Category: Latvia

The Riga office of Eversheds Sutherland has represented Euromin Holdings Limited before the Court of Justice of the European Union in a proceeding with the Financial and Capital Market Commission.

According to Eversheds Sutherland, “On December 10, 2020, the Court of Justice of the European Union adopted a judgment in a preliminary ruling case that was initiated by the questions asked by the Senate in proceedings between Euromin Holdings Limited and the Financial and Capital Market Commission. The domestic proceedings relate to methods applied for calculation of a share price in AS Ventspils Nafta’s mandatory share repurchase offer. The Senate must rule, inter alia, on whether, for the purposes of calculating the share price, company’s net assets include a minority (non-controlling interest). Minority (non-controlling interest) is the parent company’s unrelated part in the subsidiaries, thereby effectively artificially increasing the parent company’s share price. Euromin Holdings Limited filled an application to the court requesting to declare the FCMC’s decision unlawful and to retrieve the overpaid amount as damages arguing that the FCMC had incorrectly calculated the price of the AS Ventspils Nafta share. The Regional Administrative Court upheld Euromin Holdings’s claim but reduced the amount of damages by 50%. Both parties filed an appeal-on-point-of-law to the Senate, which, in turn, asked the CJEU to interpret certain aspects of the of the European Union law.”

Also, Eversheds Sutherland added that the CJEU has, first, “decided that Latvia’s state liability rules are incompatible with the principles of European Union law” because the rules are “incompatible with the principle of effectiveness.” Second, the firm reported, the court declared that “in accordance with Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids, the rules governing the pricing of shares in a mandatory share buy-back offer must be clear and precise.” And, third, that the CJEU clarified that “the Directive does not allow the value of a share to be obtained for the purposes of a takeover bid by dividing the parent company’s net assets, including non-controlling interests, by the number of shares issued, unless it is a method of determining the share price which is based on an objective valuation criterion commonly used in financial analysis and which can be considered as ‘clearly defined.’ The CJEU also stated that it is for the domestic court to assess whether the inclusion of a non-controlling interest in the net assets of the parent company for the purpose of calculating the share price meets the objective assessment criteria commonly used in financial analysis.” 

Eversheds Sutherland reported that “it is now for the Senate to rule on the matter with due regard to the conclusions of the CJEU. It is expected that the final ruling in the case will form the first significant example of case law in Latvia on the issues of limitation of the amount of damages and determination of the share price in the mandatory share repurchase process.”

Eversheds Sutherland’s team includes Partner Ilze Kramina, Senior Associate Krista Berzina, and Paralegals Zelma Lapina and Rainers Svoks.

TGS Baltic has assisted the SIA GLD Company with the sale of a 32.12-hectare property in the Marupe region of Latvia, near Riga, to SIA Septini Marupes Ozoli.

Septini Marupes Ozoli is a subsidiary of SIA MV Hotels.

The TGS Baltic team was consisted of Partners Andra Rubene and Nauris Grigals and Senior Associate Aija Kreicberga.

SIA Septini Marupes was assisted by Aija Radziņa, a lawyer at SIA VitaCredit, another company indirectly owned by one of the owners of SIA MV Hotels.

Ellex Klavins represented SIA Depozita Lepakojuma Operators in its successful bid to become a deposit and return system operator for packaging of beverages in Latvia.

According to Ellex Klavins, on December 29, 2020, Latvia’s State Environmental Service selected SIA Depozita Lepakojuma Operators as the official deposit and return system operator for packaging of beverages. According to the firm, “SIA Depozita Lepakojuma Operators will be entrusted with development and management of a deposit and return system of the packaging of beverages for a period of 7 years in Latvia. 

SES evaluated two bidders before making its final determination: SIA Depozita Lepakojuma Operators, which is owned by several of the country’s largest beverage producers, and SIA Nulles Depozits which is owned mainly by representatives of the waste management industry.

The Ellex Klavins team included Managing Partner Liga Merwin, Senior Counsel Iveta Ceple, Associate Pauls Ancs, Senior Associate Inese Freivalde, Associate Kristers Losans, Associate Partner Martins Gailis, and Senior Associate Edvijs Zandars.

Cobalt’s Riga office has successfully represented SIA Latsson Licensing, the owner of online gaming platform Betsafe Latvia, before the Constitutional Court of Latvia regarding the restrictions on its provision of interactive gaming services during a state of emergency.

According to Cobalt, “following the declaration of a nation-wide state of emergency due to the outbreak of COVID-19 and with the aim to protect persons and their families from unnecessary expenditure and deterioration of their financial situation during an economic downturn, in March 2020 the Latvian Parliament imposed restrictions not only on the operation of land-based gaming venues, but also on the provision of online gaming services.” According to the firm, “having doubts regarding such restriction’s compliance with the constitutional principle of legitimate expectations and the right to property, SIA Latsson Licensing, together with a number of other gaming operators, applied before the Constitutional Court.”

Cobalt stated that as the result of Latsson Licensing’s application, “on December 11, 2020, the Constitutional Court handed down a judgment in case No. 2020-26-0106, holding that Article 9 of the Law ‘On the Compliance of Articles 8 and 9 of the Law ‘…, insofar it imposed an obligation to suspend licenses for the provision of online gaming services, is incompatible with the principle of legitimate expectations inherent in Article 1 of the Constitution, in conjunction with the right to property enshrined in Article 105 of the Constitution.”

According to the firm, “as ruled by the Constitutional Court, a person’s right to freedom of self-determination shall have the highest value in a democratic state governed by the rule of law…even during a nation-wide state of emergency the legislator shall not adopt unreasonably vague provisions that restrict the rights of such persons that are not even the subject of the legislator’s-imposed restrictions’ legitimate aim.”

Cobalt’s team included Managing Partner Lauris Liepa and Associate Toms Krumins.

Cobalt has advised Eurion Fund on the acquisition of an office buildng in Townhall Square in the old town of Riga from the Baltic RE Group. Ecovis Convents Law Office reportedly advised the Baltic RE Group on the deal.

The Eurion Fund is managed by Corum Asset Management, a French asset management company investing in real estate across Europe with a total volume of assets under management exceeding EUR 3 billion.

Cobalt’s team included Managing Partner Dace Silava-Tomsone, Partner Sandija Novicka, Counsel Sabine Vuskane, Senior Associate Diana Zepa, and Associate Juta Gulkevica.

Former Fort Partner Ieva Judinska-Bandeniece and Associated Partners Ramona Miglane and Uldis Judinskis have joined forces to open Drill – a new law firm in Riga focusing on Fintech, IP, and M&A.

Four other Fort lawyers left with them, bringing the total number of fee earners at Drill to seven.

Drill describes itself as a “small and efficient team in which partners participate in daily work. We also offer legal advice in areas related to business, such as Banking and Finance, Real Estate, Commercial Law, Data Protection, etc.” 

Ramona Miglane has a Magister’s degree from Latvijas Universitate and an LL.M. from the Riga Graduate School of Law. Prior to setting up Drill, she spent two years with Blukis & Partneri, over three years with Swedbank, six and a half years with Krodere & Judinska, and almost seven years with Fort.

Ieva Judinska-Bandeniece holds an LL.B. and an LL.M. from Latvijas Universitate. Prior to opening Drill, she spent two years with the Ministry of Foreign Affairs of the Republic of Latvia, ten years with Loze, Grunte & Cers, seven and a half years with Krodere & Judinska, and almost seven years with Fort.

Uldis Judinskis has an LL.M. from Latvijas Universitate. Prior to Drill, he spent two years at Merks, seven years with Krodere & Judinska, and almost seven years with Fort.

Tax Exemption for Employee Stock Options

Despite regulatory hurdles, the number of Latvia–based employees that receive stock options is constantly increasing.

In the past, stock options were typically received by the employees of Latvian companies that belonged to large international groups, and tax rules for stock options that were introduced back in 2013 were tailored with large internationals in mind.

Now the situation has changed. The main demand for stock-options comes from start-ups, as, at their early stage of development, they are typically unable to pay high or even middling salaries. Meanwhile, a number of stories about freshly minted start-up millionaires have been widely publicized.

As a result, Latvian start-up companies are increasingly eager to use the stock option tool to attract and motivate employees. We also see a growing demand for stock option plans from other small and medium–sized companies, which have good chances for growth but are at the current time unable to increase their salaries.

Under the existing regime, an employee’s income from stock options is exempt from payroll taxes in Latvia provided that: (i) the stock options were granted pursuant to a stock option plan; (ii) the holding period of the options (the period between when the option was granted and when it was exercised, i.e., by acquiring shares) is at least 36 months; (iii) during the entire period from the date of grant until the date of exercise the individual remained employed either by the company that granted the stock option or by an affiliate; and (iv) the Revenue Service is notified about the grant of stock options no later than two months from the date of grant or the date at which the employee can apply for the stock options.

The majority of start-ups and small and medium–sized companies cannot currently benefit from this tax exemption, as the vast majority of them are incorporated as limited liability companies, and the Ministry of Finance and the Revenue Service have interpreted the law to mean that the exemption is available only where the stock options are issued by a joint stock company. This applies even where the issuer of options is incorporated abroad.

Changes Under Discussion

Start-ups began calling for a less rigid regime back in 2018 and the Ministry of Economy, which is responsible for start–up policy, eventually took heed. Following heated discussions and negotiation among the industry and the public authorities, ten Members of the Parliament filed a draft bill to amend the Personal Income Tax Act.

The draft bill aims to extend the tax exemption to options issued by limited liability companies as well. The minimum holding period would be reduced from 36 months to 12 months, the rationale being that nowadays a start-up can turn an idea into a product very quickly. In addition, although currently the tax exemption is lost unless the option is exercised while the employee is still with the company which granted the stock option or an affiliate, under the draft bill options could be exercised for up to six months after employment is terminated.

The draft bill has already been adopted by the Latvian Parliament in the first reading. In order to become law, the draft must survive two more readings.

However, because the Ministry of Finance objects, the draft’s prospects are unclear. The Ministry is arguing that limited liability companies will be tempted to abuse the exemption to avoid payroll taxes. Although in Lithuania and Estonia the tax treatment of stock options is very similar to the existing Latvian regime, the other two Baltic countries allow tax exemptions in cases of stock options issued by limited liability companies.

Therefore, the Latvian Ministry of Finance faces strong headwinds in its campaign against the relaxation of the stock options regime.

By Sandija Novicka, Partner, Cobalt

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Latvian office of Sorainen has advised the USS Grupp on its acquisition of the Latvian branch of the Securitas security services company.

Financial details of the transaction were not disclosed.

USS Grupp is an Estonian provider of real estate management, property maintenance, and security services.

Sorainen’s team consisted of Managing Partner Eva Berlaus and Senior Associate Natalija Sestakova.

Cobalt, acting pro bono, has represented the “Association of LGBT and Their Friends Mozaika” as amicus curiae before the Constitutional Court of Latvia regarding the right of same-sex couples to parental leave.

According to Cobalt, “the Constitutional Court ruled that Article 155 Paragraph 1 of the Labour Law, insofar as it does not grant protection and support to a child mother’s female partner in relation to the birth of a child, does not conform with Article 110 Paragraph 1 of the Constitution of the Republic of Latvia and is void as of June 1, 2022.” According to the firm, “the Constitutional Court found that Article 110 Paragraph 1 of the Constitution in conjunction with the principle of human dignity and the individual’s right to private life imposes an obligation on the State to protect and support same-sex partner families. Moreover, the Constitutional Court found that Article 110 Paragraph 1 of the Constitution demands that legislator ensures legal protection and social and economic protection and support measures for every family, including same-sex families.”

Cobalt’s team included Managing Partner Lauris Liepa and Associate Gabriela Santare.

Sorainen has advised the Vienna Insurance Group on the acquisition of the remaining 9.17% shares in BTA Baltic Insurance Company from AAS Balcia, making VIG the company’s sole shareholder.

The Vienna Insurance Group is an insurance group in Austria and Central and Eastern Europe. According to Sorainen, “around 50 insurance companies in 30 countries form a group that has a long-standing tradition, strong brands, and close customer relations.” 

BTA Baltic Insurance Company offers a range of non-life insurance services in Latvia, Lithuania, and Estonia. 

Sorainen’s team in Latvia included Managing Partner Eva Berlaus and Senior Associates Zanda Frisfelde and Zane Paeglite.