Category: Serbia

BDK Advokati, working with Ashurst, has advised J.P. Morgan and UK Export Finance on supporting the construction of the Morava Corridor motorway through a EUR 430 million guaranteed loan to the Republic of Serbia.

According to BDK Advokati, “the construction of the Morava Corridor motorway is undertaken by US civil engineering group Bechtel and Turkey’s Enka. 112 kilometers long, it runs east/west in the West Morava River valley, from Pojate to Preljina, connecting central Serbia and Pan-European transport Corridors X and XI. Along the motorway route, the plan is to construct the telecommunication cable ducting through which optical cables will be laid, making the Morava Corridor the first digital corridor in Serbia.”

BDK Advokati’s team included Senior Partner Dragoljub Cibulic, Counsel Dragoljub Sretenovic, and Associate Relja Radovic.

Karanovic & Partners has advised ElevenEs on partnering with EIT InnoEnergy to build a lithium iron phosphate (LFP) battery factory in Subotica, Serbia.

According to Karanovic & Partners, the LFP battery plant is set to be the first large factory of its kind in Europe. “ElevenEs has signed agreements with EIT InnoEnergy, which Pitchbook ranks as the most active sustainable energy investor globally.”

ElevenEs has developed its own LFP technology to produce batteries for electric passenger cars, buses, trucks, forklifts, other industrial vehicles, and energy storage systems.

The Karanovic & Partners team included Senior Partner Marjan Poljak and Senior Associate Igor Radovanovic.

The amendments to the Serbian Energy Law, enacted in late April 2021, prescribed the obligation for transmission system operators in the electricity and natural gas sector to implement the EU electricity and natural gas network codes.

The obligation refers to the following acts in the electricity sector: Regulation (EU) 2016/631, establishing a network code on requirements for grid connection of generators, and Regulation (EU) 2016/1447, establishing a network code on requirements for grid connection of high-voltage direct-current systems and direct current-connected power park modules. In the natural gas sector the following acts should be implemented: Annex 1 to the Regulation (EC) 715/2009, on conditions for access to the natural gas transmission networks, repealing Regulation (EC) 1775/2005; Regulation (EU) 312/2014, establishing a network code on gas balancing of transmission networks; Regulation (EU) 703/2015, establishing a network code on interoperability and data exchange rules; Commission Regulation (EU) 2017/459, establishing a network code on capacity allocation mechanisms in gas transmission systems, repealing Regulation (EU) 984/2013; and Commission Regulation (EU) 2017/460, establishing a network code on harmonized transmission tariff structures for gas.

The Procedure and Stakeholders

The procedure of implementation of the EU electricity and natural gas network codes requires close cooperation of transmission system operators, the Energy Agency of the Republic of Serbia (AERS), and the Ministry of Mining and Energy of the Republic of Serbia. The deadline for subject implementation is August 30, 2021, by which date the transmission system operators should provide the Ministry with the harmonized acts implementing the applicable network codes, whereas the harmonized acts should have been previously approved by the AERS. Finally, the harmonized acts transposing the EU electricity and natural gas network codes shall be submitted for adoption by the Government of the Republic of Serbia as a set of decrees.

The implementation of the EU electricity network codes falls to two transmission system operators, Elektromreza Srbije and Elektrodistrubucija Srbije. On the other hand, the implementation of the EU natural gas network codes is the obligation of three natural gas transmission system operators, Transportgas Srbija, Gastrans, and Yugorosgaz-Transport.

Benefits for the Electricity and Natural Gas Market in the Republic of Serbia

The implementation of the EU electricity and natural gas network codes is relevant for several reasons. Firstly, it represents one of the crucial steps in the formal fulfillment of the international obligations of the Republic of Serbia, deriving from the Energy Community Treaty. Secondly, it substantially contributes to the harmonization of procedures of Serbian transmission system operators with the adjoining transmission system operators. Namely, despite the fact that the adjoining transmission system operators are operationally required to act in the agreed manner, such harmonization will be considered as a firm legal ground for the Serbian transmission system operators to act in the same manner as any other EU transmission system operator. Thirdly, the implementation of the EU electricity and natural gas network codes would foster competition on the electricity and natural gas market in Serbia, through free and non-discriminatory access to the transmission systems, and would contribute to further opening the Serbian market. This is especially relevant for the natural gas market, which has been perceived by the Energy Community Secretariat and the EU Commission as closed, restricted, and competition unfriendly. Upon completion of the required harmonization initiative and adoption of the relevant decrees by the Government of the Republic of Serbia, it is further expected that the network codes of each transmission system operator will be harmonized with the adopted decrees, and that the transmission system operators will organize their daily operations in compliance with EU best practices. Finally, the harmonization with the EU electricity and natural gas network codes would ultimately be beneficial to the transmission systems’ users, and those users should become acquainted with the introduced updates to fully utilize the rights, options, and prospects granted by the new legislation.

By Jelena Gazivoda, Senior Partner, and Nikola Djordjevic, Partner, JPM Jankovic Popovic Mitic

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The amendments to the Serbian Energy Law, enacted in late April 2021, prescribed the obligation for transmission system operators in the electricity and natural gas sector to implement the EU electricity and natural gas network codes.

The obligation refers to the following acts in the electricity sector: Regulation (EU) 2016/631, establishing a network code on requirements for grid connection of generators, and Regulation (EU) 2016/1447, establishing a network code on requirements for grid connection of high-voltage direct-current systems and direct current-connected power park modules. In the natural gas sector the following acts should be implemented: Annex 1 to the Regulation (EC) 715/2009, on conditions for access to the natural gas transmission networks, repealing Regulation (EC) 1775/2005; Regulation (EU) 312/2014, establishing a network code on gas balancing of transmission networks; Regulation (EU) 703/2015, establishing a network code on interoperability and data exchange rules; Commission Regulation (EU) 2017/459, establishing a network code on capacity allocation mechanisms in gas transmission systems, repealing Regulation (EU) 984/2013; and Commission Regulation (EU) 2017/460, establishing a network code on harmonized transmission tariff structures for gas.

The Procedure and Stakeholders

The procedure of implementation of the EU electricity and natural gas network codes requires close cooperation of transmission system operators, the Energy Agency of the Republic of Serbia (AERS), and the Ministry of Mining and Energy of the Republic of Serbia. The deadline for subject implementation is August 30, 2021, by which date the transmission system operators should provide the Ministry with the harmonized acts implementing the applicable network codes, whereas the harmonized acts should have been previously approved by the AERS. Finally, the harmonized acts transposing the EU electricity and natural gas network codes shall be submitted for adoption by the Government of the Republic of Serbia as a set of decrees.

The implementation of the EU electricity network codes falls to two transmission system operators, Elektromreza Srbije and Elektrodistrubucija Srbije. On the other hand, the implementation of the EU natural gas network codes is the obligation of three natural gas transmission system operators, Transportgas Srbija, Gastrans, and Yugorosgaz-Transport.

Benefits for the Electricity and Natural Gas Market in the Republic of Serbia

The implementation of the EU electricity and natural gas network codes is relevant for several reasons. Firstly, it represents one of the crucial steps in the formal fulfillment of the international obligations of the Republic of Serbia, deriving from the Energy Community Treaty. Secondly, it substantially contributes to the harmonization of procedures of Serbian transmission system operators with the adjoining transmission system operators. Namely, despite the fact that the adjoining transmission system operators are operationally required to act in the agreed manner, such harmonization will be considered as a firm legal ground for the Serbian transmission system operators to act in the same manner as any other EU transmission system operator. Thirdly, the implementation of the EU electricity and natural gas network codes would foster competition on the electricity and natural gas market in Serbia, through free and non-discriminatory access to the transmission systems, and would contribute to further opening the Serbian market. This is especially relevant for the natural gas market, which has been perceived by the Energy Community Secretariat and the EU Commission as closed, restricted, and competition unfriendly. Upon completion of the required harmonization initiative and adoption of the relevant decrees by the Government of the Republic of Serbia, it is further expected that the network codes of each transmission system operator will be harmonized with the adopted decrees, and that the transmission system operators will organize their daily operations in compliance with EU best practices. Finally, the harmonization with the EU electricity and natural gas network codes would ultimately be beneficial to the transmission systems’ users, and those users should become acquainted with the introduced updates to fully utilize the rights, options, and prospects granted by the new legislation.

By Jelena Gazivoda, Senior Partner, and Nikola Djordjevic, Partner, JPM Jankovic Popovic Mitic

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Karanovic & Partners has advised the Innovation Fund on launching the Katapult start-up accelerator in Serbia with support from the World Bank.

Katapult is part of the Innovation Acceleration and Entrepreneurship Growth Project, dedicated to strengthening innovative entrepreneurship and scientific research in Serbia.

According to Karanovic & Partners, “the Katapult accelerator will be a new support mechanism for all Serbian start-ups. It will provide financial and mentoring support, as well as connect start-up investors with those in the early stages of product development. It will also be there for start-ups with proven traction, who are on the path to accelerating growth and fundraising.” The firm will continue to provide ongoing legal support for Katapult.

Karanovic & Partners’ team included Partner Ivan Nonkovic and Senior Associate Igor Radovanovic.

The Labour Law (“Official Gazette of RS”, no. 24/2005, 61/2005, 54/2009, 32/2013, 75/2014, 13/2017 – decision of the CC, 113/2017 and 95/2018 – authentic interpretation) (the “Law”) prescribes that employer shall be obliged, prior to the termination of employment agreement due to violation of working obligation or working discipline, to notify the employee in writing on the existence of reasons for such termination, as well as to provide the employee with a period of minimum eight days from the warning submission to declare on the subject allegations. Employer is obliged to state grounds for termination in the warning, as well as facts and evidence indicating the fulfilment of requirements for termination, and deadline for submitting the employee’s response thereof.

One can see from the above that the Law quite vaguely regulates the procedure concerned, and it can only be concluded from the said provisions that employer is obliged to state the evidence (which indicate the fulfilment of reasons for termination), but one cannot assume whether the employer is liable to provide evidence to the employee along with the warning.

Position of Court Practice

Until recently, court practice hereof deemed that employer is not obliged to provide evidence to the employee along with the warning on existence of reasons for termination of employment. An example thereof is the judgment of the Appellate Court in Belgrade no. Gž1 737/2016 as of June 10, 2016, according to which employer is only obliged to state the evidence (which is in accordance with the Law)

However, in the judgment of the Supreme Court of Cassation no. Rev2 1039/2021 as of May 18, 2021, the said court took the position that, if the warning on existence of reasons for termination of employment agreement enlists the evidence based on which the employer concluded that conditions for termination are met, but the employer failed to provide them to the employee, although the decision for termination is based upon them, the employee’s right to defence against statements burdened upon him in the procedure of delivering the termination decision is denied, whereby the said right is provided for under the Convention no. 158 of the International Labour Organisation (“ILO”).

ILO Convention no. 158

Under the ILO Convention no. 158 (the “Convention”), which was ratified by the Republic of Serbia, the employment shall not be terminated for reasons related to the employee’s conduct or performance before it is provided an opportunity to defend itself against the allegations made (unless the employer cannot reasonably be expected to provide such opportunity).

Therefore, not even the Convention explicitly regulates the issue that this text is about. One can consequently wonder – does the proclaimed right of an employee to defend itself necessarily implies the provision of evidence on the existence of reasons for employment agreement termination along with the warning issued therefore?

Is the Procedure for Termination of Employment a Penalty Procedure?

Considering the most recent position of court practice on this matter, one gets the impression that the procedure of employment agreement termination by employer, due to the violation of working obligation or working discipline, is equalised with penalty procedure in terms of regulations governing criminal, misdemeanour, and similar procedures, and even the Constitution of the Republic of Serbia, pursuant to which the right to defence implies a wide range of procedural rights of defendant.

Nevertheless, considering that under the Law an employee may, but is not obliged to, respond to the warning, and is also entitled to file a lawsuit before the competent court in prescribed deadline for disputing the legality of the termination decision, the justification of the above stated equalisation becomes questionable. In other words, the justifiability of such an extensive interpretation of the above provision is arguable, particularly because the idea and purpose of taking the positions by the Supreme Court of Cassation is to align court practice which, until recently, firmly stated that violation of employee’s right to defence in a particular situation exists only if the employment agreement was terminated by employer without submission of the warning with legally prescribed content.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Lara Maksimovic, Senior Associate, and Andrea Arsic, Associate PR Legal

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed on 8 October 2021 a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The Republic of Serbia is one of 136 jurisdictions that have agreed to the solution.

The Pillar One envisages the development of a multilateral convention (by early 2022, so that it is signed by mid-2022, enabling entry into force thereof in 2023) by which the parties thereto will agree on a new special-purpose nexus rule permitting allocation of so-called Amount A to a market jurisdiction for which relevant multinational enterprises derive at least EU 1 million in revenue. For jurisdictions with GDP lower than EUR 40 billion, the threshold will be set at EUR 250,000. It is envisaged that 25% of residual profit (profit in excess of 10% of revenue) will be allocated to market jurisdictions. With certain additional rules to be introduced by the multilateral convention, including the cap on residual profits allocated to the market jurisdiction through Amount A in cases when the residual profits of a relevant multinational enterprise are already taxed in a market jurisdiction (a marketing and distribution profits safe harbour), the benefit for jurisdictions such as Serbia lies in the fact that it should become entitled to collect certain additional tax revenue which it would not be able to do under the “classic” tax rules. This also assumes that certain multinational enterprises will have additional compliance obligations in Serbia (although the Statement sets that the compliance costs (incl. on tracing small amounts of sales) will be limited to a minimum and that the tax compliance will be streamlined (including filing obligations) and allow multinational enterprises to manage the process through a single entity.

On the other hand, the multilateral convention will impose an obligation to the parties to remove all digital services taxes and other similar measures and to commit not to introduce such measures in the future. As Serbia does not have a digital services tax, this obligation will not require a change in its tax legislation.

Pillar Two is what has been advertised as of Friday as the imposition of a minimum 15% corporate income tax, as the rules to be imposed as part of the Pillar Two will be related to a minimum tax rate of 15%. The Pillar Two consists of an Income Inclusion Rule (IIR), which imposes top-up tax on a parent entity in respect of the low taxed income of a constituent entity; and an Undertaxed Payment Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR (both of these rules will be introduced as domestic rules and should be based on the model rules to be developed by the end of November 2021) and a treaty-based rule (the Subject to Tax Rule (STTR) which will be introduced by a multilateral instrument (by which the STTR rule will be implemented into bilateral treaties of countries that apply nominal corporate income tax rates below the STTR minimum rate – 9% – to interest, royalties and a defined set of other payments with developing countries) and which will allow source jurisdictions to impose limited source taxation on certain related-party payments subject to tax below a minimum rate.

As Serbia corporate income tax rate is 15% it appears that the Pillar Two rules will not have a negative effect on parent companies from other jurisdictions that have daughter companies in Serbia, while it is interesting to see what the position of Serbian companies having companies in jurisdictions such as Montenegro (with the tax rate of 9%) will be, although the thresholds envisaged by the Statement are probably too high for the most of Serbian companies.

By Nikola Djordjevic, Partner, JPM Jankovic Popovic Mitic

Jankovic Popovic Mitic has successfully represented Lithuanian company Alita before the Supreme Court of Cassation of Serbia in a dispute with the Serbian Privatization Agency over a terminated privatization contract.

According to JPM, “in 2007, Alita, jointly with Sweden’s United Nordic Beverages, purchased a controlling stake in BIP (Beogradska Industrija Piva) from the Serbian Privatization Agency, that in early 2010 accused the companies of failing to meet their investment commitments and buy out minority shareholders and terminated the privatization contract. In November of the same year, it filed a claim for damages totaling EUR 67.8 million with the Serbian arbitration.”

According to the firm, after a dispute lasting ten years, the Supreme Court of Cassation set aside the final award issued by a foreign trade arbitration center, and eventually released Alita from settling the EUR 68 million claim.

JPM’s team was led by Partner Djordje Novcic.

The Law on Prevention of Corruption (the “Law”), the key piece of Serbian anti-corruption legislation that started to apply in September 2020, recently received a short set of amendments.

Most of the amendments are primarily aimed at correcting the flaws noticed so far in the wording of certain important provisions, and will therefore not largely affect the overall anti-corruption system, but some of them could prove to reach deeper and wider in activities and persons subject to the Law.

It is now explicitly regulated that “corruption” is directed at achieving illegitimate goals only, which was somehow omitted in the initial text. In addition, public officials are now generally prevented from parallelly performing other work which requires full-time employment or continuous engagement, as opposed to the previous wording which prevented any other work if the public office itself required full-time employment or continuous engagement.

A key amendment was introduced to the existing system of informing the Serbian Anti-corruption Agency about relevant undertakings involving public officials. Namely, the previous text of the Law obliged legal entities in which a public official (or his family member) owned more than 20% of shares to inform the agency about participation in a public procurement, privatization or other procedure in which a contract was to be concluded with a public authority or any legal entity with more than 20% of shares in public ownership. The above 20% threshold has now been removed, meaning that any legal entity with a public official in its ownership structure must inform the agency of a procedure leading to the conclusion of a contract with any legal entity with even the slightest public ownership.

For the purpose of ensuring a more transparent notification system, the amendments also introduced a new Records on Legal Entities, which is supposed to serve as a comprehensive public registry of all such legal entities having a public official as their shareholder.

Public officials will now also have to include additional information into their Property and Income Report, such as on cash, digital property and valuables they own, as well as other movable property with value exceeding EUR 5,000, which should provide additional hints on how the term of their office may have interplayed with their balance sheet.

Finally, in order to tackle the well-established court practice of imposing only trivial fines (if any) for breaches, the minimal penalties for non-compliance with the Law have been doubled and now amount to RSD 1 million (approx. EUR 8,500) for legal entities and RSD 100,000 (approx. EUR 850) for public officials.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Goran Radosevic, Partner, Independent Attorney at Law in cooperation with Karanovic & Partners, and Anja Mihajlovic, Junior Associate, Karanovic & Partners

How certain is the development of the ever-increasing use and application of electronic documents, especially in terms of legalization of documents for international legal transactions?

By adopting the Law on the electronic document, electronic identification, and trusted services in electronic business in 2017, the main function of which is digitalisation and digital business operations, questions were raised in regard to compliance of this law with practices that do not fully recognize the electronic documents and electronic business operations.

Although the legislator’s intentions were to facilitate and speed up the complicated bureaucratic process, due to a lack of harmonisation of regulations, so far, the competent state bodies are failing to implement modern practical solutions.

In our practical work, in several cases, first and foremost, questions arose regarding interpretation by state authorities as to what an electronic document actually represents and what is considered to be an electronic signature, all of these issues are mostly related to the documents issued by the state bodies. The Law on electronic documents, electronic identification, and trusted services in electronic business operations set forth that this document cannot be challenged in respect of validity, evidence, or written form, only because it exists in electronic form.

In case of international legal transactions, in a situation where legalization of the document is required for use in a foreign state, specifically, when diplomatic and consular legalization (the so-called “full legalization”) or legalization by apostille is required, the problem occurs when state authorities issue a document in the form of an electronic document, application of which is required in paper form. It is indisputable that in the case of legalization, the court that certifies the document does not assess the contents of the document, but only confirms the authenticity of the signature of the person who signed the document and the authenticity of the seal placed on the document. The problem that arises is that in practice, there is no consensus regarding certification of the printed copy of the electronic document.

Digitization and greater application of documents in digital form, which was confirmed during the current SARS-CoV-2 virus pandemic, raised questions about how a printed copy of the electronic document, which is actually a copy, can gain the legal quality of the original document.

Although the Law provides two solutions for the verification of a printed copy of an electronic document, either by a notary public or authorized person that acts as a registered entity, in practice, there is still no unity in respect of the application of these solutions and authorized persons occasionally do not meet their legal obligations envisaged by law.

Also, state authorities that issue documents in electronic form often apply a clause “valid without signature and stamp”, which is not in accordance with the Law on legalization of documents in international trade, since this Law, which does not recognize the electronic document, sets the condition that the documents must be printed, signed and stamped by the issuing authority.

That being said, it remains uncertain how this situation will develop in the future, given the ever-increasing use and application of electronic documents, especially in terms of legalization of documents for international legal transactions.

By Mirjana Milosevic, Senior Associate, and Luka Hajdukovic, Associate, JPM Jankovic Popovic Mitic