Category: Moldova

  • Operation Through Permanent Establishment in Moldova

    The Republic of Moldova is a small Eastern European country with a market economy in development. Since its independence, Moldova has been keen to open its borders to foreign investment to vitalize its economy. To this end, Moldova has passed numerous legislative reforms to protect investments and encourage cross-border transactions.

    The Moldovan tax system has been one of the key targets of reform since 1992. Moldovan tax laws require non-residents to pay taxes on profits obtained from Moldovan sources through a “permanent establishment” (PE). The PE concept is regulated by the Moldovan Tax Code and around the 48 double taxation treaties to which Moldova is a party.

    PE is the first test of possible taxation in Moldova for a non-Moldovan entity. Under the definition of PE in the Moldovan tax law, the existence of a PE establishes the right of the state to tax profits of a non-Moldovan enterprise. According to the Moldovan Tax Code, a non-Moldovan entity is subject to taxation only if it has a fixed place of business in the country, either through the management of assets, the acts of individual employees, or a dependent agent – an individual or company acting on behalf of the non-resident in the Republic of Moldova.

    The Moldovan PE concept is a reasonable transposal of the OECD Model Convention, but in certain aspects it contradicts other business laws in Moldova.

    The first source of confusion is due to the legal nature of PE as a tax fiction without legal personality, which is not separate from a non-resident whose profits are to be taxed. By this construction, foreign entities may do business in Moldova without incorporation formalities, except for a simple registration for tax purposes. This situation, however, is in contradiction with the main prohibition of entrepreneurial activity without State registration in one of the legal forms allowed by law (i.e., as an LLC, JSC, or individual entrepreneur). Failure to comply with this requirement may result in severe fines for illegal entrepreneurial activity. To avoid this interpretation, the PE definition is often used not only to determine when a non-resident will be taxed in Moldova, but also to identify the limits of where a non-resident may operate in Moldova without incorporating a business entity. Since PE represents a pure taxation concept, its legal definition contained in the law is not sufficiently self-explanatory, as no clear distinction exists between such concepts as “fixed place of business,” “representative office,” “branch,” and “subsidiary.”  

    This confusion is also supplemented by a special legal regime imposed on non-residents operating through a PE. Thus, even though a PE does not have a status of a separate legal entity and is not independent from a non-resident, the PE will be treated, for tax purposes only, like any other company in Moldova, and be required, among other things, to: (1) keep an accounting system in Moldova for the activity performed through the PE; (2) calculate, pay, and report income taxes from revenues obtained through the PE in Moldova; and (3) register as a VAT payer if the supplies through the PE exceed MDL 600,000 (about EUR 27,200) during any 12 consecutive months. In addition, for the purposes of foreign currency regulations, the PE will be regarded as a Moldovan resident. Thus, the PE will not be allowed to make or receive payments in Moldova in other currency than Moldovan Leu (MDL), with limited exceptions.

    Another confusion related to the Moldovan PE definition is that the Moldovan legislator uses similar terminology when defining PE (in Romanian “reprezentanta permanenta”) and when defining the representative office of a legal entity (in Romanian “reprezentanta”). Moldovan practitioners frequently confuse these definitions. Indeed, there are several similarities between these two concepts, such as lack of legal personality. In addition, both are fixed places of activity where a legal entity may operate. However, in contrast to a PE, a representative office is prohibited from performing a business activity, and while a foreign entity performs through a PE its business activity in a jurisdiction other than its own, the actions of a representative office are limited to representing its founder’s interests.

    The confusions listed above result in certain bureaucratic impediments. However, a thorough understanding of and timely addressing of the potential issues related to the application of PE in Moldova should build more confidence in foreign companies considering Moldova as a potential source of their business revenues.

    By Carolina Parcalab, Legal Manager, ACI Partners 

    This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Turcan Cazac, Schoenherr, and Vernon | David Advise on Sale of Sun Communications to Orange Moldova

    Turcan Cazac, Schoenherr, and Vernon | David Advise on Sale of Sun Communications to Orange Moldova

    Turcan Cazac has assisted the shareholders of the Moldovan cable and pay TV operator Sun Communications in their sale of 100% of shares in the company to Orange Moldova SA, a unit of France Telecom’s Internet and mobile arm Orange. Baker Botts advised the sellers as English counsel, while Orange was advised by Trevors Smith as English counsel and Schoenherr and Vernon | David as local counsel.

    According to Turcan Cazac, “the deal has described by business media as a mega transaction in the Moldovan telecommunications sector.”

    The transaction involved the sale of shares by Lekert Management Ltd and Neocom Ltd, the investment vehicles controlled by Sun Communications founder Alexandru Sirbu (65%), the EBRD (28%), and the senior management of the company, including John Maxemchuk, the CEO (5%) after the parties signed a framework agreement in June 2016.

    The deal was completed on October 18, 2016 after the Moldovan Competition Council authorized the takeover by Orange Moldova, finding that the merger does not raise significant obstacles to the competition environment on the market of the Republic of Moldova or a significant part thereof and in particular that a dominance will not be created or strengthened thereby.

    According to Orange Moldova, the takeover will allow it to enter the fixed and Pay TV services market and offer new and innovative services, and in particular convergent offers including fixed, mobile, and pay TV services. 

    Orange Moldova is the largest mobile operator in Moldova with over 2.6 million customers and a 57% market share in the national telecommunication sector, according to Moldovan telecom regulator ANRCETI. Sun Communications is the leading Pay TV provider in Moldova by customer base. It offers digital and cable TV services under the brand SunTV to customers in Chisinau, Balti, and Cahul.

    Turcan Cazac also assisted the EBRD back in 2007 when it made its equity and debt investments in Sun Communications.

    The Turcan Cazac team was led by Partners Octavian Cazac and Alexander Turcan, supported by Associates Ana Galus, Vladimir Palamarciuc, and Alexander Tuceac.

    The Vernon | David team was led by Partner Diana Neagu and included Partner Maria Nica and Senior Associate Roman Ivanov.

    Schoenherr team consisted of Attorney Vladimir Iurkovski and Associates Andrian Guzun and Denis Lefter in Moldova and Partner Catalin Suliman and Attorney Georgeta Gavriloiu in Romania.

  • Kinstellar Advises Alpha Bank on Divestiture of Shares in Moldavian Victoriabank to EBRD

    Kinstellar Advises Alpha Bank on Divestiture of Shares in Moldavian Victoriabank to EBRD

    Kinstellar’s team in Bucharest has advised Alpha Bank Romania on the divestiture of its shares in the Chisinau-listed Moldavian bank, Victoriabank S.A., to the EBRD.

    The deal was structured via an in-kind contribution in a Dutch SPV and subsequent sale of the subscribed shares to EBRD. The transaction covered three jurisdictions—Romania, Moldova, and the Netherlands—and Kinstellar acted as a lead counsel for Alpha Bank, coordinating Dutch and Moldavian counsel.

    The Kinstellar team was led by Partner Razvan Popa, supported by Managing Associate Zsuzsa Csiki.

    Kinstellar did not reply to our inquiries about counsel for the EBRD or the Moldavian counsel on the deal.

    Image Source: old.victoriabank.md   

  • Turcan Cazac Assists Anheuser-Busch in First Cross-border Merger Notified to the Moldovan Competition Council

    Turcan Cazac Assists Anheuser-Busch in First Cross-border Merger Notified to the Moldovan Competition Council

    Turcan Cazac has reported a successful application to the Moldovan Competition Council for clearance in that country of the proposed acquisition by Belgium-based beer giant Anheuser-Busch InBev SA/NV of SABMiller plc, which would combine the two largest brewers. According to Turcan Cazac, “the merged entity will sell twice as much beer and earn four times more profit than Heineken, currently the third largest brewer.”

    AB Inbev’s brands include Corona, Stella Artois, and Budweiser, while SABMiller owns brands such as Miller, Peroni, Pilsner Urquell, and Grolsch.

    The European Commission cleared the merger in May 2016. Overall AB InBev — assisted globally by Freshfields Bruckhaus Deringer — notified the merger control authorities in some 30 jurisdictions worldwide.

    Under the Moldovan Competition Law of 2012 an economic concentration needs to be cleared by the country’s Competition Council if: (1) the combined worldwide turnover of the undertakings concerned exceeds MDL 25 million (about EUR 1.13 million), and (2) there are at least two undertakings concerned in the deal, each of which obtained on the territory of the Republic of Moldova an aggregate turnover that exceeds MDL 10 million (about EUR .45 million) in the year preceding the merger. Therefore, non-Moldovan companies parties proposing an economic concentration may be subject to Moldovan competition clearance based solely on their sales in the Moldovan market.

    Turcan Cazac asserts that “this is the first merger ever that is notified to and cleared by the Moldovan Competition Council and whose parties are not Moldova-based companies.”

    The firm’s mandate was handled by Associate Ana Galus, who heads the firm’s competition law practice. The team also included Partner Octavian Cazac and Associates Vadim Taigorba and Olga Saveliev.

  • ACI Partners and DLA Piper Successful for Republic of Moldova in Appeal of ICC Decision in Court of Appeal of Paris

    ACI Partners and DLA Piper Successful for Republic of Moldova in Appeal of ICC Decision in Court of Appeal of Paris

    ACI Partners and DLA Piper have successfully persuaded the Court of Appeal of Paris to annul an October 25, 2013 arbitral award by the ICC in the matter of Energoalians v. Republic of Moldova in what ACI refers to as “highly important litigation for Moldova.”

    The dispute dates back to 2010, when Energoalians — a Ukrainian company — brought claims against Moldova arising out of the non-payment of accumulated debt by the State-owned entity Moldtranselectro and by another former partner of Energoalians for energy Energoalians supplied in 1999-2000. In its decision of October 25, 2013, the International Court of Arbitration in Paris ruled that Moldova must pay Energoalians USD 47 million (in 2015 Moldova was ordered to pay Komstroy, the legal successor to Energoalians).

    According to ACI Partners, “this arbitral award had a drastic effect on the Moldovan state-owned company MoldATSA — the bank accounts of which were blocked starting from April, 2015 in lieu of execution of the said arbitral award. MoldATSA is responsible for directing airplanes in Moldovan airspace and hampering its operations thus endangered air traffic security in Moldova.”

    ACI Partners describes the Paris Court of Appeals’ decision to annul the October 15, 2013 arbitral award as “an important win for the Republic of Moldova.”

    The ACI Partners team consisted of Managing Partner Igor Odobescu and Legal Manager Carolina Parcalab, while DLA Piper’s Paris-based team was led by Partner Michael Ostrove, DLA Piper’s Global Head of International Arbitration, and included Associate Theobald Naud.

    A consideration of the significance of this case in Moldova will appear in the April 2015 issue of the CEE Legal Matters magazine.

  • Moldova: Latest Tunings to the Labour Code

    Moldova: Latest Tunings to the Labour Code

    On 20 November 2015 the Moldovan Parliament voted on amending and supplementing the Moldovan Labour Code (“Labour Code”). As a result, Act No. 205/2015 (“Act No. 205”) entered into force on 18 December 2015 implementing a series of long-awaited improvements, but also complicating the life of employers in some instances.

    Here are some of the changes:

    Cannot be a CEO in Two or More Companies? 

    Since it entered into force in October 2003, the Labour Code (art 258 and 261) precluded local managing directors (sometimes also referred to as CEOs, directors, general managers, members of the executive board, administrators, etc) from exercising the same management duties in two or more companies, regardless of whether the two companies were for example members of the same group. This preclusion complicated matters even more, as it did not specify whether such a limitation applied only to companies based in Moldova, or also from abroad. The sole exception was that a local managing director who was also a shareholder in that company (even holding only one share), could exercise management duties in all other companies in which he was also a shareholder. In practice this caused numerous cases when individuals were made shareholders just to be sure that the right was ensured.

    Act No. 205 completely removed this prohibition for private companies, as a result the prohibition is now only applicable to state / municipality owned companies and similar entities. Accordingly, private investors are now capable of organising their local businesses in line with models available in the West.

    Much Easier Termination of Labour Relations on Agreed Terms

    Act No. 205 inserts art 82¹ into the Labour Code, which allows an employer and employee to agree on the termination of their contract at any time, provided that such termination is in writing. Until recently, termination of a labour relationship (even on agreed terms) was a much more complicated (formalistic) process: initiated by a request (demisie) of an employee, triggering a 14-day notice period. During this notice period, the employee had the right to further request and agree with its employer that the notice period be shortened and parties execute a termination agreement.

    As was the case pre-Act No. 205, the termination agreement is still to be followed by an employer on termination of labour relations, and so payment of all due amounts to an employee and the return of an employee’s labour book must still be carried out.

    Conclusion of Individual Labour Agreement for Determined Period Even More Cumbersome

    As was the case before, the Labour Code lists the limited instances in which an individual labour agreement can be executed for a determined period of time (eg, with managing directors of enterprises, for fulfilling concrete limited-scope work, etc). Furthermore, Act No. 205 prohibits parties from entering into individual labour agreements for determined periods for the purpose of circumventing the statutory rights and guarantees which are granted to employees with agreements for an indefinite period. As a consequence, any individual labour agreement concluded for a determined period of time is deemed concluded for an indefinite period, unless the State Labour Inspection confirms the existence of grounds for a determined duration. In practice, these norms will likely cause arbitrary rulings by the State Labour Inspection.

    Compulsory to Request Written Explanations from Employee before Sanctioning

    According to Act No. 205, each employer is obliged to demand a written explanation from its employee facing the risk of a disciplinary sanction. Such a demand must be made in writing by the employer and be communicated to the employee before application of any disciplinary ruling in respect of that employee. In this case, the employee has the right to present written explanations within five business days as of the receipt of the demand.

    An employee’s refusal to present explanations must be formalised by the employer in writing (by means of a protocol).

    Other Implemented Amendments

    • Extension of the maximum duration of a confidentiality undertaking by an employee from three months (maximum), to up to two years (maximum) after the termination of the labour relations.
    • Updated rules of dismissal of employees in the case of transfer to a new employer (ie, consented transfer to a new employer).
    • Additional formalities (consultations) with the enterprise syndicate before dismissing employees who are not members of the syndicate.
    • Amendments to various terms (eg, increased maximum unpaid holiday to 120 days, longer annual leave (unpaid) for employees with two or more children under 14, etc).
    • Employer’s duty to abide by an order (court judgment)to reinstate an employee who was illegally dismissed.

    Conclusion

    The abolition of the limitation previously imposed on managing directors, and the possibility to immediately terminate labour relations are big steps forward in stimulating investments in Moldova.

    The other amendments are unfortunately meant to further strengthen the Labour Code in its position of one of the most employee-friendly legislation systems in Europe (if not in the world).

    By Vladimir Iurkovski, Attorney at Law, Schoenherr

  • EBRD Announces EUR 10 Million Loan to Moldova to Develop Water Supply System

    The European Bank for Reconstruction and Development has announced a EUR 10 million loan to Moldova to develop a regional water supply system in the country’s north, including the country’s second largest city of Balti.

    The loan, to be split in two tranches of EUR 6 million and EUR 4 million, is part of a financing package of EUR 30 million, which also includes a EUR 10 million loan from the European Investment Bank and an expected EUR 10 million capital grant from the European Union’s Neighborhood Investment Facility.

    According to an EBRD statement: “The financing will enable the municipality of Balti and six districts – Floresti, Soroca, Sangerei, Telenesti, Rascani, and Drochia – as well as the Ministry of Environment to consolidate their water and wastewater infrastructure into a joint operating company. The newly created regional operator will then develop the Soroca-Balti water pipeline into a more integrated water supply system, which is expected to improve the quality and efficiency of water and wastewater services across Moldova’s northern region. The investment should help rehabilitate the Soroca-Balti pipeline and other water networks in the region, increase the number of new connections to the pipeline and within the districts, reduce water losses and increase energy efficiency. The project also aims to attract a private operator to manage the water and wastewater services on behalf of the joint operating company, which will result in more efficient services.”

    Anatol Arapu, the Moldovan Finance Minister, said: “All towns and villages in northern Moldova, apart from Soroca and Balti, only have access to poor quality water. The EBRD, EIB and NIF financing will help modernize the existing Soroca-Balti pipeline built back in 1980s and will expand and rehabilitate the water infrastructure networks in the project districts, which will improve the standard of living in the region by providing residents with access to safe water and wastewater services. We are pleased that the loan agreement signed today will also pave the way for a viable regional operator in the north of Moldova.”

    As with all sovereign loans from the EBRD, standard terms & conditions were used, and the Bank worked directly with the ministers from the Moldovan government, without engaging external or local counsel for the deal documentation. EBRD Senior Counsel Markus Renfert provided legal supervision and management on the deal. 

    The EBRD is the largest foreign investor in Moldova. To date, the Bank has invested about EUR 900 million in over 100 successful projects, covering the energy, transport, agribusiness, general industry and banking sectors.

     

  • Three Lawyers Elected to Amcham BoD in Moldova

    Three Lawyers Elected to Amcham BoD in Moldova

    Three lawyers were elected to the 11-member Board of Directors of the American Chamber of Commerce (AmCham) in Moldova. 

    http://turcanlaw.md/news/octavian-cazac-re-elected-to-the-board-of-directors-of-amcham-moldova

       

    Octavian Cazac (right) next to Serghei Toncu, Deputy Executive Director of AmCham Moldova, during the Annual General Member Meeting

    The three are Roger Gladei, Alexandru Munteanu, and Octavian Cazac. 

    Gladei is the Managing Partner of Gladei & Partners, a firm which he founded in 2008. Prior to it, he worked for over 11 years for Victoriabank, gradually being promoted from in-house counsel to VP of Legal.

    Munteanu is the Tax & Legal Services Manager at PwC Moldova. He has been working for the company for over 7 years and he has also been an Associate Professor at the State University of Moldova since 2003. Munteanu was a member in of the previous BoD at Amcham as well. 

    Cazac is a Partner of Turcan Cazac. He leads the firm’s Finance and M&A practice and has been a lecturer of Civil Law at the State University of Moldova since 2004. He has been a member of the AmCham Board since 2012, and he heads the Chamber’s Tax & Legal Committee.

    In a Turcan Cazac press release the firm stated that it co-founded the AmCham in Moldova back in 2006, and claimed that with AmCham it “has contributed to various advocacy and lobbying efforts and has been actively involved in a range of government policy-making projects. “

    Imagesource turcanlaw.md