Category: Hungary

The Budapest office of Kinstellar, working together with the Goodwin law firm, has advised the Creandum fund on its EUR 10 million Series A round investment into Hungarian fraud-detection startup SEON Technologies Ltd.

According to Kinstellar, “Creandum, a VC firm based in Stockholm, Berlin, and San Francisco, is one of the biggest early-stage backers in Europe, behind some of Europe’s tech companies, including Spotify and Bolt.”

Kinstellar’s team was led by Partner Anthony O’Connor and Associate Laszlo Palocz and included Counsel Marton Kertesz, Managing Associate Zsombor Orban, and Senior Associate Agnes Zsofia Szabo.

Kinstellar did not reply to our inquiry on the matter.

“The third wave of the pandemic, and unfortunately the most severe, has dominated the developments of the past month in Hungary,” says SBGK Partner Peter Lukacsi. He says that severe restrictions have been imposed in the country to combat the uptick in the numbers of newly infected people, including the closings of lower grade schools and kindergartens. “Courts have been closed as well,” he says, “and no personal hearings have been held in both civil and commercial matters since March 8.”

Hungary has, since the start of the pandemic, reported almost 600,000 cases of Covid-19. The country has almost 200,000 active cases, and nearly 20,000 people have died.

Lukacsi points to several pieces of new legislation affecting the framework for businesses. “I’d say that the principle thing, of late, has been the update to the Code of Civil Procedure, which made it more flexible, and made it easier to file a petition with the courts,” he says. “It also introduced more legal representative-friendly amendments. Also, Government Decree 151/2003. (IX. 22.) on the compulsory guarantee of some durables came into effect, extending the duration of the guarantee based on the price of the product. This represents more consumer-friendly regulation.”

Lukacsi reports that, as of this year, all merchants and online cash registries must provide some form of an electronic payment solution. “This could be something like a POS terminal, for example, and it must be made available to all customers regardless of the amount paid,” he says. Also, banks have had to introduce “strong customer authentication when shopping online with a credit card,” he continues. “This means that in the case of online credit card payments, an additional security code must be entered in addition to the card details or the intention to purchase must be confirmed through an application.”

Lukacsi points to two other developments that should help businesses across Hungary. “A new form of incorporation has been introduced – a family agriculture business,” he says, “which represents a new form of company for agricultural activities and primary agricultural producers.” Also, remote working rules and regulations have been relaxed. “Tele-working became more flexible due to the pandemic situation – employers and employees can now agree on terms beyond the Labor Code, which allows for more leeway to adapt to each unique condition of every business.”

Finally, Lukacsi reports that there have been no major deals announced or closed in the past month in Hungary. “Things have been quiet,” he says “but, still, the legal market has been stable and has provided a lot of work to most lawyers.” According to him, “international business law is going strong despite the pandemic.”

According to a Government Decree passed on 9 February 2021, lessees do not have to pay rent for a property owned by the Hungarian State or the local municipality (or by companies which are controlled by these) for the specified five-month period (February – June 2021). The decree specifies a list of 25 types of activities which are to be alleviated from paying rent, which includes:

• restaurants, food trucks, event catering, pubs, bars, cafes;
• conference, trade show and film screening locations;
• museums and locations related to art;
• botanical gardens, zoos and nature reservations;
• sport facilities, gyms;
• amusement parks, fun parks;
• spas, massage salons and other wellness services;
• hotels, holiday accommodations, camping sites, dormitories and hostels and
• travel agencies, land passenger and freight transport, taxis and buses.

An important criterion for not having to pay rent is that the above activities have to have been started before 4 November 2020. The decree also specifies exemptions, these businesses have to pay rent regardless of the pandemic situation. These are the following:

• restaurant and buffets located at workplaces;
• restaurants and bars located at accommodation services;
• cafeterias and buffets located in schools and educational institutions;
• restaurants and buffets located in health institutions and
• the Hungarian National Bank and companies controlled by the Hungarian National Bank.

The decree also clarifies that if the rent for the above months had already been paid, it is to be repaid to the lessee before 15 March 2021.

By Gabriella Galik, Partner, KCG Partners Law Firm

Jalsovszky has advised Hungarian energy and real estate developer Callis Energetika Zrt. on its sale of an 8,300-square-meters plot to Atenor Hungary. CMS advised the buyer on the deal.

Atenor is a real estate developer present in 13 cities across eight European countries. According to Jalsovszky, the plot purchased by the company is currently used for warehouse and office purposes and is located in Budapest’s 12th district.

Jalsovszky’s team was led by Senior Associate Levente Bihari.

CMS’s team consisted of Partners Gabor Czike and Jozsef Varady, Senior Associate Andras Klupacs, and Lawyer Bence Varga.

Noerr has advised oil and gas company MOL on its acquisition of the Hungarian operating company of Marche. Baker McKenzie Zurich reportedly advised the seller, Marche International.

MOL takes over the nine motorway restaurants in Hungary previously operated by Marche, a Swiss global catering company with over 170 sites in eight countries in Europe and Asia. The acquisition remains contingent on Competition Authority approval.

Noerr’s team was led by Counsels Akos Bajorfi and Akos Mates-Lanyi and included Partner Zoltan Nadasdy, Associate Ildiko Angeli, and Junior Associate Esztella Cseh.

MOL’s in-house team was led by Head of M&A Andras Banyai and Head of M&A Legal David Imre and included M&A Project Expert Angela Kopf and Legal Lecturer Attila Schmidt.

Baker McKenzie’s team was led by Zurich-based Partners Pascal Richard and Martin Furrer.

Editor’s Note: After this article was published, CEE Legal Matters learned that Baker McKenzie’s team included, in Vienna, Partner Gerhard Hermann and Associate Armin Assadi, in Hungary, Associate Daniel Orosz, and in Switzerland, Associate Ramon Tissafi and Julia Schieber.

In February 2021 the State Secretary of Labour of the Ministry for Innovation and Technology announced a new measure to fight black employment. The amendment of the Act on the Service and Support to Subserve the Employment, and on the Supervisory of Employment (Act) is already in effect since 1 March 2021.

According to the amendment, employers who failed to report employees will be obliged to retroactively report those employees to the National Tax and Customs Administration of Hungary. The Employment Supervisory Authority is also entitled to oblige the defaulter employer to register the employment for at least one month.

The new rules prescribe the payment of social security contributions for employees, who were previously unreported, e.g. they will be eligible for social security services and for pension service time, accordingly. This measure should whiten further the Hungarian economy and ensure additional income for the state budget.

On the other hand, the amendment could reduce the vulnerability of the employees (in labour law, the workers usually are in a disadvantageous position compared to the employers) and should also support compliant employers that duly pay their taxes and contributions with regards their workers, since the retrospective reporting and payment obligations should eliminate the competitive advantage of the defaulting companies.

By Rita Parkanyi, Partner, KCG Partners Law Firm

The rules of obligatory invoice data supply were modified as of 4 January 2021 in a way that the data of such invoices, modifying or annulling invoices, which are subject to the invoicing requirements of the Hungarian VAT Act, must be supplied to the tax authority. As a result, the invoices issued for domestic or foreign natural persons, legal persons or organisations not subject to VAT as well as for not domestic persons subject to VAT are affected by the obligation of invoice data supply from 4 January 2021.

The main part of the data to be supplied is the compulsory data content of the invoice under the VAT Act. In addition, in specific cases it also covers other data relating to the invoiced transaction. For example, the following must be indicated in the data supply: the transaction falls outside the territorial scope of the VAT Act, if the place of performance of the transaction is not in Hungary; whether the transaction must be considered as supply of goods for consideration or supply of services for consideration, if this transaction is performed to a different person or organisation; the currency used for determining the taxable amount.

The Hungarian tax authority published a statement on 16 December 2020 that under certain conditions, it will not impose default penalty for the period between 4 January and 31 March 2021 in case the persons subject to VAT does not supply at all or properly data on invoices. Furthermore, the persons subject to VAT have the opportunity to prepare their invoicing program for the data supply applying the new version 3.0 scheme until 31 March 2021 at the latest, without sanctions by the tax authority. After this deadline, in case of failing to perform the invoice data supply, or late, defective, incomplete performance or performance with false data content, the tax authority is entitled to impose default penalty by discretion of all circumstances of the case.

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

Ex Works (EXW) is an international trade term and is one of the 11 current Incoterms Rules, a set of standardized international trade terms that are published by the ICC (International Chamber of Commerce). EXW means that the seller fulfils his obligation to deliver when he has made the goods available at his premises (i.e., factory, warehouse, etc.) to the buyer. The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination.

The plaintiff, a Hungarian company entered into a framework agreement with a German entrepreneur as principal (defendant, our client) for the manufacture of furniture and other items in Hungary for defendant’s projects in Germany. The agreement contained an EXW Hungary clause. Contrary to the content of EXW, the framework agreement stated that the plaintiff is obliged to deliver the products to the place described by the defendant as well.

The Hungarian court decided at the first and second instance that referring to the Ex Works (EXW) Hungary in a framework agreement does not establish the place of performance in Hungary – and thus the Hungarian jurisdiction according to Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (hereinafter referred to as Regulation) – if the actual fulfilment of the contract is not in accordance with the content of the EXW.

The court stated that as the parties have deviated from the content of a classic EXW and they have not stated explicitly that they accept the EXW Hungary as place of performance (the clause was rather a short reference to the pricing), the place of performance is to be determined according to the actual fulfilment of the contract. However, as the defendant did not define the place of delivery, the court stated that according to the Hungarian Civil Code, legal statements shall be interpreted considering the circumstances of the case.

Since the products were made for projects in Germany, the court reasoned that the delivery had to take place in Germany so that the place of performance is in Germany. Therefore, the jurisdiction of a Hungarian court cannot be declared according to the special jurisdiction provisions as per Article 7 of the Regulation and the plaintiff-initiated lawsuit has been dismissed.

By Janos Szax, Partner, Feher Legal & Tax, Alliott Global Alliance

Court of Justice of the European Union (CJEU) established that for bad debt relief limitation period must begin to run not from the date of performance of the payment obligation initially provided for, but from the date on which the debt became definitively irrecoverable.

Recovery of VAT on bad debts has been on the agenda in Hungary since the Court of Justice of the European Union first clarified in the di Maura case at the end of 2017 and then in the Hungarian Porr case in 2019 that EU Member States need to provide for VAT recovery already paid on such claims. In several cases the Hungarian tax authority refused to refund the VAT on bad debts, since based on the general limitation period rule of 5 years, the limitation period from the original date of performance had expired.

In the current case – C‑507/20 – the Hungarian tax authority once again challenged the applicant taxpayer’s claim for reimbursement, since the limitation period expired since the original dates of performances in 2010 and 2011, respectively. The applicant, however, argued that debtor company was subject to winding up proceedings, and the liquidator recorded that the debt had become irrecoverable only in December 2019.  The applicant filed for reimbursement, in accordance with the Hungarian provisions on bad debt relief, once the irrevocability of the debt had been established officially.

Further to the request for preliminary ruling by the Hungarian Court, CJEU clearly established in its ruling of 3 March 2021 that the applicant has acted diligently and that it cannot be deprived of its right to a reduction of the taxable amount. It also follows that, in accordance with the existing case law in this regard, the limitation period for recovery of VAT on bad debts should only start from the date on which the debt became definitively irrecoverable.

This decision, alongside with a recent decision by the Supreme Court of Hungary on bad debt relief, should provide key precedent and clear interpretation in many similar cases where the Hungarian tax authority unlawfully limited the right of reduction and reimbursement of taxpayers regarding the previously duly paid VAT on bad debts.

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

2021 could greatly simplify the parcelling of jointly owned arable land. Also, the new rules will settle the status of land registered in the name of unidentifiable owners. At the same time, a clearer and more transparent title structure could not only enhance farming efficiency but also boost greenfield investments.

Joint ownership: a nightmare for investors

A lot of times, land is jointly owned by a dozen different individuals. Worse still, some of the co-owners often remain unknown or unavailable even for the other owners.

While this can make difficulties in the utilisation of the land, a potential greenfield investor can also be discouraged by a title deed with a list of owners filling several pages. Lack of transparency in title to the chosen property and the consequent legal risks have already frustrated a number of investments or moved them to a less-than-optimal location.

A solution from this year – if permitted by COVID

The new law which entered into force at the beginning of this year is explicitly designed to strike off joint ownership of arable land fast, efficiently and without court proceedings. In essence, co-owners can make use of an official parcelling software to divide the land and hence create multiple, solely owned smaller properties with individual title numbers.

It is to be noted that it’s been possible to cancel joint ownership by an agreement of the parties so far (even though only by going to court). The real novelty is that the parcelling software will help to prevent lengthy negotiations about the plots involving a surveyor. Another major improvement is that it will be possible to reach the agreement by a simple majority of the owners, and without any court proceedings. Indeed, the consent of the unavailable or unidentifiable co-owners will be automatically presumed so that their absence will not prevent the division.

Also, the law allows for a single co-owner to acquire the whole property. Specifically, if the divided land is under the required minimum area, any of the co-owners will be free to acquire the other ownership shares for the statutory consideration (or for the highest price offered in the case of multiple bidders).

It is to be noted that the new simplified division procedures will only be available after the COVID emergency is over. This may suggest that the legislator expects a high number of such procedures, so it wants to reduce the extra workload of land registries during the pandemic.

Hungarian State pre-emption

The new rules grant the State special rights to settle land title situations. On the one hand, if the co-owners fail to make the division as described above within 2 years and their number is sufficiently high, they may even propose expropriation by the State. In this case, the decision is left to the State whether to expropriate the land or not.

On the other hand, the Hungarian State will automatically and mandatorily become the owner of land where the owner is unidentifiable (for data deficiency) or where 120 years have passed since the registered owner’s year of birth. Land registries will check ex officio if this is the case and will publish an announcement as necessary. If the real owner remains unidentified within the prescribed period (3 months or 1 year), or fails to show up, the given property will become state owned. Owners showing up at a later date may redeem the land from the State or seek damages if the State has sold it.

What to expect?

The new rules may finally put an end to the chaotic situation of land ownership and offer a solution for the problem of unknown and unavailable owners. In other words, properties where a high number of co-owners or an unidentified co-owner have posed an insurmountable obstacle so far will no longer have to be considered completely hopeless for the purposes of a greenfield investment.

Also, the new rules are expected to increase the rate of public land. At the same time, whether the Hungarian State will maintain farming as a priority or it will show a willingness to support greenfield investments remains to be seen.

By Levente Bihari, Senior Attorney, Jalsovszky