquisition of aiMotive, a startup company based in Budapest, Hungary, with offices in Germany, the US, and Japan, with over 200 highly skilled employees worldwide,” Baker McKenzie informed.

According to the firm, “aiMotive will operate as a subsidiary of Stellantis, maintaining its operational independence and start-up culture. It will continue selling three areas of its current technology product portfolio, including aiData, aiSim, and aiWare, to other partners.”

Baker McKenzie’s team was led by Budapest-based Managing Partner Akos Fehervary and Munich-based Counsel Tino Marz.

Editor’s Note: After this article was published, Dentons announced it had advised aiMotive in connection with its sale to Stellantis. The firm’s team included Partner Rob Irving, Senior Associates Kamran Pirani and Lieor Koblenz, and Associates Sebastian Ishiguro, Iryna Nahorniak, and Aliz Wulcz.

A proposal for the modification of the Labour Code was filed to the Hungarian Parliament on 2 November 2022. The bill aims to ensure compliance with the EU Directives No. 2019/1158 on work-life balance for parents and carers and No. 2019/1152 on transparent and predictable working conditions.

According to the new rules, fathers will be able to take 10 working days off after the birth of their child (instead of the 5-days paternity leave currently available for fathers). Fathers will be entitled to their absence fee for the first 5 days of the extended parental leave, and to 40% of their absence fee for the remaining period. Furthermore, employees will be entitled to 44 days of holiday until the age of 3 of their children. For this period, employees may receive 10% of their absence fee reduced with the family allowances they receive. A person who has a relative or a person living in the same household who needs care for serious health reasons may be exempted from the obligation to work for a maximum of 5 working days per year.

Parents with young children can request a change in their working conditions. In particular, they may request the employer to change their place of work and working schedules, teleworking or part-time employment until the age of 8 of their children. The employer must respond in writing to such requests within 15 days, and in case of refusal, it shall justify it. The justification shall fulfil the same criteria as in case of dismissal notices, and the lawfulness of the justification might be contested by the employees in a court procedure.

Employers will be obliged to provide more information to employees about their employment (e.g. it must inform the employees about the authority for which the employer pays the taxes and social contributions, and more information about the working schedule etc.) within shorter deadlines, i.e. within 7 days from the commencement of the employment or immediately in case of any change of circumstances.

According to the bill, the modifications will enter into force on 1 January 2023.

By Eszter Ila-Horvath, Attorney at Law, KCG Partners Law Firm

Jalsovszky has advised Zambo Vagyonkezelo on the pre-exit restructuring and the sale of Tuzallotechnika to Alba Industrial Holding. Peremiczki & Turi advised the buyer.

The core operation of Tuzallotechnika is the construction and maintenance of industrial furnaces and other heat engineering equipment.

Jalsovszky’s team included Partner Agnes Bejo, Senior Associate Akos Barati, Associate Dora Nagy, and Junior Associates Tamas Gajdo and Lajos Kecskes.

Peremiczki & Turi’s team included Partners Peter Peremiczki and Melinda Turi and Senior Associates Emoke Buzogany, Krisztina Baffi, and Marietta Gulacsi.

The Hungarian data protection authority (NAIH) fined Magyar Éremkibocsátó Kft, a limited liability company engaged in the numismatic business, HUF 30m (approx. EUR 73,000) for unlawful direct marketing activities.

A key message of the decision is that the data subject’s consent to data processing may not be “smuggled into” statements that do not explicitly provide for it.

In the company’s letter sent to its customers by regular post, customers received an order form which, if they signed it (i.e. by placing an order) was automatically considered by the company as consent to the processing of the customer’s data for the purpose of direct marketing. In other words, it was not possible to place an order without the data subject’s consent to direct marketing data processing.

The Authority’s decision confirms that personal data may only be processed on the basis of consent if the data subject gives their consent to the processing of their data genuinely and explicitly. Thus, consent is invalid and personal data may not be processed if the consent statement is “provided” together with another statement without the data subject’s explicit consent to the processing.

This common practice of data controllers treating event registrations or purchases on a website as the granting of consent is flawed and should definitely be reviewed by clients. The solution may be to obtain consent through active engagement or to choose another legal basis for such direct marketing data processing.

By Aron Hegyi, Associate, Schoenherr

The Tax Foundation issued its annual International Tax Competitiveness Index (ITCI) of 38 OECD countries. The Index seeks to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality. The ranking weighs variables across five categories: corporate taxes, individual taxes, consumption taxes, property taxes, and international tax rules.

According to the ITCI, Hungary stands out in terms of income taxes – 5^th and 6^th for corporate and individual taxation, respectively – highlighting that Hungary has the lowest corporate tax rate in the OECD at 9% and Hungary has a flat personal income tax system. Still, Hungary received the best rating with regard to international tax rules thanks to ‘better-than-average’ Controlled Foreign Corporation rules and its widespread treaty system.

The Tax Foundation also points to the tax burden on consumption and property as a weakness: Hungary’s 27% VAT rate is the highest among OECD states, plus Hungary levies taxes on estates, real estate transfers, and bank assets. According to the methodology of the Index, a country’s consumption tax score is broken down into three subcategories: tax rate, tax base and complexity. It seems that in the case of Hungary the world’s no. 1 VAT rate was predominant and ‘granted’ the last position in this regard. ‘Fortunately’ for Hungary, the Individual Income Taxes category score is the most highly correlated with the final score while the Consumption Taxes category is the least correlated with the final score.

For the ninth year in a row, Estonia has the best tax system in the OECD, according to the freshly published Tax Competitiveness Index 2022. Estonia’s transparent and straightforward tax system attracts investments with no corporate income tax, no capital tax, and no property transfer taxes.

It is also worth noting that ITCI rank and actual economic performance might not correspond in each case; i.e. Turkey is currently ranked at 9^th, while Germany and the United States come in at 15^th and 22^nd respectively. By definition, the Index is more about the overall design of a tax system and not specifically to be predictive of actual economic outcomes.

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

Kinstellar has advised S Immo on its EUR 238.3 million acquisition of Budapest office properties and a land plot from the CPI Property Group. Dentons advised the seller.

According to Kinstellar, the sold properties included the Gateway Office Park, Arena Corner, Andrassy Palace, and the five-part BC99 Office Park. The buildings have a total lettable area of around 109,000 square meters.

S Immo is a Vienna-listed real estate investor and developer focusing on Austria, Germany, and CEE.

The CPI Property Group is a real estate company focusing on long-term investments and real estate leases in Central Europe and Germany.

Kinstellar previously advised S Immo on its acquisition of EXPO Business Park in Romania from Portland Trust (as reported by CEE Legal Matters on April 22, 2022). 

The Kinstellar team was led by Managing Associate Barnabas Sagi and included Associate Bertalan Vanya and Junior Associate Anna Szilagyi.

The Dentons team was led by Partner Marcell Szonyi and included Partner Gergely Horvath, Senior Associate Aron Karolyi-Szabo, Associates Rita Varnagy, Eszter Patyi, Eszter Szolnoki, Nora Jakab, and Brigitta Kovacs, and Junior Associates Zsombor Franko and Lorant Teleki.

The Hungarian Government has adopted new decrees concerning household power plants and microgrids. These new legislations aim to enable economic operators to cooperate in fulfilling energy needs in times of high demand as well as to regulate small household power plants. The rules in question entered into force on 26 October 2022 and presumably will remain in force at least until the end of the state of emergency.

The first change in the existing regime is that the owner of a household power plant (with a generation capacity of a maximum 50 kW) temporarily will not be able to feed the generated electricity into the grid. This also means that unused electricity will not be bought from them by the grid operator. The new rule only applies to household power plant owners who made their application for connection to the grid before 31 October 2022. In practice, this change will prohibit new users from feeding their unused electricity into the grid. Industry experts argue that this will discourage citizens from investing in renewable energy (especially solar panels), since unused electricity will no longer be bought from the energy service provider, thus resulting in a slower return of investment.

The second change facilitates the spread of microgrids in Hungary. Microgrids are small-scale grids that are shared locally between their users and operated by them. They became increasingly important in the ongoing energy crisis, as it enables economic players to invest in a power plant together and share its generated (and unused) electricity. Previously microgrids were only allowed to be established between related companies. The recent change abolishes the latter, thus users located at the same site (i.e. industrial park) can become, at least partially, independent from the world market price. The Government further facilitates the establishment of such systems, as the network access fees to be paid are much less. Representatives of the industry are pleased with the new measure since it opens up the possibility of further cooperation between businesses to promote optimal electricity use while reducing costs.

By Gabriella Galik, Attorney at law, KCG Partners Law Firm

In mid-October 2022, a new bill has been submitted to the Parliament on the amendment of certain tax provisions in relation to real estates. The bill, on the basis of changes in the building regulations, clarifies the definitions of the properties under construction and built-on new properties. Thus, a built-on new property means also a property for which an occupancy permit was already issued, but then, its use or the number of its units changed (e.g. it was converted from a flat to an office) and 2 years have not yet elapsed until its sale. These properties will be sold subject to VAT.

One of the conditions for the application of reverse taxation in respect of the construction-installation works is that the creation, extension, alteration or other modification of the property is subject to a building permit (or subject to a procedure for obtaining the acknowledgement of the building authority or a simple notification). However, under the building regulations, many works have been exempted from the building permit in the recent years and thus also from reverse taxation. Therefore, as a result of the amendment of the VAT Act, reverse taxation will also apply to works for the creation, extension, alteration or other modification of the property, where a building permit or simple notification is not required, but the execution of the works requires other permit or notification of the authority.

Another change relates to the transactions between affiliated companies. The transfer of real estates between affiliated companies is exempt from the property transfer duty. Under the current rules, the condition of the exemption is that the acquirer’s main business activity should be “the leasing or operation of own or rented property or the sale of own property”. This requirement needs to be met only at the time when the duty payment obligation arises, and the rule can therefore be circumvented by a formal act of the court of registration (by the registration of the change of the main activity). In order to prevent this, the new rules will require that 50% of the turnover should come from the aforementioned activities or one of these activities in the total turnover of the acquirer for the application of the exemption.

If adopted by Parliament, the amendments will enter into force on 1 January 2023.

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

The global shift to renewable energy and aspirations to reduce carbon emissions, together with the war-related energy crisis are among the major drivers that keep BSLaw Budapest – Szuchy Law Office’s energy practice busy, as Office Managing Partner Robert Szuchy points out.

“Energy is such a complex and timely topic, and it is not only because of the war in our neighborhood but because of the global drive and efforts to reduce carbon emissions,” Szuchy explains.

“Market players have to solve issues arising out of the high prices and also due to the limited availability of the various energy resources.” Szuchy adds that “at both local and international levels, the creation of energy communities is one possible solution for reducing emissions and becoming more energy efficient. The market needs new technology solutions all the time.”

“In general, as the energy market is a highly regulated sector,” Szuchy says, “both the EU and national governments have established an extensive legal framework. The legal sector must collaborate with businesses and the technology sector in particular,  on the understanding that collaboration between the different actors is essential to create economically and commercially viable solutions. This new market environment demands new contracts.”

“In Hungary, the concept of a smart grid is a new one, and we are involved in quite a few projects involving such solutions,” Szuchy adds. “For example, we have advised on large-scale energy storage projects. We have also had interesting advisory mandates in relation to e-charging and micro-mobility.” 

“Across the board in the energy sector, we advise on regulatory issues, including licensing,” reports Szuchy. “One of the other key issues for energy-related projects nowadays is financing, considering the EU taxonomy and ESG requirements. There are numerous criteria which companies have to meet in order to receive financing for a project.” 

Looking forward to the upcoming months, Szuchy believes that the firm’s energy practice will be even more active. “Larger energy consumers are seeking new opportunities to reduce the cost of energy,” he says. “New potential clients are looking for different solutions on how to be more energy independent, how to cut costs, or what type of alternative service providers to find. All these  considerations are leading to a host of legal issues, such as how to establish a smart grid, for example, and how to set up energy communities.”

Another major challenge, according to Szuchy, is dealing with the negotiations within the network and deciding on what type of contractual relationships could be best used. Finally, Szuchy believes, that creating PPA contracts and related commercial aspects will be important. “Companies have to either invest in energy efficiency or pay a certain amount in fees. Accordingly, there will be an even heavier focus on the energy practice,” he concludes.

As part of a comprehensive EU strategy to tackle non-performing loans, the European Parliament and the Council adopted a directive on credit servicers and credit purchasers, which Member States have until 29 December 2023 to transpose into national law.

The aim of the Directive is threefold: to strengthen the single financial market and the secondary market for non-performing loans by harmonising national rules, in particular to facilitate the transfer of information and data; to strengthen the internal market in the field of cross-border debt purchase and management; and to establish a single framework for the rights of borrowers. 
The most important of these objectives seems to be to facilitate the development of the secondary market for non-performing loans in the EU by removing obstacles to the transfer of non-performing loans from credit institutions to credit purchasers and by determining the security for the transfer, while protecting the rights of borrowers. To ensure the safety of debtors, the Directive makes credit management an activity subject to authorisation. Furthermore, there are a number of principles and rules that credit servicers must follow when carrying out their activities, such as the transfer of claims, communication and complaints handling.

The Directive covers non-performing loans granted by all EU-based credit institutions or financial firms, i.e. its provisions apply to the purchase of such claims. It follows that other claims not arising from credit and loan agreements, such as utility and other service provider claims, are excluded from the scope of the Directive. Nor does the Directive cover more complex transactions that are not solely for the transfer of non-performing loans but, for example, of entire client portfolios or business lines. The common view in the market is that an extension of the Directive or its eventual implementation covering entire client portfolios and non-loan claims may be wise.

There is a dilemma between breaking down the barriers, which is needed to strengthen the internal market, and the basic nature of the financial market, which points towards detailed regulation. The Directive seeks to resolve this by adding a highly regulated role to unconstrained purchasing activity: the credit servicer. The Directive is an acknowledgement of the fact that investors are currently unable to take advantage of the internal market because of the barriers arising from divergent national regulations, and the focus is on a uniform relaxation of regulation in this area. However, there are no common EU rules on the regulation of credit servicers and debt recovery, so it provides a regulatory framework in this area which needs to be fleshed out by the Member States. In Hungary, there is no uniform law on debt management, so most of the relevant rules have so far been manifested in the recommendations of the Hungarian National Bank. The question is whether the Directive will be implemented as a new, separate law or by amending an existing law (e.g. the Credit Institutions Act). 

Overall, the implementation of the Directive is expected to increase the role of debt management or credit servicers, and is expected to increase the banking sector’s focus on these service providers while adapting their work-out strategy accordingly. At the same time, a reduction in the number of judicial enforcement cases and the out-of-court settlement of these would also be welcome.

By Gergely Szaloki, Local Partner, Schoenherr