Category: Hungary

EU and Hungarian competition law considerations are also highly relevant in any real estate transaction, especially from a merger control and information exchange perspective.

Under merger control rules, certain transactions must be notified to the various national competition authorities (including the Hungarian Competition Authority) and, in some cases, the European Commission. The notification requirement depends on the type of the transaction and the size (typically the turnover) of the companies involved.

• As to the type of the transaction, it is clear that share deals (e.g. acquisition of a majority shareholding in a company which owns a certain piece of real estate) clearly qualify as relevant. In addition, asset deals may also be scrutinised by competition authorities, provided that the assets in question qualify as a so-called “part of an undertaking”, i.e., a standalone business unit to which turnover can be attributed. For example, the acquisition of a plot of land which has a shopping mall on it can typically qualify as a “part of an undertaking” as it would enable such shopping mall to be operated by/integrated into the buyer’s own business.
• As to the size of the companies involved, most competition laws apply turnover thresholds, i.e. the net sales revenues of the companies involved in the transaction for the previous business year are reviewed. For example, under Hungarian law, the thresholds for notification are twofold:
  • all the undertakings concerned have to achieve at least HUF 15 billion in turnover from Hungary in the previous business year, and
  • there have to be at least two undertakings concerned that each achieved at least HUF 1 billion in turnover from Hungary in the previous business year.

From an information exchange perspective, companies engaged in real estate transactions need to make sure that they only exchange information that is absolutely necessary and only to the extent that is required depending on the stage of the transaction. This obligation is particularly relevant in case of a transaction involving real estate companies that are competitors to each other. In such cases, information barriers need to be erected, e.g. in the form of personal/company-wide confidentiality obligations or “clean teams” (i.e. persons dedicated to a certain transaction who are not involved in the strategic decision-making of the company) or via external advisors.

Compliance with the above rules is essential and may significantly affect the structure and timing of a transaction. Specifically, from a merger control perspective, if a notification requirement applies, it typically entails that the transaction may not be closed/implemented before clearance by the competent competition authority (or authorities). Competition law envisages serious sanctions in the form of fines for the breach of this obligation. Similarly, the illegal exchange of information could also entail fines by the authorities.

It is therefore suggested that competition law considerations be taken into account as early as the transaction planning stage and compliance with the relevant obligations be continuously monitored as the deal proceeds further.

By Zoltan Marosi, Co-Head of Competition and Antitrust, DLA Piper

The Hungarian Government issued a decree that amends certain provisions of the bank’s liquidation proceedings.  The decree entered into force on 15 April, and it affects the solvent liquidation of Sberbank Hungary, subsidiary of Sberbank Europe AG, Hungarian member of the Russian Sberbank group. 

Even though it affects the liquidation of Sberbank Hungary, the decree covers every credit institution incorporated in Hungary; and it affects both solvent and insolvent liquidations thereof. The decree is issued under the umbrella of the Act I of 2021 on the Protective Measures in Relation of the Covid Pandemia which enables the Hungarian government to amend certain Parliament acts by way of an interim government decree. The decree thus will remain in force only until the Act is in force. Nevertheless, it will remain applicable even thereafter for the then ongoing procedures.

The measures affecting the ranking of claims in a solvent liquidation:

• The administrator must release from the bankruptcy estate the amounts on the deposit accounts of notaries, bailiffs and law firms and any deposits with the purpose of securing third party obligations. The purpose of this provision should be welcome as the transactions that are affected by a banking liquidation (the liquidation of Sberbank Hungary in the present) may go forward and will not get stuck until the liquidation is completed.
• After the above release the administrator must settle the claims of the deposits of private clients and SMEs to the extent such claims were not settled by the National Deposit Insurance Fund (Országos Betétbiztosítási Alap – OBA).
• The remaining claims must be settled according to the statutory ranking.

As to the ranking of claims in an insolvent liquidation, the release of deposit accounts and security deposits applies mutatis mutandis. However, the deposit claims of private and SME clients will not become super-senior.

Also, it is required in an insolvent liquidation; provided that a solvent liquidation turned to an insolvent one, that the creditors must submit their claims within 30 days from opening the insolvent liquidation proceeding (the general rule is 60 days).  Irrespective if the insolvent liquidation was preceded by an insolvent liquidation or not, security deposits securing third party claims must be enforced within 60 days from the opening of the proceeding (the general rule is 3 months).

Both in case of solvent and insolvent liquidation, it is also set forth that the administrator must attempt to sell the portfolio of the liquidated bank as a going concern and apply for the relevant approval at the Hungarian National Bank within 120 days from the start of the proceeding (this deadline may be extended though).

By Gergely Szaloki, Partner, Schoenherr

Former Mediaworks Hungary General Counsel Istvan Szatmary has returned to private practice as a Partner.

In his new role, he will serve as the Head of Antitrust, Competition, and Trade at Oppenheim.

Szatmary had spent almost three years as the Mediaworks Hungary General Counsel. Prior to him moving in-house, he worked with DLA Piper in Hungary for 21 years, where he was last a Senior Counsel and Head of Antitrust.

Szatmary received his law degree from the Law School of the University of Miskolc in 1998.

Originally reported by CEE In-House Matters.

The Hungarian National Authority for Data Protection and Freedom of Information (NAIH) recently published its annual report for 2021, which contains some useful information for data controllers.

In 2021, NAIH opened a total of 56 ex officio investigations and official proceedings in relation to the GDPR and 2,161 new investigations and official proceedings in response to complaints (of which 184 were related to a data breach). This shows that the overwhelming majority of procedures are initiated by request. This may be due to the limited capacity of the NAIH and to the fact that, due to growing awareness of privacy rights and concerns, more and more individuals are turning to the NAIH for help with alleged or actual breaches of their personal data.

In view of this trend, data controllers are well advised to pay increased attention to data protection compliance. Compliance with the GDPR is becoming an increasingly important factor in processing the personal data of data subjects (e.g. employees, customers) and includes the need to comply with the prior information obligation, to clarify the purposes and legal bases of the data processing and the scope of the data, to properly document consents and to prepare the test for balancing the interests of controllers and data subjects required by the GDPR. In relation to the latter, it should be stressed that the NAIH analyses the content of the balancing tests in detail particularly often. A balancing test must be carried out in all cases where the legal basis for the processing is the legitimate interest of the data controller or a third party (Article 6(1)(f) GDPR). The  authorities have a great deal of experience in preparing balancing tests, and knowledge of such tests is necessary for a thorough and appropriate assessment of the interests involved. The NAIH critically examines when the controller carried out the balancing test (whether the test precedes the start of data processing) and whether the data controller has properly weighed the various aspects (relevance of its legitimate interest, rights and freedoms of the data subject, necessity and proportionality and other principles of the GDPR). 

In its 2021 report, the NAIH underlines that drawing up a document (e.g. the balancing test) does not in itself constitute compliance with the obligations. For example, in the description of the most significant Hungarian case to date (250 million HUF) involving the use of artificial intelligence by a bank, the NAIH emphasised that the content of the documentation did not meet the requirements. The bank only documented that the data processing was necessary to pursue its interest but did not actually examine proportionality and the data subjects’ interests, while trivialising the significant risks to fundamental rights.

The NAIH also mentions the shortcomings of a test of balancing of interests in its description of another significant case (concerning an investigation into the fundraising activities of a foundation). Here, the NAIH describes how the balancing test failed to consider the rights and freedoms of data subjects and to include an analysis of the impact of the processing on data subjects and a justification of why the interests of the foundation prevailed over these. 

The NAIH’s report also shows that in many cases, data controllers do not carry out a proper risk assessment in the event of a personal data breach (incident). In a number of cases, data controllers classified a higher-risk incident as risk-free and thus failed to notify the data subject, i.e. failed to comply with the obligations imposed by the GDPR in relation to high-risk incidents. In many cases, the NAIH was only notified of high-risk incidents via a public interest notification, as in many cases the data controllers themselves were not even aware of the incident or had not identified the incident as a personal data breach. It should be kept in mind that the NAIH will assess the failure to notify the personal data breach as an aggravating factor in its proceedings.

A number of recommendations and guidelines have been produced in the context of incident classification and related risk assessment. At the initiative of the NAIH, the European Data Protection Board (EDPB), developed its Guideline 1/2021, which contains a practical description of typical data breaches.

By Emese Simon, Senior Associate, and Edina Czegledy, Counsel, Noerr

The summary below highlights the most important changes to the Hungarian Tax Regime for 2022.

Further Reduction of Taxes on Labor

The downward tax trend on labor seen in 2012 will continue into 2022. The focus is shifted to the social contribution tax, which fell from 15.5% to 13%. With this reduction, the social contribution tax has been halved over the past decade: previously known as a social insurance contribution, it was 27% in 2012 and constituted a competition barrier for the Hungarian economy.

The clear goal of the present Hungarian taxation policy is to improve labor and entrepreneurial activity through low tax rates. As part of this endeavor, income tax has been cut from 36% to 15% in the past decade, and even corporate tax has been halved, from 19% at the beginning of the last decade to 9%.

The income tax rate remains 15% in 2022, however, the income tax system has been amended with new possibilities.

It is noteworthy that people under the age of 25 will benefit from a full income tax exemption on labor activity after January 1, 2022. This exemption is limited to the amount of the average gross earnings of full-time employees in Hungary, calculated based on the previous year’s July data.

Furthermore, the tax benefits for taxpayers with children have been extended into 2022 with a special, unique income tax refund to offset the negative economic impact of COVID-19. Taxpayers with children had to confront the enormous challenges of the pandemic while working and supporting their children’s homeschooling at the same time. Therefore, parliament has decided to compensate them with the unique refund of their labor income tax paid in 2021. The refund is limited to the average Hungarian income tax base due to the average gross wage in Hungary, calculated on the data of the previous year’s labor activity. The average tax base, according to this, is currently HUF 809,000, which amounts to approximately EUR 2,275.

The rules on tax relief for taxpayers with children, the so-called family tax allowance, will remain the same in 2022. Under this regulation, the monthly amount of the family tax allowance reduces the monthly income tax base, depending on the number of dependents. The monthly income tax base is reduced by 1) HUF 66,670 (EUR 188) if the number of dependents is one, which enables a monthly saving of HUF 10,000 (EUR 28) for one child; 2) HUF 133,330 (EUR 376) if the number of dependents is two, which enables a monthly saving of HUF 20,000 (EUR 56) for each child; 3) HUF 220,000 (EUR 620) if the number of dependents is three or more, which enables a monthly saving of HUF 33,000 (EUR 93) for each child.

Parents with three or more children can save the full amount of income tax payable on the part of their income equal to the average gross wage in Hungary.

Also, the special tax on the professional training of employees, the so-called professional training contribution, has been terminated as of January 1, 2022. This change allows employers to save 1.5% of the gross salary of each employee.

Special Tax Exemptions Due to COVID-19

Due to the pandemic, working from home (home office) has become more common in the last two years. Working from home has increased employees’ costs for electricity, heating, water, internet, and the like, which employers have been able to save. These costs would not have been incurred on the employees’ side in case of the regular in-office work. In 2022 and as compensation, the employer is also allowed to give employees 10% of the respective minimum wage tax-free, without any certificate.

COVID-19 has also changed traffic habits: traveling by bicycle has become very attractive, primarily in cities, especially during the first wave of the pandemic. Recognizing this demand, the legislator allows employers to provide tax-free bicycles for private use, whose only source of power is directly applied human power or an up to 300-watt electrical motor (e-bikes), from January 1, 2022. This regulation allows employers to provide employees with bicycles or e-bikes for their commute.

By Daniel Feher, Managing Partner, Feher Legal & Tax, Alliott Global Alliance

This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.

Taylor Wessing has advised Seon on its recent USD 94 million series B funding round led by Silicon Valley-based IVP and including existing investors Creandum and PortfoLion. Reportedly, Wilson Sonsini Goodrich & Rosati advised Seon as well.

Seon is a London-based Anglo-Hungarian online fraud prevention system for fintech companies. Its clients include, among others, Revolut, NuBank, Afterpay, Patreon, and Sorare.

According to Taylor Wessing, the round also included angel investors, including “founders and senior executives from product-led tech companies Aiven, Coinbase, DataDog, DoorDash, Figma, G2, GitHub, Public, Slack, Supercell, UiPath, Veriff, and Wise … The funding will be used to expand Seon’s geographic presence in North America, Latin America, and Asia as well as focusing on key partnerships with leading e-commerce platforms, product development, and integrating new data sources to best fight online fraud.”

Taylor Wessing’s team included Partners Ian Moore and Helen Farr, Senior Associate Simon Jupp, and Associate Baharak Zargarei.

Taylor Wessing did not reply to our inquiry on the matter.

In its recommendation issued at the end of March 2022, the European Commission urges Member States to immediately end their investor citizenship schemes and ensure strict controls to address the security, money laundering, tax evasion and corruption risks of investor residence programs.

Investor citizenship schemes, under which nationality is granted in exchange for a pre-determined payment or investment and without a genuine link with the Member State concerned, have implications for the European Union as a whole, as every person holding the nationality of a Member State is at the same time a citizen of the Union. Similarly, obtaining a valid residence permit via an investor residence scheme grants certain rights to third-country nationals, including to travel freely in the Schengen area.

As the current Russian aggression against Ukraine highlights these risks once again, the recommendation is part of the Commission’s wider policy to take decisive action on investor citizenship and residence. Currently there are 9 Member States (Spain, Portugal, Greece, Italy, Austria, Belgium, Germany, Bulgaria, Ireland) offering investor residence programs and there is only one Member State that has an investor citizenship program (Malta).

The Commission also ordered the Member States concerned to report by the end of May 2022 on the implementation of the recommendation presented and to keep the Commission regularly informed thereafter.

Previously, between 2013 and 2017 Hungary also had an investor residence program, under which almost 20 thousand foreigners obtained residence permits. The 6500 and investors and their 13000 family members came from 59 countries, most of them (81%) coming from China, Russia (7%) and Iran (2%). Currently Hungary does not have any investor citizenship or an investor residence scheme, and in light of the above it will likely remain so in the foreseeable future.

By Gabriella Galik, Partner, KCG Partners Law Firm

Taylor Wessing has advised Berenberg on commencing its cooperation with Greencells for the development of the Szugy solar park in Hungary. Erdos Katona reportedly advised Greencells on the deal.

According to Taylor Wessing, “the Berenberg Green Energy Junior Debt Fund III has provided the financing for the construction and commissioning phase of the 65.2 megawatt-peak Szugy solar park in Hungary. [The fund] is part of the German private bank Berenberg. Together with the EPC & solar park developer Greencells, Berenberg has begun its cooperation with Szugy.”

According to the firm, Szugy is “already under construction and is expected to start its operations in October 2022. The park benefits from a government-guaranteed feed-in tariff (FIT), over 25 years, starting at operations. The solar park will be built with 121,000 photovoltaic modules, which will produce enough energy to meet the electricity demand of around 22,500 homes.”

Taylor Wessing’s team in Hungary included Partner Torsten Braner and Senior Associate Petra Knall, with further team members in Germany and the Netherlands.

The prospective tax and retail business nationalization-related reforms, together with war-related sanctions, are the major discussion topics in Hungary, according to Bittera Kohlrusz & Toth Partner Milan Kohlrusz.

“A couple of weeks ago we had general elections in Hungary,” Kohlrusz begins, noting that the ruling party received majority votes again. “However, this is a challenging period, as the Hungarian government has to deal with budget issues,” he explains. “There are expectations that a special tax regime will be introduced, for instance, in relation to banks and retail stores, to cover gaps between spending and the available budgetary resources.”

“Following the elections, the Hungarian government also wants to nationalize the retail business, meaning that at least 50% of each retail company will be owned by Hungarian entities or individuals,” Kohlrusz adds. “A couple of years ago, a similar policy was adopted with regard to banks and energy companies. This might potentially give rise to disputes between the investors and the government, and may lead to arbitration procedures on the international level.”

Kohlrusz highlights that, as a result of the war, Hungarian lawyers are dealing with various immigration, employment, and corporate issues. “For instance, Ukraine and Belarus are known as hubs for IT and technology company startups,” he points out. “These companies are still operating to a great extent but, considering sanctions and uncertainty, there are questions on how to relocate them to another country. Clients are asking whether it is possible to set up a new company, outside of these countries, to bring employees over, etc.”

“It affects the energy sector as well,” he says. “The EU wants to stop using Russian gas and oil but, considering the Hungarian economy and the extent of its dependence on Russian energy, the country now faces serious challenges. We are not as wealthy as Western European countries and, on top of that, only Mol – a Hungarian oil and gas company – can refine Russian oil. Even if we follow the EU recommendations, it might take fifteen years until we can fully substitute Russian energy,” Kohlrusz explains.

The war in Ukraine and the related sanctions on Russian companies and individuals have created a lot of ambiguity on the international level, according to Kohlrusz. “We now have to track down these sanctions on a daily basis,” he says. “Recently, we advised an airplane company that was producing and manufacturing products under a license, where an assessment was needed on whether the company and its executives and/or owners were on the sanctions list.”

According to him, long-term relationships may end on a contractual level, which could also easily result in a breach of contract. “In the past, many law firms had Russian state-owned companies as clients, however, out of solidarity, many law firms have terminated those relationships.” Finally, Kohlrusz points out that “another major topic is dealing with a sanctioned person’s assets. It brings up some very interesting legal questions, with regards to the legality and grounds for freezing their assets.”

Kapolyi Law Firm has advised the ReMat on its sale to MOL Group. Oppenheim Law Firm reportedly advised the buyer.

MOL Group is a Budapest-headquartered international oil and gas company with operations in over 30 countries and employs 25,000 people worldwide.

ReMat is a Hungarian plastics recycling company, with production plants located in Tiszaujvaros and Rakamaz, Hungary, and a logistics hub in Bratislava, Slovakia.

“We have come a long way since our foundation and are incredibly proud to be a pioneer within Hungary’s plastic recycling industry,” ReMat CEO Laszlo Olasz commented. “Over the last two decades, we have invested in state-of-the-art facilities and constantly expanded our processing capacities capable of supporting Hungary’s obligations towards the European Union regarding plastic recycling. We are excited to be joining MOL and look forward to continuing to drive growth for this attractive business.”

The Kapolyi Law Firm team included Managing Partner Jozsef Kapolyi, Senior Attorney-at-Law Gabor Horvath, and Attorney-at-Law Zoltan Banki.