Category: Hungary

Noerr’s Budapest office has advised K&H Bank on financing provided to Wing Zrt. for development of the Gizella Loft office building.

According to Noerr, Gizella Loft is “the tallest building on the Gizella Campus and one of the first office buildings on the new office corridor developing on the Ring Road in Budapest.”

Wing Zrt. is a privately owned Hungarian real estate company. During its nearly 20 years of operation, the company has invested more than EUR 1.5 million in developing real estate and has a developed project portfolio covering approximately 1 million square meters.

Noerr’s team included Partner Edina Schweizer and Junior Lawyer Barbara Herczegfalvi.

Employees who have coronavirus tests paid for by their employer will not have to pay tax on them. The Hungarian tax authority published its official guidelines with regards the tax treatment of COVID tests.

The tax authority clarifies that tests provided by the employers to the employees free of charge are tax exempt both in the emergency period (11 March 2020 – 17 June 2020) and subsequently.

Special rules and notification obligation (within 60 days) applied to tests provided during the emergency period, however the tax authority confirmed that as a general rule COVID tests should not be considered as taxable income, if the employer provides those to the employees to ensure safe and healthy work environment (in accordance with the Hungarian act on occupational safety and health).

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

The Architectural Copyright Register was started at the very beginning of January 2020, and is intended to contain information about the copyright related to architectural and technical design documentations and the buildings and structures realized based on them.

Since there were many disputes and legal issues related to renovation, remodeling and other construction activities affecting existing structures, on 4 July 2020, a Government decree was issued to further clarify the details about the registry process, and to announce the introduction of the electronic register.

The registry process can be initiated by either the builder or the contracted designer on the electronic interface of the register, but it must also be approved by the other party for registration. Decree 8/2020, which already entered into force, sets a deadline of 30 days for the submission of the registry request, starting from the day, the architectural technical documentation was handed over the client.

The Register publishes the information about copyright on its website and on the e-epites.hu website, and by doing so it also invites persons whose copyright may be affected by the registration to file a possible dispute within 15 days, which they may submit with reference to the infringement of their own copyright. Following the deadline, a copyright notice concerning the design documentation will be published on the interface of the Register. If the copyright owner fails to claim infringement within this 15-day period, the may still subsequently request the modification of the previously registered data on the basis of a final court ruling.

The Register is public and can be accessed by anyone after electronic identification. The Register provides easy and quick information on the data of the holders of copyrighted architectural works, thus allowing construction to be carried out with appropriate professional guarantees, in accordance with construction requirements and without copyright violations or disputes.

According to the decree, the person authorized to make a declaration is responsible for the veracity and the accuracy of the reported data; keeping the register is not an official procedure.

The fully electronic version of the Architectural Copyright Register will be available from 1 January 2021.

By Gabriella Galik, Partner, KCG Partners Law Firm

At the beginning of July 2020, the act on the termination of the undivided joint ownership on lands and the clarification of the data of the rightholders of properties deemed agricultural land in the land registry was published and will enter into force on 1 January 2021.

The new act ensures the possibility to terminate the undivided joint ownership on the properties considered as agricultural and forestry land. Any of the owners may initiate the termination of the undivided joint ownership. The initiating owner must notify in writing, in a verified way, all other owners having ownership ratio in the land and its registered users. The administrative fee of the proceeding is HUF 15,000. The owners must determine in an agreement the properties to be created in the course of the division and their owners. The decision of the simple majority of the owners calculated on the basis of their ownership ratios is required for the validity of the agreement and its scope will cover all owners. The agreement must be countersigned by an attorney and its inseparable part is a draft map and an area sheet.

The new act also defines the size minimum in respect of the lands in different types of use, and the properties to be created as a result of the termination of the undivided joint ownership may not be smaller than the applicable size minimum.

In case it is not possible to form at least two properties complying with the size minimum from the land, the land may not be divided, but only one owner may acquire the ownership of the whole property by paying an amount equaling to the value of the property part at least, as consideration, to the other owners of the land. Otherwise, in certain conditions, any owner of the property may initiate the expropriation of the property by the Hungarian State.

In addition, by introducing a new proceeding, the act attempts to identify those persons registered as owner in respect of the properties deemed agricultural land whose data are defective in the land registry.

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

Noerr’s Budapest office has advised UniCredit Bank on financing provided to GTC for the development of the 29,000 square meter Pillar office building in Budapest. CMS reportedly advised GTC on the deal.

GTC, which was established in 1994, is a real estate investor and developer operating in Poland, Hungary, Romanian, Serbia, Croatia, and Bulgaria. The Pillar office building, which is located near the Vaci Corridor in Budapest, is scheduled for completion in 2022.

Noerr’s team included Partner Edina Schweizer and Junior Lawyer Barbara Herczegfalvi.

CMS’s team consisted of Senior Associate Sandor Kovacs and Lawyer Mate Szekeres.

In February, the EU Commission issued its new White Book on Artificial Intelligence – a European Approach to Excellence and Trust. The White Book is the prelude to a new EU regulatory framework for AI that aims to minimize the risks of AI and seize the opportunities it offers.

High-Risk Applications in Focus

The focus of the new EU AI regulations is high-risk AI applications. The proposed definition sets out that an AI application is “high risk” if it is used in a sector where significant risks can be expected to arise, such as healthcare, transportation, energy, and the public sector, and only in use cases with high exposure. The EU Commission aims to introduce a voluntary labelling system for non-high-risk AI applications, but leaves relatively large room for self-regulation and self-assessment in lieu of government controls. Whilst the approach is commendable in the sense that it leaves enough room for innovation for most AI developments, it should be subject to review: high-risk AI systems should cover any AI applications using special categories of personal data–not just healthcare data but biometric data, genetic data, personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, and trade union membership. Furthermore, to ensure the ethical and fair use of governmental data, all AI applications using personal data from datasets from the public sector should be deemed high-risk.

New Legal Requirements for AI Developers, Deployers, and Users

The planned new legislation will introduce the following obligations for developers, deployers, and certain type of users of AI systems.

  Training data: Datasets used for training AI must be sufficiently broad, representative, and cover all relevant dimensions of gender, ethnicity, and other possible grounds of prohibited discrimination to avoid dangerous situations and prohibited discrimination.

  Records and documentation: The developer/deployer of the AI application must keep accurate records and documentation regarding the training datasets and testing process, programming and training methodologies, and processes and techniques used to build, test, and validate AI systems. In certain cases, they must keep datasets themselves.

  Transparency: The developers of AI applications must provide information on the AI system’s capabilities and limitations, the purposes for which the system is intended, and the expected level of accuracy.

  Robustness and Accuracy: The AI systems must be robust and accurate, and outcomes must be reproducible, which means that the AI application must be resilient against both overt attacks and more subtle attempts to manipulate data or the algorithms themselves.

  Human Oversight: Developers must ensure that the output of the AI system will not become effective unless it has been previously reviewed and validated by a human, or at least where human intervention is ensured afterwards. Human monitoring of AI operations is also required. 

We think these obligations are commendable and in line with global trends. Nevertheless, we would caution that the new administrative and documentation requirements, especially that requiring developers/deployers to keep training datasets themselves, raise potential inconsistencies with the GDPR, and could potentially lead to overregulation.

Furthermore, these administrative burdens could overwhelm SMEs and cause competitive disadvantages for those established in the EU, as the amount of proposed documentation, registration, testing, checking, and certifying might also not generate an environment fostering innovation and might decrease the competitiveness of EU based companies in the global AI race.

New Authorities for Conformity Assessment of AI Systems

The proposal includes provisions empowering regulatory authorities to assess compliance with the new framework, including procedures for testing and inspecting or certifying high risk AI systems, including checking algorithms and datasets in the pre-launch development phase. A prior conformity assessment would be mandatory for all developers, deployers, and corporate users of high risk AI. The new authorities would be entitled to ex-post control and continuous monitoring of compliance.

We are generally against administrative control and especially in areas so key to innovation. In our view, supervisory authorities would not necessarily have the technical knowledge to assess any risks in the algorithms. Furthermore, those algorithms usually constitute trade secrets, which the AI companies are not keen to reveal. It would be significantly more critical to safeguard access to data and databases and transparency around data processing, especially regarding data stemming from or built with the use of public funds.

Overall, although the White Book on AI lists the proper principles of AI development, like trustworthiness, transparency and safety, overregulating this area could hinder innovation for EU based competitors, and thereby endanger competitiveness on a global scale.

By Dora Petranyi, Partner, and Katalin Horvath, Senior Associate, CMS Budapest

This Article was originally published in Issue 7.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Erdos | Katona has advised Hell Energy on its refinancing of an existing loan with four unidentified Hungarian banks. Kinstellar reportedly advised the banks.

Hell Energy is a Hungarian-owned energy drinks manufacturer that was established in 2006. It currently exports its products to 50 countries across Europe and Asia.

Erdos | Katona’s team was led by Partner Luca Bokor.

The European Court of Justice’s judgment in Schrems II case published on 16 July, 2020 founded the Privacy Shield Decision invalid. The judgement also stated that the Commission Decision on Standard Contractual Clauses for the transfer of personal data to processors established in third countries remain valid.

The GDPR provides that the transfer of personal data to a third country may, in principle, take place only if the third country in question ensures an adequate level of data protection. According to the GDPR, the Commission may find that a third country ensures an adequate level of protection. In the absence of an adequacy decision, another frequently used tool is the so-called standard data protection clauses. 

One of the legal bases for the transfer of data to the United States was the so-called Privacy Shield. This provided a mechanism to ensure an adequate level of protection in the case of transfers of personal data to the US. Since the Privacy Shield has been invalidated by the Court, personal data may no longer be transferred to the US based on this adequacy decision.

On 24 July 2020, the EDPB (European Data Protection Board) provided further “guidance” on Schrems II to clarify on how the judgment now needs to be implemented by companies that transfer personal data to countries outside the EEA. The EDPB stressed that the ruling is a ‘living document’, therefore not conclusive, and that further guidance will be provided.

The EDPB confirmed that Standard Contractual Clauses remain a possible basis for data transfers outside the EEA but emphasised again that a transfer to the US can only be justified via Standard Contractual Clauses if additional measures are taken to ensure the same level of data protection equivalent to the level offered in the European Union. The EDPB stated that the European Court of Justice’s assessment of the invalidity of the Privacy Shield is also applicable regarding BCRs (Binding Corporate Rules), since U.S. law will also have primacy over this tool. This means that a similar case-by-case assessment as that used for Standard Contractual Clauses is required and the above requirements also apply for BCRs.

The EDPB expressed that any data transfer based on the Privacy Shield is illegal and there will be no ‘grace period’ for data processing on this framework, as the U.S. law does not provide equivalent level of protection as in the EU – according to the Court.

By Adrienn Megyesi, Partner, KCG Partners Law Firm

The Hungarian Parliament passed a new act on 14 July 2020 to regulate the short-term housing market (Airbnb services). The new legislation delegates a regulating tool to the local municipalities, so that they can decide on the conditions (especially the maximum renting period), under which a flat can be rented for short term. The new law only gives a regulatory framework for the local municipalities and the Hungarian Government; specific rules are yet unknown as they have to be made from 1 August 2020. According to press releases, some of the mayors are planning to maximize the number of days for Airbnb and other similar services and would prescribe that at least half of these “allowed” days should fall between June and August.

The reasoning behind the new legislation is based on the latest housing trends. In Hungary, especially in Budapest, the renting prices are on the rise for years, which is in parallel with the western trends. Furthermore, one of the main contributing factors to the increase in price is that the average renting periods have shortened, thus locals have a harder job to find affordable rent. Authorities have received many negative feedbacks concerning the behavior of the guests and many of the owners use short-term rent as for tax avoidance.

Opposers of the new legislation, especially from the representatives of the tourism industry, argue that affordable Airbnb prices were one of the main contributing factors to the growth in tourism in the latest years and does not seem to be a fortunate decision made during the pandemic, as the tourism industry is one of the most affected by the virus.

By Eszter Kamocsay-Berta, Managing partner, KCG Partners Law Firm

Following the approval of a directive in June 2020, consumers across the EU will be granted broader access to collective redress.

The new rules will enable consumers to seek effective judicial protection collectively when traders’ infringements of EU laws deprive them of their rights. These new rules on collective redress would give consumers in all Member States the right to fight cases involving mass harm together, but also introduce safeguards to prevent the abuse of the procedure.

The directive requires Member States to establish a system of representative actions for the protection of consumers’ collective interests against infringements of EU law. It also empowers qualified entities designated as such by Member States to seek injunctions and/or redress, including compensation or replacement on behalf of a group of consumers.

Based on the eligibility criteria, the directive distinguishes between two types of qualified entities. The first group is entitled to bring actions in the Member State where they have been designated (domestic representative actions), while the second is entitled to bring actions in any other Member State (cross-border representative actions). For domestic actions a qualified entity will have to fulfil the criteria set out by the domestic law, whereas for cross-border actions it will have to fulfil the harmonized criteria set out in the directive.

By applying the “loser pays” principle, the EU Parliament aimed at protecting businesses against baseless lawsuits. By ordering the defeated party to pay the costs of the proceedings of the successful party, it may be ensured that the number of abusive lawsuits will be kept to a minimum. To further curb manifestly unfounded cases, the qualified entities are given the privilege of dismissing these cases at the earliest possible stage of the proceedings as regulated by domestic law.

Once the Parliament and Council have formally approved the agreement, Member States will have 24 months from the entry into force of the directive to transpose it into national law, with a deadline of additional 6 months to start applying these provisions.

By Adrienn Megyesi, Partner, KCG Partners Law Firm