Category: Hungary

On June 29, 2022, CEE Legal Matters reported that Oppenheim elected new members to its management board, with Istvan Szatmary becoming the firm’s new Managing Partner, while Jozsef Bulcsu Fenyvesi and Aron Laszlo undertook non-executive roles. We spoke with Szatmary, Fenyvesi, and Laszlo and discussed the process of transition, the firm’s new agenda, and upcoming plans.

CEELM: Tell us a little about Oppenheim’s history. What events preceded the change in the management board?

Laszlo: The firm was founded by Klara Oppenheim in 1989. It was a time when new possibilities opened in the market and there were only a handful of lawyers that could provide services meeting Western standards. As its first foreign relationship, our firm became affiliated with the Austrian law firm Heller Loeber Bahn in 1989. Through a merger, this became Bruckhaus Westrick Heller Loeber, which in 2000 merged again with Freshfields, Deringer Tessin Herrmann & Sedemund, resulting in Freshfields Bruckhaus Deringer. This merger was an important milestone for Oppenheim, both professionally and culturally, as we learned a lot during the Freshfields period. This arrangement worked very well until 2007 when we decided to found our own firm and we became Oppenheim as we know it today. All the lawyers at the time of the transition stayed with us, including founding members Klara and Ulrike.

At the moment, we have a satellite office in Vienna, with two lawyers who practice in Austria. There, we mostly concentrate on Hungarian businesses operating in Austria. 

Fenyvesi: The previous management had been in office since 2007. They had the enormous task of re-establishing and re-inventing the firm and building international alliances. This was a huge challenge in itself because we had to replicate all the infrastructure provided by Freshfields and provide the same level of services to our clients. Still, they were able to establish a firm that operated well independently and kept its reputation of excellence.

Eventually, the former management thought that some refreshment was needed, especially from our young Partners. Aron and I had worked with Oppenheim for a long time, and we were already practice heads meaning that we took some responsibilities for managing the firm, already. When Istvan joined, we knew that he had experience being on a management board of a large group of companies.

Following the change, Istvan became the executive member of the management and we undertook non-executive roles. The idea is that Bulcsu and I aim to carry on with the traditions and the culture of Oppenheim and to further develop the Oppenheim business, while operational functions are in Istvan’s hands.

CEELM: Why did you decide to appoint a person to an executive role from the outside? 

Laszlo: Istvan joined Oppenheim as the ACT (Antitrust, Competition, and Trade) head, but the day he joined we saw that he sees things differently, pointing out how structures and processes could be improved for smoother operations. He has an analytical mind and we realized that he could be a very good choice for setting up these new processes. When we started talking about the new management, everyone agreed that it would be a great choice to involve him. And Istvan was ready to take the call.

Bulcsu and I understand the spirit, history, and culture of the firm very well. Bulcsu has been with the firm since 2005 and had also been long involved in the human resources committee, dealing with new hires, salaries, bonuses, etc. As for myself, I joined the firm in 2002 as a student, left in 2005, and came back in 2014, but have always remained a member of the firm’s rock band Tokyo Ukulele, so I have been in the midst of the Oppenheim spirit for over two decades. I have also taken on more and more managerial duties over time. 

Szatmary: I had the privilege of seeing Oppenheim from various angles over the years. I saw them as direct competitors on opposite sides of negotiation tables and also as a client. I always thought that this firm operated according to the highest professional standards. After joining Oppenheim, I received strong signals that the firm would be ready to utilize my know-how in the day-to-day management of an organization, as well. It was critical that the previous management was open to changing the system of the management, and that this was an intentional and thought-through process. The message to the community within and outside the firm was that Oppenheim has taken yet another decision that is different from the processes you had seen on the market. A fundamental pattern among Hungarian law firms is that founding partners have been running firms for decades and their best young lawyers may have an issue with trying to find their own way up. Oppenheim’s management was smart enough to see that it could happen to us as well. What they did is actually quite unconventional on the market, but we have always been and will always be a unique and unconventional firm. This has always defined the spirit of the firm and both the former and new management acted within it. 

Fenyvesi: I should add, we are very thankful for still being able to rely on the experience and advice of the former management.

CEELM: What was at the top of your agenda – the first thing you started working on?

Szatmary: First, we had to clearly define the core principles of our operation, i.e., that we all believe Oppenheim stands for as a brand, keeping in mind that our personal brands come second and that running a firm is not ruling the firm. We had to figure out how we should work along these lines.

Fenyvesi: We also had to look at the firm’s current settings and operations from HR, financial, and organizational aspects. We personally talked to everyone, including those not directly involved in legal work, to find out what we can learn from our people and to set our priorities. Now we are ticking off boxes along the way. We want to retain an open-door policy for all our staff members. 

Laszlo: We have many ideas on how to improve the operation but we also have to bear in mind that Oppenheim has always had a creative, easy-going atmosphere, where young lawyers wanted to work. We want to keep this relaxed atmosphere. 

CEELM: Does the firm have any new messages, something that Oppenheim didn’t stand for in the past?

Szatmary: We believe in continuity in terms of the history and the spirit of Oppenheim, so there is no big change in the messaging. Oppenheim’s brand image grew very organically. If you look at it from a helicopter view, our key message is our ability and willingness to lead rather than to follow. 

Laszlo: The main message indeed has not changed: lead, don’t follow. We will definitely have to face the challenges affecting our profession including digitalization, AI, and, the changes affecting traditional lawyering in general. We would like to embrace the opportunity to tackle these issues to stay updated and assure the sustainability of our operations.

A secondary message for the legal community could be that a change in management can be a smooth process. The same firm is just run by different people, with former management members still involved in many decision-making processes – we all together make up Oppenheim. It has been a smooth transition and we are ready to show the world that this works as well.

Due to rising energy prices more and more employers are considering continuing or (re)introducing the home office (i.e. (partial) teleworking), previously introduced out of necessity, where workloads allow and now on the basis of cost efficiency. For the time being, the rise in energy prices does not seem to have discouraged employees from teleworking, and in many places the possibility of teleworking has become an expectation of employers.

The rise in energy prices may, however, shed new light on a not so old topic, namely the reimbursement of telework-related costs by employers.

According to the Labor Code, the employer must reimburse the employee for justified expenses incurred in connection with the fulfillment of the employment relationship. Therefore, the main question is what (extra) costs may be incurred as a result of teleworking and whether they are justified. On this basis, costs that the employee incurs independently of the employment relationship (or teleworking) should not be included (for example, the employee’s already existing internet subscription). 

On the other hand, increased energy consumption, for example, may undoubtedly be an additional cost due to teleworking (the extent to which such costs are considered justified should be examined separately).

However, the flat-rate teleworking cost reimbursement (not discussed here, as the topic has been thoroughly assessed) is of no relevance in terms of the above general reimbursement obligation of the employer set out under the Labor Code, as it is not compulsory to pay such allowance to the employee, and it is only a (facilitated) settlement option, the payment of which must be agreed between the parties. However, even if the parties have agreed on the payment of a flat-rate teleworking cost reimbursement, the increase in energy prices may lead to costs incurred by the employee exceeding the flat-rate teleworking cost reimbursement, which in turn will result in an (additional) cost reimbursement obligation on the part of the employer. 

As regards the justification of the costs, it is to be noted that if the teleworking option is chosen by the employee himself, and as a result the employee incurs costs, while he could have worked from the company premises, his claim for reimbursement is less justified than in the case when the employee is “obliged” to telework. Another important consideration in relation to justification is whether the expense was incurred because of a decision by the employee or because the employer required the provision of certain conditions (whether such condition concerns work equipment or safety, quality of internet connection, IT security, confidentiality measures, etc.). 

Therefore, with the winter months approaching employers should assess in advance possible future employee reimbursement claims and develop a coherent communication and strategy.

By Anita Horvath, Partner, and Eszter Bohati, Associate, Dentons

No one signs a commercial contract expecting or wanting a dispute. But a watertight contract with a solid arbitration clause can provide a vital sense of security to the signing parties. In some cases, however, an arbitration clause itself can cause procedural complications that have to be addressed even before a dispute between the parties can begin to be solved.

Contractual parties can choose between an institutional or ad hoc arbitration clause. With an ad hoc clause, the parties address any issues as and when (and if) they arise. In this case, the parties decide on aspects of the arbitration and draft the arbitration clause themselves.

Institutions such as the ICC have solid arbitration clauses that can be simply incorporated into any agreement without much (if any) need for tailoring. This option has several advantages. It provides an automatic format for dispute resolution with established rules and procedures, which usually ensures smooth and timely proceedings. The parties also receive support from the institution, including administrative assistance and a list of qualified arbitrators for the parties to choose from.

The main disadvantage is naturally the costs involved, with administrative and service fees sometimes even exceeding the amount in dispute. As with any institution, there may be a certain level of internal bureaucracy involved, which can create further delays (and costs), as well as unrealistic deadline demands.

Our dispute team sees plenty of institutional arbitration clauses. Most are straightforward and allow for subsequent relatively uncomplicated proceedings. But what happens when an arbitration clause cites two different institutions? We experienced one such situation when a client came to us with a rather strange arbitration clause in their quota share & purchase agreement.

The clause stated that the arbitration should be settled by the Hungarian institutional arbitration forum (HCCI), but by the application of another institutional arbitration forum, the ICC.

The problem is that institutional arbitrations in general use their own set of procedural rules (or, less often, they manage ad hoc arbitration under the party-determined/ad hoc arbitration rules), but they don’t administer cases under another institutional arbitration’s rules. The reason for this is simple: they do not have the necessary means and knowledge to do so.

What made this case even more problematic was that, according to the relevant clause, the arbitration was to be settled under ICC rules, which are by far the most strictly regulated and administered arbitrations (and therefore the most expensive). The administering ICC institution also plays a key role in the procedure and even has certain special features like the scrutiny procedure at the end of the arbitration.

Arbitrations before the HCCI on the other hand are more loosely administered. The HCCI plays more of a perfunctory gatekeeper role, in that it registers the case and the submission and leaves everything else to the tribunal and to the parties. 

We attempted to challenge the validity of the arbitration clause which, unfortunately, proved fruitless. The tribunal gave a very wide interpretation of the party’s freedom to derogate from the HCCI’s procedural rules and establish their own set of procedural rules that, in fact, closely resembled the ICC rules but dismissed any that would be impossible for the HCCI or the tribunal to perform (like the scrutiny procedure).

Sadly, the answer to whether hybrid arbitration clauses actually work remains to be seen. In the end, the parties settled their dispute out of court. In many ways, we were disappointed not to see the outcome of a potential quasi-ICC procedure.

Cases certainly exist where parties have managed to conduct such hybrid arbitrations, which shows that it is possible and lawful to do so. It’s important to note, however, that in all of these cases, what the arbitral institution and the tribunal agreed to administer and conduct was in fact a real ICC arbitration, under the full set of ICC rules, and not under certain, selected provisions of the ICC rules.

By Milan Kohlrusz, Founding Partner, and Katalin Bendzsel-Zsebik, Senior Associate, Bittera Kohlrusz & Toth

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Lakatos Koves & Partners has advised the Japan-based Toyo Ink Group on its market entry and operation of its new battery component plant in Hungary.

According to LKT, the Toyo Ink Group has set up a new plant in Ujhartyan, Pest County, which is also its first European plant, on top of existing production sites in China, Japan, and the US. “The HUF 7 billion investment creating 45 jobs marks a key milestone in the business strategy of the Japanese-owned company, as it is planning to further expand due to the rising global demand for electric vehicles.”

“In the newly inaugurated facility, Lioaccum CNT dispersion will be produced that helps cut manufacturing costs and reduce cell space of batteries, which allows inserting active materials to boost battery capacity and performance,” the firm informed. “The Hungarian operation is of strategic importance for the group and for Hungary also.”

LKT’s team included Partners Attila Ungar and Adam Mattyus, Counsel Eva Bognar, Senior Lawyers Nora Szigeti and Kornel Dirner, and Junior Lawyer Fanni Balas.

Lakatos Koves & Partners, working with Stevens & Bolton, has advised the Zenitech group on the acquisition of Autsoft.

The Zenitech group is a UK-based business transformational technology group pursuing information technology consultancy activities.

Autsoft is a Hungarian company engaged in customized software development and software solutions in artificial intelligence, IoT platforms, and virtual reality.

According to LKT, the transaction “is part of a strategy by Zenitech to grow and expand its operations in, and commitment to Hungary.”

LKT’s team included Partner Ivan Solyom and Senior Lawyer Kornel Dirner.

LKT did not respond to our inquiry on the matter.

According to its latest ruling, the Spanish tax authority certainly considers so. However, the recent boom in the popularity of NFTs poses more questions than answers from the perspective of indirect taxes.

Non-fungible tokens

Non-fungible tokens (NFTs) represent digital rights (e.g. ownership) over defined – digital – assets, e.g. digital images, photos, videos, and audio files. They are alike to ‘regular’ cryptocurrencies in being typically recorded on blockchain technologies. By definition, however, NFTs are non-fungible, i.e. unique unlike any regular (fiat) money or cryptocurrency. It also follows that NFTs are not interchangeable means of payment, but should be regarded as a digital certificate of authenticity.

VAT considerations

In its latest ruling, the Spanish tax authority needed to address the VAT characterization and treatment of the sale of NFTs.

The Spanish tax office firstly established that – after minting an NFT – there are always two ‘assets’: (a) the underlying (digital) asset, which can be anything that can be digitally represented, such as an image, graphic, video, music or any other content of a digital nature, and (b) the NFT itself, which represents the digital ownership of certain rights over the underlying digital asset.

In this particular case, the subject of the transaction was the “digital certificate of authenticity” represented by the NFT, and no physical delivery of the illustration file was carried out, consequently, the transactions should be deemed as ‘electronically supplied services’ (ESS). This also implies that

• sale of NFT is subject to general VAT rate (no exemption applies), and
• the special ‘place of enjoyment’ rules apply, i.e. the sale as a general rule is taxable in the country where the buyer is established.

This sounds straightforward, however, due to the anonymity of the transactions with NFTs, in most cases, it would not be possible to determine the place where the buyer is based and, thus, where the taxable transactions are carried out. EU Regulation No 282/2011 of 15 March 2011 provides guidance and certain presumptions for the location of the customer in the context of virtual transactions, which include the internet protocol (IP) address of the device used by the buyer or any method of geolocation, but even with these guidelines, it could be very difficult for the seller to determine the buyer location in the context of the sale of NFTs. The problems are cumulating further in the case of more complex transactions such as seller’s commission or buyer’s premium that are even more challenging to characterize and track.

What’s to come?

As lawmakers and tax authorities around the world try to catch up with the rapidly developing area of crypto tax, often from a direct tax angle, significant questions remain on how to apply various indirect tax rules. This is especially apparent when it comes to the treatment of NFTs.

The Belgian Federal Public Services also considers transactions with NFTs as digital services subject to the general VAT rate. In New Zealand, NFTs are excluded from the definition of ‘cryptocurrency’, which means that sales of NFTs follow the standard framework for supplies of ESS/remote services (also covering marketplaces). Alternatively, in Estonia, NFTs are treated as other types of cryptocurrencies.

In Hungary, a framework regulation has been introduced as of 1 January 2022. The regulation provides a broad definition for crypto assets that could include NFTs as well, however, covers only personal income tax implications, i.e. explicitly not applicable for VAT and corporate income tax assessment.

In 2021, the total value of NFT sales was calculated in billions of euros, while certain transactions already reached several 10 million euros in 2022. It is clear why governments try to take hold of such transactions and also clear that, due to the very anonymous and digital nature of NFT transactions, an international approach would be inevitable.

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

Hungarian lawyer Balazs Mak, Vice President of Legal Affairs at Paramount Global Content Distribution, has moved to Paramount Global’s Amsterdam offices.

Mak previously worked as Head of Legal CEE for Paramount’s TV business then moved on to Paramount Pictures’ content distribution group as VP of Legal Affairs, based in Budapest.

According to the company, “with the move to Amsterdam, Mak will continue to act as VP of Legal Affairs of Paramount’s Global Distribution Group, which handles the international distribution of features films, series, and other television content from the libraries of Paramount Global.”

Mak first joined Paramount in 2017. Before that, he worked for Viacom International Media Networks CEE as its Head of Business & Legal CEE between 2011 and 2017. Earlier still, he was the General Counsel of Online Business Technologies between 2008 and 2011. Between 2006 and 2008, he was a Legal Counsel CEE with BT.

Before moving in-house, Mak was an Associate Lawyer with the Viszmeg Law Firm between 2005 and 2006.

Originally reported by CEE In-House Matters.

The energy crisis has led to businesses shutting down for the winter and subsequent employment-related issues, with the Hungarian government now providing energy subsidies, according to KCG Partners Founding Partner Rita Parkanyi.

“Similarly to many other European countries, the energy crisis has been a key challenge for Hungary recently,” Parkanyi begins, saying that an immediate impact was felt in numerous industries. “Consequently, people and businesses are very cautious about energy consumption and, whenever possible, they are trying to come up with new technological solutions to save energy,” she notes.

According to Parkanyi, different industries are affected differently. “For example, the clients from the tourism industry are highly affected by the soaring energy prices – every day we read news on hotels being closed, either temporarily or permanently. The legal sector is busy helping these businesses to renegotiate contractual agreements.” For example, she says, “when it comes to commercial lease agreements, many of them are negotiated for three-to-five years, and now they’re facing completely different circumstances. Such an increase in energy prices could not be foreseeable one year ago, and we advise these companies on how to re-negotiate contractual terms, or even on what their chances are if they go to court.”

Similarly, Parkanyi says that there is a lot of work in the field of employment law. “Businesses that are closing over the winter are trying to find solutions for their employees,” she points out. “It is a very unusual situation, as they cannot employ people for the next two-to-three months, but, also, they don’t want to permanently terminate their contracts and lose them.” She says that the legal sector is busy trying to find new solutions to deal with this uncertainty and make sure that work relations continue once businesses reopen.

Parkanyi adds that there are many other changes in the energy field. “There has been a new controversial regulation imposing a ban on reselling excess energy from solar power installations back to Hungarian systems,” she notes. “Up until now, one could sell excess energy and, in winter, they would get energy back from the system. The government explained its decision through technical reasons – as a whole, the Hungarian energy system needs to be modernized and it couldn’t handle such an increased energy transfer.” According to her, it was quite shocking for the market, “as thousands of households wanted to install solar systems. Now many of them may cancel their orders since the investment might not make sense anymore.”

Looking on the bright side, Parkanyi says that “a new energy subsidy program will come into force on November 2, 2022, to combat the increased energy prices. It will provide subsidies to large manufacturing enterprises implementing energy efficiency-related investments, such as solar panel installation or consumption-reducing investments.” Additionally, Parkanyi highlights that there are considerable investments in the energy field as well. “A South Korean company will set up an electric car battery factory in Nyiregyhaza, Hungary,” she notes. “The investment amounts to EUR 700 million and is a very important development for the company and the country as well.”

According to the Hungarian Labor Code, employers shall keep records of the durations of regular working time and overtime, standby duty, periods of leave and overtime work performed. The working time records should be updated on a daily basis and should contain facilities to identify the time of commencement and end of any regular and overtime work and standby duty. Records of the durations of regular working time and overtime may be maintained in the form of verifying the work schedule made out in writing at the end of the month, updated on a daily basis. The Labor Code, however, does not address the question where the working time records should be physically stored.

Under the previous Labor Code, the practice was to keep records at the place of work. This rule was developed for practical reasons, to ensure that any shortcomings in the register were dealt with as quickly as possible, given the state of technology at the time. The Curia had ruled in accordance with this practice, and stated that working time records must meet the requirements of completeness, verifiability, up-to-dateness, authenticity and availability in the workplace. However, at a later stage the Curia came to the opposite conclusion, meaning that the requirement to keep up-to-date records of working hours does not imply that they must be effectively available at the place of work. Since the Curia’s decisions took opposite positions on the availability of working time records at the workplace, it became necessary to refer to a legal uniformity decision.

In its legal uniformity decision issued in the summer 2022, the Curia stated that the purpose of the working time register is twofold, being partly public and partly private. The former is intended to ensure the supervisory and control activities of the public authority, while the latter facilitates the enforcement of employees’ claims relating to rest periods and working time. In order to achieve this dual objective, the working time records must be objective and reliable, i.e., authentic.

The Curia also stated that the Labor Code does not contain any explicit provision that the employer must keep working time records in a manner that allows immediate inspection at the place of work, but it follows that the records must be reliable and verifiable, in addition to being up-to-date, both for the employee concerned and for the authority carrying out the inspection.

The diversity of systems for keeping records of working time and the nature of work now means that it is only possible to decide in a specific case whether an employer has complied with its legal obligation to keep records of working time, by taking into account the method of recording used by the employer and the circumstances and nature of the work.

In summary, the verifiability of the working time record must be ensured during the course of the audit, but not necessarily at the place of work where the audit is carried out. Therefore, according to the Labor Code, the employer is not obliged to keep the working time records on the spot, but must keep them objectively, reliably, up-to-date and in a way that allows for their verification.

By Levente Csengery, Partner, KCG Partners Law Firm

Ban, S. Szabo, Rausch & Partners has advised E.ON Hungaria on the merger of trading companies Elmu-Emasz Energiaszolgaltato and Elmu-Emasz Energy Supplier into E.ON Energy Solutions.

E.ON Hungaria is an electric utility company. 

BSRP’s team was led by Partner Balazs Unger, supervised by Managing Partner Janos Rausch, and included Associate Diana Aszodi.