Data protection and collective bargaining legislation perceived as problematic

ALSO in 2013 there were legal norms adopted which have earned criticism and perceived as problematic. These are especially the Personal Data Protection Act, the new legislation on collective bargaining but also some tax-related revision. But there are also legal norms, which according to lawyers need some changes or up-dates. The Slovak Spectator spoke about these legal norms with Daniel Futej and Zuzana Štekláčová from Futej & Partners; Tomáš Rybár, a partner with Čechová & Partners; Peter Šťastný and Juraj Gyárfáš from Allen & Overy Bratislava; lawyers from Havel, Holásek & Partners; Juraj Foltýn and Přemysl Marek from Peterka & Partners; Peter Štrpka from Soukeník – Štrpka; and Marek Staroň, managing partner at White & Case in Bratislava.

ALSO in 2013 there were legal norms adopted which have earned criticism and perceived as problematic. These are especially the Personal Data Protection Act, the new legislation on collective bargaining but also some tax-related revision. But there are also legal norms, which according to lawyers need some changes or up-dates. The Slovak Spectator spoke about these legal norms with Daniel Futej and Zuzana Štekláčová from Futej & Partners; Tomáš Rybár, a partner with Čechová & Partners; Peter Šťastný and Juraj Gyárfáš from Allen & Overy Bratislava; lawyers from Havel, Holásek & Partners; Juraj Foltýn and Přemysl Marek from Peterka & Partners; Peter Štrpka from Soukeník – Štrpka; and Marek Staroň, managing partner at White & Case in Bratislava.

The Slovak Spectator (TSS: Which legislative changes or new laws adopted in 2013 do you consider controversial or problematic and why?

Daniel Futej and Zuzana Štekláčová (DF and ZŠ): In our view, any acts that increase the administrative burden or lay down additional duties to be fulfilled to government agencies – such as the changes in the tax law, the new personal data protection act and the act on limiting cash payments – are either controversial or problematic.

Beginning January 1, 2013, the amendment to the VAT act requires a security deposit to be paid at registration for value added tax. This requirement is reserved not only for companies with tax arrears but also for newly-established companies. The amount of the security deposit is at the discretion of the tax office and ranges from €1,000 to €500,000. A much-discussed tax issue concerns the new so-called tax licences. The amendment to the income tax act requires entrepreneurs to pay at least a minimum tax of €480 even if their business reported a loss or had no tax liability. In international trade, the introduction of a 35 percent withholding tax caused quite a stir. The tax is withheld from every payment that is going to a country with which the Slovak Republic does not have a double tax avoidance agreement or an international tax information exchange agreement.

In relation to combating tax fraud, the new act on limiting cash payments set the upper limit for cash payments for legal entities and sole traders at €5,000. Natural persons who are not sole traders may make cash payments amongst one another of up to €15,000. The new personal data protection act re-defined all the administrative obligations to be fulfilled in relation to the Office for Personal Data Protection of the Slovak Republic, and just like the act on limiting cash payments it lays down very severe fines for any violations of the law.

Tomáš Rybár (TR): It is the new Data Protection Act. Although it was legitimately motivated by improving the unsatisfactory compliance level in many Slovak companies, it created a substantial and partly unnecessary workload for most business. It generally requires administration which is in excess of the standard required by EU law or applied in other countries, and which does not in some cases actually contribute to the aim of protection of privacy. For example, for any contract where a supplier processes data on the customer’s behalf a contract or contractual clauses meeting some 10 obligatory requisites needs to be met. Most businesses are hardly aware of this. A proper balance should have been found between the legitimate aims and related acceptable burden on business.

Peter Šťastný and Juraj Gyárfáš (PŠ and JG): Controversial or problematic areas are the amendments to the Act on Collective Bargaining, the Income Tax Act and the Public Procurement Act. The revision to the Act on Collective Bargaining provides for the extension of sectorial collective agreements on companies that are not parties to such agreements. Thus, it would be possible to impose the obligation on companies to increase their employees’ salaries under a collective agreement into which they did not enter. It is questionable whether this regulation complies with constitutional principles.

The amendment to the Income Tax Act introduces a minimum tax for companies, the so called tax licence. Companies will be obliged to pay the tax licence regardless of whether they book a profit or a loss in a year. The purpose of the act is to curb tax evasion, but its consequences may be detrimental to small and medium-size enterprises.

In terms of the amendment to the Public Procurement Act, apart from the very controversial legislative process in which major changes were made in parliament without consulting the general public, the act also favours law firms with previous experience in public procurement, which represents an obstacle to new perspective participants. It grants the government the right to confer ad hoc exceptions in public procurement and it imposes very strict sanctions for breaching certain provision of the act.

Havel, Holásek & Partners: In tax, we consider the tax licenses problematic, as they could cause companies in difficulty to close. We would also like to point out the retroactivity in the amended tax loss depreciation rules and the high fines for failing to meet an obligation relating to the check statements, which may reach up to €10,000, and for repeated breaches up to €100,000.

The new Personal Data Protection Act has also become controversial. Whereas EU legislation attempts to support business by removing administrative burdens from entrepreneurs, and to support the free movement of personal data, in Slovakia this movement has been limited, which threatens the freedom of doing business in Slovakia with the risk of huge fines of up to €80,000.

In connection with these amendments in public procurement it is questionable whether the objectives of the amendments, such as to achieve efficiency when disposing of public resources, to ensure that public procurement procedures are flexible and open, and to protect quality and fair suppliers, will be met.

We consider an amendment to the Commercial Code, regulating payment of contributions by a contribution administrator to a bank account, as another problematic issue, as the amendment has no real impact on the actual creation of capital and the solvency of a company and has only extended the procedure for establishing limited liabilities companies.

Juraj Foltýn and Přemysl Marek (JF and PM): It is the introduction of tax licenses and the revision to the Act on Collective Bargaining. The duty to pay tax licenses without respect to the achieved tax base or tax loss of a company will rather contribute to worsening of the business environment in Slovakia and increase the tax burden of a company than to the declared reduction of corporate entities and becoming a planned tool against tax evasion.

The revision to the Act on Collective Bargaining has enabled extension of the binding force of higher-level collective agreements. The controversy is especially the fact that contrary to the previous wording of the act, the new wording enables extension of the higher-level collective agreements also without the consent of the affected employer. The ranking of the employer into the given sector will be decisive for extension of the binding force. It is the Ministry of Labour, Social Affairs and Family which decides about the extension.

Peter Štrpka (PŠ): These are revisions to the Act on Waste and the Act on Collective Bargaining. The objective of the revisions to the Act on Waste should have been to secure a full and correct transposition of the EC directive on batteries and accumulators and waste batteries and accumulators into Slovakia’s legislation, by which should have been achieved effective handling with used batteries and accumulators. In this connection, it is reasonable to assume that by the adoption of the act on waste the given directive was not transposed in a proper way and thus that the EU law was violated.

The revised Act on Collective Bargaining enables extending the binding force of the higher-level collective agreements without the consent of the employer on which its binding force should be extended. However, the revision lacks any other conditions for extension of the binding force of the higher-level collective agreements and reasoning of the society’s interest in the need to adopt such a legal norm. It is very probable that this law will have unfavourable economic impacts on some employers and can lead to a higher unemployment rate.

Marek Staroň (MS): The amendment to the Act on Collective Bargaining amends the regulation of the conditions for the extension of the applicability of higher level collective agreements to other employers in the same industry.

The amendment allows the Ministry of Labour, Social Affairs and Family to extend the applicability of the higher level collective agreement in an industry or its part to other employers without their consent. Affected employers may only object by submitting a petition for exemption which is then assessed by a committee composed of representatives of employees, employers, the Ministry and the Slovak Statistical Office.

Due to substantial criticism from employers and their organisations, President Ivan Gašparovič vetoed the amendment and returned it to parliament. However, parliament rejected the president’s objections and reapproved the amendment with its original content.

TSS: Which legislative areas or laws do you think need further revision and why?

DF and ZŠ: We believe that procedural law has long been in need of some reworking. The existing version of the Code of Civil Procedure lacks practical means which would determine things such as the maximum duration of proceedings or which would force a judge to hand down a ruling in the shortest time possible. In the busier courts, claimants must wait approximately one year just to have a hearing date set because there is no time limit in which the court is obligated to commence a hearing after the application to initiate proceedings has been filed. The parties themselves draw out the duration of court disputes, as the current legislation allows them to submit new motions to take evidence practically right up until the end of the proceedings of first instance. If just before all the evidence has been taken they move to have an expert opinion submitted as evidence, the proceedings could be drawn out by another one to two years as the Code of Civil Procedure does not lay down any time limit in which experts must submit their expert opinion.

Slovak laws do not recognize trusts, which are very common in the Anglo-Saxon legal system and which could entice foreign investors who are used to this form of doing business to Slovakia. With the help of a trust, a contract could be entered into to arrange for more efficient and flexible asset management or holding of ownership interest than what is achieved through a commission contract or power of attorney, which currently are the only two instruments available in Slovakia.

TR: Overall simplification and acceleration of the court procedure is required by reform of procedural rules, in addition to necessary contribution of all stakeholders in the judiciary.

Also the legislation on pharmaceutical companies and their marketing activities requires changes: a number of duties have been imposed, but there remains a lack of clarity and the data collected are piling up rather than being used in a transparent way.

PŠ and JG: The current Slovak Civil Code was adopted in 1964 and was heavily influenced by Soviet jurisprudence. After the Velvet Revolution, a large part of the Civil Code was amended and the Commercial Code was enacted, which created a duplicate framework for the law of obligations. In addition, the extensive amendment to the Civil Code enacted in 1991 was only “temporary” until the adoption of a new code. The fact that this solution has been in place for more than two decades goes to show that so-called temporary solutions are indeed long-lived. Thus, this area of civil law could benefit from a major overhaul.

Furthermore, the Civil Procedure Code needs further revision for court proceedings to become more effective and to achieve better and swifter enforcement. Judicial proceedings in Slovakia are often lengthy and sometimes unpredictable.

Finally, a new Construction Act would be welcome to create more efficient procedures in both large-scale developments and residential homes.

Havel, Holásek & Partners: Despite many changes in tax to stimulate economic growth and the employment rate, other changes should be adopted with the aim of improving the business environment. These should include simplifying the agenda in customs duties and contributions and reducing the administrative burden, even though the latest amendments seem to go the opposite way.

The planned amendment to the Personal Data Protection Act is also more than is necessary. We consider reducing the administrative burden and removing the minimum limit of a fine of up to €1,000 as the most necessary changes that have to be made.

JF and PM: The Act on Arbitral Procedure and the Code of Distraint Procedure require changes. The change is necessary especially in connection with the performance of arbitral decisions. The basis of the adopted changes should be in particular to achieve the division of the performance of arbitral decisions in consumer and non-consumer matters and the related power of the court to scrutinise the validity of arbitrary clause/agreement within a distraint proceeding.

The Civil Code as well as related legal norms need an up-date. The revamp is needed in several dimensions, while judicial proceedings should become faster. It should address quality of individual decisions while the enforceability of law should increase in general. A significant field for up-dating of the legislation, from the viewpoint of the low rate of trustworthiness of the judicial system in Slovakia, is also increasing the responsibility of individual judges for performance of their function.

PŠ: In the future, there will arise, in our opinion, the need to change legal norms pertaining to personal data protection and this not only on the national level but also within the framework of the European Union. This is because the current requirements for securing personal data protection excessively burden processors of personal data and increase their administrative costs.

MS: Civil Code reform is long overdue. The code does not meet requirements for modern regime providing framework for operation of business. Substantial revisions are needed in regulation of establishment and operation of corporations included in the Commercial Code in order to spur gestation of small innovative enterprises and remove some structural uncertainties.

The main outstanding issue of the Slovak legal regime is the enforcement of existing laws. Both the speed and quality of the enforcement of law in private versus private and public versus private disputes must be improved. In order to achieve this, rules of civil procedure must be substantially changed and lot of work on court’s structure and the delivery of the justice system in general is required.

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