Category: Uncategorized

Last month, the Agency for Communication Networks and Services of the Republic of Slovenia (hereafter Akos), which regulates and oversees the electronic communications market, issued a press release in which they revealed the results of supervision of two Slovenia’s largest players in communication service market. Results of the supervision showed that both companies, Telekom Slovenije and Si.mobil, were through their online services “Deezer” (Telekom Slovenije) and “Hangar Mapa” (Si.mobil) in breach of article 203 of the Slovenian Electronic communications Act (“Zakon o elektronskih komunikacijah” ).

Under this provision, the Internet service providers (hereafter ISPs) are prevented from restricting, delaying or slowing internet traffic except in the event they have to solve congestions, preserve security or address spam. Differentiation of quality of Internet traffic as an instrument to discriminate internet services for purely commercial reasons is prohibited. Both of the above companies were given 60 days to stop prioritizing the data in connection with their applications. The decision is the first one in Slovenia of this kind and will therefore serve as a precedence in future cases. Furthermore, the decision confirms that Slovenia is one of the few countries in Europe that adheres to the principle of net neutrality.

The expression of net neutrality originates, as internet itself, from the US. It was coined by Tim Wu in the ground-braking article titled Network neutrality Broadband discrimination , where he explained the importance of the internet regulation. According to basic economic theory, though ISPs’ long term interests coincide with the interests of the society at large, ISPs may pay more attention to their short term interest.  On that basis he argues that the government regulation of net neutrality is necessary to achieve a competitive and innovation-driven environment in the context of internet. This argument assumes that, if left unregulated, large ISPs will create a two-tier system that will funnel internet traffic into fast and slow lanes. Only the richest companies will be able to pay the extra tolls to ensure their online content is accessible though these fast lanes. This would present a great advantage for these companies as it would introduce a higher market entry barrier for small but innovative companies, hindering competition. In addition to the positive effects of net neutrality on competition, it is also suggested that since no discrimination regarding data traffic is allowed, the principle upholds freedom of expression, which includes the freedom to seek, receive and impart information and ideas of all kinds.  

On the other hand, arguments can also be found against net neutrality. Some suggest that many concerns expressed by net neutrality advocates are misplaced and proposed regulation is likely to actually harm consumer welfare.  One of the drawbacks of the principle is the fact that big online service providers might lose the incentive to invest in infrastructure projects and expand internet coverage. It is also suggested by some that regulation needed for net neutrality could result in a bureaucratically overregulated internet, which would be very different from an innovative, fast-moving, internet we know and strive for. 

By enacting the principle of net neutrality in 2013,  Slovenia became one of the first countries in the world, following Netherlands and Chile, to implement the principle in its law system and remains one of the few countries in the EU that did so. Internet neutrality has not yet been enacted in European Law because the discussion about the principle was opened relatively late, around 2010.   However, the things began to turn in early 2014, when EU parliament adopted net neutrality as a part of a larger Commission’s proposal to create a single telecommunications market for the entire EU.  By amending the original proposal it strengthened net neutrality by giving it a stronger definition.  However, European Union legislative procedure also involves The Council, which did not seem so univocal on that matter. A leaked draft of amendments to the proposal of EU Parliament and Commission revealed that the Italian presidency was pushing to remove the definition of net neutrality because the views of the governments strongly differed.  While some countries like Finland, Slovenia and the Netherlands are pro net neutrality, the UK, for example, stands on the other side and is also supported in its position by Angela Merkel who has already voiced her opinion against net neutrality. One of the reasons why UK is opposing net neutrality so strongly is that it relies heavily on ISPs to filter internet data. The latest and widely debated issue was the so-called “porn filter” where users have to actively opt out of “child friendly” mode in order to access pornographic content.  The latest proposals made by Latvian presidency of the Council of the European Union, seen by Financial Times would establish the principle of net neutrality, but would still allow telecom groups to manage the flow of internet traffic to ensure the optimal efficiency of the network. It is suggested that the proposed regulation would allow making deals with corporate and individual customers to provide faster internet services although such deals would not be allowed to impair the wider working of the internet in any “material manner”. 

The topic of net neutrality has been widely discussed in the US as well, where the principle of neutrality of communications was actually introduced much earlier than in the EU. Telecommunication services such as telegrams or phone networks are considered to be “common carriers”, which means they are akin to public utilities and expressly forbidden to give preferential treatment to any of their customers. Common carriers in the US are regulated by the Federal Communications Commission (hereafter FCC) in order to ensure fair pricing and access. The internet, however, was not until recently categorized as a telecommunication service but as an information service and thus the regulation for common carriers did not apply. 

In the early 2000s, FCC presented the non-discrimination principles and in 2010 the Open Internet Order.  However, in one of the most prominent cases, where the FCC tried to sanction Verizon for breaching The Order in 2014, the DC Circuit Court ruled  that FCC has no authority to enforce network neutrality rules. In early 2014, FCC consequently made their proposal on a new set of rules on net neutrality. The original proposal would leave the door open for content creators to pay for a faster service. This would hinder net neutrality although high level of transparency would still be maintained and the “No blocking rule”  would be implemented. In the process of shaping the proposal, the FCC was accepting comments from the general public and by 10th of September 2014, received almost 4 million submissions, which makes the proposal by far the most commented proposal in agency’s history. The fact that the issue of net neutrality is indeed very important for the market-players and the consumers can be confirmed by following the public discussion involving some prominent figures. President Obama, for example, has already made a statement pushing for net neutrality.  This position is also strongly supported by influential scholars such as Lawrence Lessig  or activists such as Aaron Swartz and some of the software companies like Microsoft and Google. On the other side, telecommunication companies like Verizon, Comcast, AT&T are doing some heavy lobbying against net neutrality.

Very recently, on 26 February 2015, FCC has reached a 3-2 decision  to implement the proposal of its chairman to regulate the internet under Title II of The Communications Act, which regulates “common carriers”.  This decision brings internet service under the same type of regulatory regime faced by wireline telephone service, applying the principle of net neutrality. It seems, however, the decision is by no means the end of the story, as AT&T has already suggested it will sue and it is likely that other broadband providers will also join.  

The recent decision of Akos shows that, while in the rest of the world the academic discussions and lobbying wars are still ongoing, Slovenia has already taken a strong stance in favour of net neutrality. It remains to be seen, however, if this approach will stand against future pressures from the interested stakeholders and whether net neutrality will indeed foster more innovation and competition in the cyberspace. 

By Marko Zaucer, Junior Associate, ODI Law Firm 

Due to the poor health of its finances, the Slovenian government was obliged to adopt new taxes and provide a new crucial source of income. One of the new taxes, which were imperative for consolidating the government finances, was real estate tax. Looking back it is safe to say, that due the high need for the adoption of this tax the government rushed the tax adoption process. Its result was a new tax, which was effective in terms of the amount of money it would collect but at the same time too vague and too discriminatory to be accepted into actual use.

The real estate tax was passed by the National Assembly in November 2013 after an all night parliamentary session with a 46-6 vote. It was to take effect on January 1st, 2014 as a key piece of government efforts for fiscal consolidation and was bound to replace the existing 4 systems of fees on land, buildings and property. The new tax was expected to collect around 400 million EUR annually, namely 200 million EUR for the government and 200 million EUR for the municipalities. The Prime Minister argued that Slovenia had such a deep fiscal deficit that the only alternative for the adoption of the new tax was a special crisis tax, which never had full government support.

Immediately after passing the real estate tax, the government started preparing its corrections, indirectly admitting its shortcomings. The tax assessment was calculated based on the generalised market value from the real estate registry. In order to achieve a softer introduction, the value base was to be temporary reduced in the first two years of the tax to 80 percent of the value in 2014 and to 90 percent in 2015.

The problem with the generalised market value was that it did not in most cases reflect the actual market value as it was based on obsolete and incorrect data. In addition, the property owners did not have at their disposal any legal instruments against the appraisal methodology, they could only report data errors. The opposition’s proposal to include the possibility to use individual appraisals to challenge the generalised market value was not accepted. The act also introduced the possibility of establishing a lien on the owners’ real estate if they would not meet their tax obligations. Finally, the tax rates themselves were considered by many as too high for a systemic tax that would remain in place for a longer period of time, hurting businesses and rural areas. Homes were envisaged to be taxed at 0.15 percent while empty real estate (including holiday homes) would be taxed at 0.5 percent. A surcharge of 0.25 percentage points would being imposed on residential units whose value exceeded 500.000 EUR. Certain leniency would only be possible for welfare or minimum pension support recipients, who would pay 50 percent less tax, as the handicapped would get a 30 percent reduction. Commercial real estate was to be taxed at a 0.75 percent rate, energy facilities at 0.4 percent and public buildings at 0.5 percent. Farm outbuildings at a 0.3 percent rate, farm land at 0.15 percent and forests at 0.07 percent. Forest reserves, protected forests, barren land, monuments and sacral buildings as well as diplomatic representations, international organisations and EU institutions would not be taxed. On the other hand, owners of illegal buildings would be liable for triple amount of the relevant tax rate.

Due to all of the real estate tax controversies, a petition to initiate a procedure for the review of the constitutionality or legality of the real estate tax law was lodged by a group of deputies of the National Assembly, National Council, Municipality of Koper, the Association of municipalities and towns of Slovenia and the Association of Slovenian municipalities, all of which have, according to the Constitutional Court Act the right to initiate the procedure immediately after the law has been adopted. On 28 March 2014 the Constitutional Court unanimously annulled the real estate tax act after concluding that parts of the act to be unconstitutional.

The key problem was the real estate appraisal model, based on the 2006 general real estate valuation act. The Court was adamant in ruling, saying that the model was too vague and its modalities, which were set down in executive acts, should instead be passed by the legislator. Further, the court ruled that the majority of revenue from such a tax should go to the municipalities and should not be equally divided between the state and municipalities as this is primarily a local tax. The differentiation of tax rates between commercial real estate and energy buildings was considered discriminatory. The law also failed to provide satisfactory means of appealing the tax in line with the constitutionally-guaranteed right to legal remedies.

All of the dissenting opinions pointed out that the tax itself was not the problem, but that the means with which such a tax was introduced were unacceptable. Such an opinion was specifically expressed by mag. Miroslav Mozetic who also explained that the reason behind annulling the whole law was the fact that, if they were to annul only the disputed provisions, the effect would in the end be the same as the petition was focused on tax base and tax rate, both of which were unconstitutional, rendering the whole law unenforceable. Justice Jan Zobec also had an interesting note that the government is, as long as it is not excessive, relatively free in imposing taxes as no constitutional protection of property applies in this regard.

With the annulment of the law, due to the high necessity of income to the municipalities, the Court restored previous taxes, namely the compensation for the use of the construction land, taxation based on assets, and fee for maintenance of forest roads. However, the underlying problem of inadequate and incorrect data of the real estate registry still lingers. Therefore, without material improvement of the data, any future real estate tax is likely to share the same fate as the last one.

By Miha Romic, Junior Associate, ODI Law Firm