Category: Hungary

A new Government Decree enters into force on 5 May 2021 about the creation of a free (state financed) data erasure application. The National Media and Infocommunications Authority (NMHH) is currently working on the application; their goal is to create a user friendly and secure software until 1 May 2021, which the public will be able to download form the site of the NMHH free of charge.

NMHH is also required to provide guidance on the use of the application and to produce the labels containing the codes required for deletion, which the users will receive from the trader when purchasing a data carrier device. NMHH will deliver such labels to the capital’s government office, ensuring the opportunity that the labels will reach traders through the district offices. NMHH must also maintain a register on the labels, and keeps the records for 10 years from the transmission.

The application can be activated with the label provided by the trader, then the user will receive a code via e-mail, allowing him to permanently delete his personal data stored on the selected device. After the deletion the consumer receives a verification e-mail. The decree thus ensures that the right to erasure (or “right to be forgotten”) set out in the General Data Protection Regulation is free and accessible to everyone.

By Rita Parkanyi, Partner, KCG Partners Law Firm

Government Regulation 261/2011 brought with it considerable changes with effect from 1 January 2021, shifting control and reporting obligations for transport into and out of Hungary to consignors/consignees. The new law has caused uncertainties on the market. Based on initial experience with the new law and discussions with the responsible authority by the Noerr Commercial Trade and Digital Business team, some light can now be shed on the proper application of the new regulation.

As of 1 January 2021, the BIREG System imposes new obligations on consignors and consignees in order to effectively control transport events with third country relevance. Now, not only do operators have the obligation to register the transport in the system, but consignors and consignees also have secondary control and reporting obligations. Consignees and consignors must examine permissions (CEMT and bilateral), register the transport and report any errors to the authorities. These obligations must be fulfilled and the resulting records retained. 

It is important to note that the new rules do not apply to any transport events with a Community license. Therefore, consignors and consignees must check whether a third country (non-EU country) is involved in the transport event, either because the:

(a) place of discharge or place of loading is in a third country, or
(b) the transport is performed using a vehicle registered in the territory of a third country.

As bilateral permissions make the review more complicated, it is advisable to examine the permissions based on the information issued by the Hungarian authorities at Dokumentumtár – Közlekedési Hatóság (kormany.hu)

A transport event that involves failure to use BIREG is treated as an unauthorized transport and is therefore subject to the same penalty. 

By Eszter Sieber-Fazakas, Senior Associate, Noerr

A volatile legislative landscape, busy disputes practices, and a rather slow job market are the three main characteristics of the current Hungarian legal market, according to Gergely Ban, Managing Partner of ACT Legal Hungary. All three, he says, can be traced back to the COVID-19 outbreak.

“The buzz word for the better part of the year has been COVID,” Ban says. “It has drastically changed the ways we’ve been working throughout the last 12 months, with it likely having a long-term impact on home office arrangements and, generally, the structure of law offices.” This is not just the case for law firms, he says; the biggest challenges for companies in all sectors over the last few months has been “keeping on top of employment law and connected regulations with regular legislative updates,” which, in turn, are trying to keep up with the evolution of the pandemic. “We simply don’t know if we will have the same legislation tomorrow as we do today,” he says, “which makes it very challenging for anyone in the legal services sector to advise their clients.”

In terms of client work, M&A transactions are still taking place, Ban reports, with his firm having worked on four large transactions in the last 12 months – two establishments of foreign companies in Hungary and two Hungarian companies being bought by foreign companies. “Despite it all, it does seem that the upward trend of the country’s FDI attractiveness has continued this year,” he notes.

“Looking at the market as a whole,” he reports, “the effects of the pandemic seem to be quite inconsistent. Some large law firms have been hit hard while others have been booming. Besides providing valuable legal insight and high-quality services I can’t say there is a secret recipe to success in the current environment. I think mostly it was simply a matter of the nature of the businesses in each firm’s client portfolio. In our case none of our big clients had to shut down – in fact, some had even started new projects by the end of last year.”

The type of work that has definitely seen a spike, according to Ban, is disputes. “Between three large clients we are working with, there are hundreds of consumer claims that are in the works, and I imagine that is the case for most firms,” he says. “Of course, disputes are made all the more tricky these days because of the repeated courts shutdowns last year, and, for most of the year, if the courts were open, we needed to draft documents electronically and submit them to the courts or carry out the actual hearings online, which has led to quite a slowdown of the process.” 

Against the background of ACT Legal Hungary’s rebranding (as reported by CEE Legal Matters on March 18, 2021) and with the firm’s good fortune in avoiding most negative consequences of the pandemic, Ban explains that the firm recently looked to hire new lawyers. While it did manage to bring on one senior and two juniors recently, Ban notes that “moves are stagnating in Hungary.” According to him, “it might be the realization that, in the current climate, it is simply not a good time to move, or it might be juniors coming into the job market with a different mindset and expectations, or both. Regardless of the cause, we’re finding it is a lot more difficult to hire these days with a recruitment cycle taking three months, or even six in the case of seniors.

On March 10, 2021, CEE Legal Matters reported that Provaris had advised Hackrate on the development of an “ethical hacking services” offer for clients. CEEIHM spoke with Balazs Pozner, CEO & Founder at Hackrate to learn more about the matter.

CEEIHM: Could you please tell our readers a bit about Hackrate?

Balazs: Hackrate is a B2B startup providing IT security and bug bounty services. A bug bounty uses the power of crowdsourced security to prevent potential data breaches by reducing security risks. During a bug bounty program, a company can offer rewards to ethical hackers for reporting software vulnerabilities.

Levente Molnar, co-founder of Hackrate, and I previously worked together in IT security, and we developed the platform based mainly on our experiences in penetration testing and bug bounty programs.

CEEIHM: Provaris recently advised your company on the development of its “ethical hacking services.” How do these services work, and whom are they intended for?

Balazs: Our bug bounty platform connects companies and ethical hackers. The platform can help companies to manage software vulnerabilities and the disclosure of such vulnerabilities in their systems. Bug bounty programs must be carefully planned and responsibilities must be crystal clear before the launch of a bug bounty program.

Our services are aimed at companies where the protection of companies’ data is crucial to secure undisrupted business continuity. Companies that follow agile developing principles can profit the most from a bug bounty program. For example, if new product releases are rolled out frequently, traditional penetration testing services can be very time-consuming and costly. Our secure platform helps companies easily manage software vulnerabilities and keep the related reports centralized while our clients can immediately access the identified vulnerabilities in their systems, and software and the related proof-of-concept code.

CEEIHM: What is on Hackrate’s horizon, now that this project is complete?

Balazs: The next project will be the automation of our onboarding process. Currently, we are offering consultations to our clients during the preparation phase. Until the end of the year, we will automate some part of the consultation while direct support will be available if required by clients.

CEEIHM: What were some of the legal intricacies of this project, and how did Provaris handle them?

Balazs: Our project with Provaris started when our platform was in the finalizing stage. In some cases, we could not provide details in some questions. Therefore, flexibility on Provaris’ part was necessary. With clear and honest communication and reprioritization of the tasks, we handled that.

CEEIHM: Finally, what made you choose Provaris as your advisor?

Balazs: During the selection process, field experience in IT security and legal issues of cybersecurity services was an essential factor for us. We have contacted several advisors, and Tamas Bereczki and Adam Liber have demonstrated considerable IT security experience concerning the services that we intend to provide. Beyond fulfilling the legal requirements, our focus was to provide practical examples to make conditions easier to understand for our users.  

Originally reported by CEE In-House Matters.

The Hungarian tax authority published its annual tax audit guidelines with the clear aim of supporting compliant taxpayers and take firm actions against intentional tax evasion by utilizing additional data sources in the process as well.

The tax audit plan sets out four main focus points. First is the sectors and activities with significant budgetary risks: e-commerce and trade of computer hardware remain hot topics and construction sector, tourism and hospitality, food industry and agricultural products, inter alia, are expected to be under scrutiny this year.

Secondly, extension of online invoice data disclosure obligation as of 1 January 2021 and former abolition of reporting thresholds enables full access to taxpayers’ invoice data and significantly enhances the potential of data analysis. The tax authority has an effective measure to identify and uncover (fraudulent) billing chains and to prevent the loss of budget revenues. A key opportunity and task is to utilize the data received in the framework of the international exchange of information on cross-border tax structures as of 1 July 2020. In addition, data from the “Employee Alert” system should be a useful asset in order to fight fraudulent employment, while bogus (self-) employment of KATA taxpayers will be closely monitored due to the changes applicable from 1 January 2021.

In addition, in order to secure budget revenues and due to their economic weight, auditing large taxpayers remains a key element of the Hungarian tax authority’s plan with additional emphasis on data gained from international exchange of information on cross-borders structures and transactions.

Finally, to support voluntary compliance by taxpayers, the tax authority intends to use so called supporting procedures (in the case of minor discrepancies) and compliance audits (for more significant discrepancies) without sanctions, at first.

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

In 2014 Hungary introduced the advertisement tax as a direct business tax that must be paid by media content and service providers and publishers of advertisements. The tax base was the net sales revenue originating from the taxable activities in the tax year, i.e. the turnover and not the profit, and a progressive tax rate was established originally with six tax rates between 0% and 40%. The Advertisement Tax Act also provided that taxable persons whose pre-tax profits for the 2013 financial year were zero or negative, could deduct from their 2014 taxable amount 50% of the losses carried forward from the earlier financial years (“mechanism for partial deductibility of losses carried forward”).

In November 2016, the European Commission stated that the progressive nature of the tax measure of the Advertisement Tax Act and the mechanism for the partial deductibility of losses carried forward must be considered as state aid.

Hungary brought an action against the decision of the Commission before the General Court of the European Union. In June 2019, the General Court upheld the actions, annulled the Commission’s decision and declared that the higher thresholds that had been established by progressive taxation in respect of the advertisement tax as turnover tax, does not itself result in the existence of a selective advantage for companies with lower turnover. The Commission brought an appeal against the judgement of the General Court before the Court of Justice.

On 16 March 2021, the Court of Justice stated in its judgment that the Commission had not proved that those characteristics of the advertisement tax (i.e. a special tax, applied progressively by rates and based on turnover), adopted by the Hungarian legislature in the exercise of its discretion in the framework of its tax legislation autonomy, were designed in a manifestly discriminatory manner, with the aim of circumventing the requirements of EU law on state aid. In addition, the Court of Justice established that the Commission had erred in its opinion that the mechanism for the partial deductibility of losses carried forward established a selective advantage constituting state aid, in favour of undertakings whose pre-tax profits for the 2013 financial year were zero or negative and which had losses carried forward. As a result, the Court of Justice has dismissed the appeal of the Commission in its entirety.

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

The Budapest office of Baker McKenzie has advised the MET Group on its divestment from Tigaz Zrt via the sale of 50% of the shares in MS Energy Holding AG, representing a 49.57% stake in Tigaz, to Opus Global Nyrt. Kertesz & Partners reportedly advised the buyer.

Baker McKenzie described the deal as “a major transaction on the Hungarian energy market, as Tigaz is Hungary’s largest pipeline natural gas distributor.” Within the framework of the transaction, MET also acquired a 77 MWp photovoltaic power plant project in the Hungarian municipality of Buzsak from Opus Global.

The transaction closed on March 31, 2021. Financial details were not disclosed.

The MET Group is a Switzerland-based energy company that primarily focuses on the natural gas, power, and oil markets. The company was founded in 2007 and currently employs around 1,600 people in 15 European countries.

Baker McKenzie’s team was led by Partner Akos Fehervary and was primarily managed by Associate Daniel Orosz.

Szabolcs Szendro, a member of CMS Budapest’s Competition team, has been promoted to Partner at the firm, effective as of May 1, 2021.

Before joining CMS in May, 2014, Szendro spent over seven years with Hungarian Competition Authority as the Chief Legal Counsel of the Merger Division. According to CMS, “[he] has extensive experience in abuse of dominant position procedures and cartel cases, with special regards to Network Industries (e.g. Energy, Telecommunications and Media).” He graduated in 2007 from the University of Szeged in Hungary.

“This is a particularly remarkable achievement given these turbulent times, and also a source of pride for the whole office that another home-grown senior has been appointed to the partnership,” said CMS Budapest Managing Partner Erika Papp. “Szabolcs has greatly contributed to the rapid development and growing market-recognition of our competition team. With two partners – Dora Petranyi and Szabolcs Szendro – on the team, the practice demonstrates increased strength and further cements its leading position on the market.”

“I am delighted, honored and equally excited about taking the role of a partner and lead[ing] our top Competition practice from May,” commented Szendro. “With Dora and myself as partners in the team, we will be the only international team in Hungary [with] two competition partners actively involved in matters. I am glad to be able to build on strong foundations and an excellent team. My priority is to further develop our competition services and working in partnership with clients from prevention to hard-core competition matters.”

Dentons has advised a syndicate of Raiffeisen Bank, UniCredit Bank, ING Bank, CIB Bank, Erste Bank, K&H Bank, and MKB Bank, and four affiliated leasing companies, on the restructuring of the Waberer’s Group’s debts. Lakatos, Koves & Partners advised Waberer’s on the deal.

According to Dentons, “following more than 15 months of extensive negotiations, structuring, drafting, and an ownership change of the company, the parties signed complex documentation for the long-term multi-source financing of Waberer’s and its affiliates. The dozens of exiting bilateral and unsecured facilities and hundreds of individual leasing arrangements with the lenders will remain in place, but will now be secured. In addition, a common set of terms (included in a common terms agreement) now regulates the relationship, partially overriding the bilateral agreements. As a result of the agreement, Waberer’s financing partners will continue providing all financing facilities in the long run, all being necessary for the operation of the company at market standard collaterals and covenant system conditions.”

Dentons’ team was led by Partner Gergely Horvath, Head of Dentons’ Banking and Finance and Restructuring groups in Budapest, and included Counsel Tunde Gonczol for competition aspects, Senior Associate Gabriella Pataki for insolvency aspects, Associate Bence Boszormenyi and Junior Associates Nora Nagy and Kinga Kovacs for financing aspects, and Warsaw-based Partner Agnieszka Lipska and Associate Andrzej Sarnacki for Polish aspects.

The Lakatos, Koves & Partners team was led by Partner John Fenemore and included Associate Balazs Rokob, Lawyer, Agnes Abraham, and Trainee Lawyer Nora Kertai.

Balazs Sepsey has been made Partner at Kinstellar in Budapest.

Balazs Sepsey began his career at what was at the time the Budapest office of Linklaters in 2005, staying with the office after it transformed into Kinstellar in 2008. His areas of expertise include energy-related M&A deals, power plant development projects, long-term supply agreements, EPC contracts, and EU energy regulatory work. Sepsey obtained his Juris Doctor degree from the Pazmany Peter Catholic University in 2005.

As part of the same round, Tomas Melisek, Alexandru Mocanescu, and Nina Tsifudina were promoted to Counsel at Kinstellar in Bratislava, Bucharest, and Sofia, respectively.

”On behalf of the partners and the entire firm, I congratulate them all,” commented Patrik Bolf, Managing Partner at Kinstellar. “They are outstanding individuals, invaluable and trusted advisers to our clients, and I look forward to working with them — and the wider team — to build a successful firm. I thank them for their dedication, commitment, hard work and team spirit and wish them the best of luck in their new roles!’’