Indonesian Visas in the Time of COVID-19

On 11 March 2020, the World Health Organization (“WHO”) officially announced that COVID-19 had become a global pandemic. Following this announcement, as with many other countries, Indonesia enacted regulations to govern the traffic of individuals entering and leaving the country. These regulations specifically mandate limitations and exceptions for the granting of Entry Permits for foreign visitors, Emergency Stay Permits (Izin Tinggal Dalam Keadaan Terpaksa), Limited Stay Permits (Izin Tinggal Terbatas or “ITAS”), Permanent Stay Permits (Izin Tinggal Tetap or “ITAP”) and Re-entry Permits for foreign visitors currently in Indonesia and expatriates currently abroad whose Indonesian permits are to expire soon.

Please visit the website of the Indonesian Directorate General of Immigration, imigrasi.go.id, to access the abovementioned regulations as well as the Indonesian Director General of Immigration circular letter and the Indonesian Ministry of Foreign Affairs’ announcement regarding this matter, all of which need to be read collectively to determine the required steps in terms of visas during the COVID-19 pandemic.

Entry Permits 

In response to the COVID-19 pandemic, the Government of Indonesia has suspended the granting of Visit Visa Exemptions (Bebas Visa Kunjungan) and Visas on Arrival (Visa Kunjungan saat Kedatangan) to foreign visitors visiting Indonesia from any country. Foreign visitors may still visit Indonesia on a different valid visa issued by an Indonesian representative in their country, after satisfying several requirements provided under Indonesian Minister of Law and Human Rights (“MOLHR”) Regulation Number 8 of 2020 on the Temporary Termination of Visit Visa Exemption and Visa on Arrival and the Granting of Emergency Stay Permits (“MOLHR Reg No. 8/2020”). However, this exception does not apply to foreign visitors who have traveled to certain areas/countries in the last 14 days. These countries include China, South Korea (specifically Daegu City and Gyeongsangbuk-do Province), Iran, Italy, the Vatican, Spain, France, Germany, Switzerland and the United Kingdom.

Emergency Stay Permits

As stipulated in Article 4 of MOLHR Regulation Number 7 of 2020 on the Granting of Visas and Stay Permits in Order to Prevent the Coronavirus Outbreak (“MOLHR Reg No. 7/2020”), an Emergency Stay Permit is applicable to (a) any foreign citizen currently in Indonesia; (b) foreigners who hold a stay permit of another country; or (c) the spouse or child of a citizen of a country other than Indonesia whose visa (any visa) (i) has completely expired and can no longer be extended, and (ii) cannot fly back to their country due to the COVID-19 pandemic. As further affirmed by the Director General of Immigration in Circular Letter No. IMI-GR.01.01-2114 Year 2020, Emergency Stay Permits are applied differently for foreigners who arrived in Indonesia before and after 5 February 2020.

Limited Stay Permits, Permanent Stay Permits and Re-entry Permits

MOLHR Reg No. 7/2020 and MOLHR Reg No. 8/2020 stipulate exceptions and procedures for extending an ITAS/ITAP permit for holders currently in Indonesia and currently abroad. For individuals currently abroad whose visa is to expire soon, a Re-entry Permit may be granted after satisfying certain requirements.

These exceptions and visa requirements are subject to future changes based on the situation with the COVID-19 pandemic. There may be additional requirements to obtain new visas/visa extensions in practice.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

By (SSEK Legal Consultants)

Rights and Liberties, Liability of the French State and Judicial Review

On 24 December 2019 the Conseil d’Etat ruled that indemnification can be granted under French law on the ground of a prejudice suffered due to the application of a law ruled contrary to the Constitution by the Conseil Constitutionnel.

The Conseil d’Etat now leaves the door open to a new possibility for indemnification, within the framework of a QPC examination (Question Prioritaire de Constitutionnalité)) or by application of Article 61 of the Constitution (subject to conditions). Based on the hierarchy of norms, this new kind of liability of the State is stated in three decisions dated 24 December 2019 (req. N°425981, N° 425983 and N°428162).

This new regime lives now next to the already existing liability due to the application of the law (responsabilité du fait des lois) based on equal treatment before public burdens (principe d’égalité des usagers devant les charges publiques).

A QPC is a question raised by a tribunal or a court aiming at determining the conformity of a law to the Constitution. Article 61-1 of the French Constitution states in this respect that during an instance before a tribunal or a court (private or public), a plaintiff can support the view that a law contravenes rights and liberties guaranteed by the French Constitution. In such a situation, the Conseil Constitutionnel can be seized after remand of the case by the Conseil d’Etat or the Cour de Cassation.

The general principle under French administrative law is that the French State can be sued simply because of the application of a law, provided that (i) the plaintiff has suffered a prejudice qualifying as important and specific (grave et special) and (ii) the law in question does not exclude the possibility for a plaintiff to be indemnified. This type of liability is applicable even if the French State is not considered as being in default with the application of the law and is named liability without misconduct (responsabilité sans faute de l’administration).

This possibility started in France at the beginning of the 20th century (Conseil d’Etat, case Couitéas – 1923), with the admission of liability without misconduct of the French State due to an administrative decision of non-enforcement of judicial decisions. In such a case, in the general interest, the French State may decide not to enforce a judicial decision, but in turn, has to indemnify the plaintiff. The ground for indemnification is the breach of equal treatment before public burdens principle (principe d’égalité des usagers devant les charges publiques). This principle is taken from the French 1789 declaration of the human rights and the citizen: each member of the community has to bear a certain amount of public burdens, but equal treatment shall prevail.

This principle has expanded thereafter with the admission of such a claim against a law (and not against an administrative decision only) by the Conseil d’Etat in 1938 (Conseil d’Etat, case Société la Fleurette – 1938). Such a case establishes that, in the silence of the said law, a plaintiff shall not bear a charge created by a law that he/she would not normally lie with, it being specified that, in the event of silence of the said law, such law shall not be considered as excluding the liability of the French State (Conseil d’Etat case Coopérative Agricole Ax’ion – 2005).

The liability of the French State can also be triggered due to its obligations to ensure the application of its international conventions, to indemnify all the prejudices resulting from the application of a law passed illegally because contrary to an international convention (e.g. ECHR) (Conseil d’Etat, case Gardelieu – 2007).

Now, according to the new decisions of the French Conseil d’Etat dated 24 December 2019, the other grounds for indemnification are (1) that the decision of the Conseil Constitutionnel does not decide that no indemnification shall be granted either (i) by excluding it expressly or (ii) by letting alive all or only a part of pecuniary effects caused by the law, that an indemnification would challenge, (2) the existence of a prejudice and (3) the link between the prejudice and the unconstitutional application of the law.

As a consequence, a plaintiff may be indemnified in the following conditions : (i) no express exclusion of indemnification by the Conseil Constitutionnel (ii) no all or part of pecuniary effects left alive by the Conseil Constitutionnel that an indemnification would challenge (iii) and (iv) a link between the prejudice and the unconstitutional application of the law.

According to the decision of the Conseil d’Etat, certain pecuniary effects of the law declared unconstitutional may prevail upon an indemnification. In this respect, it is reasonable to think that an administrative judge would apply an economic balance check between the necessity of indemnifying the plaintiff and the profit of letting alive all or only a part of pecuniary effects caused by the unconstitutional law. An economic balance check is already applied in other circumstances (expropriation with the application of the théorie du bilan coûts / avantages), by the Conseil d’Etat (Conseil d’Etat case Ville Nouvelle Est – 1971).

In this perspective, it is reasonable to think that the application of an unconstitutional law may survive if it is more interesting from an economic point of view. This mentioned carve out is quite important as it gives the possibility to the Conseil Constitutionnel to let alive, even if the law is declared unconstitutional, and then cancelled, parts of its pecuniary effects.

In addition to the breach of equal treatment before public burdens principle (principe d’égalité des usagers devant les charges publiques), it can be suggested that other principles may underpin this kind of liability: preservation of legal safety (sécurité juridique) and /or  granted rights (préservation des droits acquis), and / or economic balance check, to take into account all the adverse financial effects that an indemnification would cause.

The claim for indemnification can obviously be barred by effluxion of time, it being specified that the 4 (four) years period during which such a claim can be brought only starts if the prejudice resulting from the application of the law may be known in its reality and its scope by the plaintiff, without the possibility for him or her to be regarded as ignoring the existence of his / her right to claim until the declaration of unconstitutionality.

The indemnification request has to be brought before the administrative judge (Tribunal Administratif). It remains however to be seen whether legal practioners will try to use these decisions of the Conseil d’Etat to sue the French State before the judicial order (ordre judiciaire). Under French law, the French Conseil d’Etat is the highest court entitled to address administrative cases and is part of the administrative order (ordre administratif) whereas the judicial order (ordre judiciaire) is composed of judiciary tribunal and courts (jurisdictions judiciaires) and is competent for private matters. How dealing with the fact that a tribunal or a court may apply deliberately after the declaration of unconstitutionality a law previously declared unconstitutional outside the scope of the carve out of the ratio decidendi of the Conseil d’Etat? Would Article 141-1 of the Code de l’organisation judiciaire, which gives competence to the judicial order in the event of indemnification of a prejudice due to malfunction of judicial public service, apply? It is reasonable to think that such indemnification would not be allowed even if legal practitioners may wish to test it, and may be, open this possibility, for the residual adverse effects on the plaintiff of the law declared unconstitutional.

A lack of indemnification by the French State may also give rise to a lawsuit before the ECHR (European Convention on Human Rights), a plaintiff would still have in fine, the right to be indemnified on the basis of the application of a law declared unconstitutional. From a theoretical point of view, and on the basis of the hierarchy of norms, letting a country member of the European Council apply a law declared unconstitutional could raise issues.

Up to date 24 December 2019.

Federal Tax Relief to Alleviate COVID-19 Hardships

The coronavirus (COVID-19) pandemic has already had widespread effects on the U.S. economy. Demand for many goods and services has stalled. Unemployment claims have skyrocketed. And many schools and businesses are operating online — if at all. Life has changed dramatically across the country.

The federal government has been working on various relief measures to help individuals and small businesses cope with the situation, including tax relief provisions. Here are the tax changes that have been finalized so far.

Even more relief measures are underway. As of this writing, Congress is working on a huge new COVID-19 relief bill that will surely include a massive economic stimulus package and probably lots of tax changes. Contact your tax pro for the latest developments.

Guidance on Federal Income Tax Deadline Deferrals

On March 20, U.S. Treasury Secretary Steven Mnuchin announced on Twitter that the April 15 federal income tax filing deadlines will be extended until July 15. His tweet says, “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” It’s unclear at this point whether the extension will apply to the tax return filing deadlines for federal payroll taxes (Social Security and Medicare taxes) owed by employers or for federal estate and gift taxes.

In addition, on March 21, the IRS issued Notice 2020-18, which clarifies that individual taxpayers and corporations can defer until July 15 federal income tax payments that would otherwise be due on April 15. (Normally, when you file an extension, you must still make a good-faith estimate of your tax liability and, by the normal filing deadline, pay the full amount estimated to be due. This relief measure is an exception to the general rule.)

Specifics under Notice 2020-18 are as follows:

For individualsIndividual taxpayers can defer payment of federal income tax (including any self-employment tax) owed for the 2019 tax year from the normal April 15 deadline until July 15. They can also defer their initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.

Individuals who have non-salary income — such as self-employed people, investors and rental property owners — must normally make quarterly estimated tax payments to avoid an IRS interest charge penalty.

Individuals can defer their tax payments until July 15, with no interest or penalties, “regardless of the amount owed.” (Earlier IRS guidance imposed a $1 million limit, but that limit was eliminated by Notice 2020-18.)

For corporations. Corporations that use the calendar year for tax purposes can defer until July 15 any amount of federal income tax payments that would otherwise be due on April 15 with no interest or penalties. This relief covers the amount owed for the 2019 tax year and the amount due for the first quarterly estimated tax payment for the 2020 tax year. Both of those amounts would otherwise be due on April 15. (Earlier IRS guidance imposed a $10 million limit, but that limit was eliminated by Notice 2020-18.)

For trusts and estates. Trusts and estates pay federal income taxes, too. Federal income tax payments for the 2019 tax year of trusts and estates that use the calendar year for tax purposes are due on April 15. The initial quarterly estimated federal income tax payments for the 2020 tax year of trusts and estates that use the calendar year for tax purposes are also due on April 15.

Notice 2020-18 clarifies that trusts and estates can defer any amount of the aforementioned tax payments from April 15 to July 15 with no interest or penalties.

Important: Notice 2020-18 offers no relief for paying federal payroll taxes (Social Security and Medicare taxes) owed by employers — or federal estate and gift taxes. But additional relief measures may be under construction in Congress.

Tax Provisions in the Families First Coronavirus Response Act

On March 18, President Trump signed into law a COVID-19 relief bill. It’s called the Families First Coronavirus Response Act. The new law mandates paid leave benefits for small business employees affected by the COVID-19 emergency and establish related tax credits and Social Security and Medicare (FICA) tax relief for their employers.

Tax credits for emergency leave payments to employeesThe new law grants tax credits to small employers to cover payments to eligible employees while they take time off under the mandatory emergency COVID-19 paid sick leave and paid family leave provisions. These provisions apply to employers with less than 500 employees.

Emergency paid sick leave under the new law is limited to $511 per day for up to 10 days (up to $5,110 in total) for an employee who’s in COVID-19 quarantine or seeking a COVID-19 diagnosis. An employee can also receive emergency COVID-19 paid sick leave of up to $200 per day for up to 10 days (up to $2,000 in total) to care for a child whose school or childcare location has been closed or whose childcare is unavailable due to COVID-19.

In addition, the law gives an employee the right to take up to 12 weeks of job-protected family leave if the employee or a family member is in COVID-19 quarantine or if the school or childcare location of the employee’s child is closed due to the outbreak. The employer must pay at least two-thirds of the employee’s usual pay, up to a maximum of $200 per day, subject to an overall maximum of $10,000 in total family leave payments.

To help employers cover these now-mandatory emergency leave payments, the law allows a refundable tax credit equal to 100% of qualified sick leave wages and family and medical leave wages paid by the employer.

The credit applies only to eligible leave payments made during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. The beginning date will be within 15 days of March 18, 2020.

The new law increases the credit to cover a portion of an employer’s qualified health plan expenses that are allocable to emergency sick leave wages and emergency family leave wages.

The credit is first used to offset the Social Security tax component of the employer’s FICA tax bill. Any excess credit is refundable, meaning the government will issue a check to the employer for the excess.

Important: The credit isn’t available to employers that are already receiving the pre-existing credit for paid family and medical leave under Internal Revenue Code Section 45S.

Employer FICA tax relief. Qualified sick leave and family leave payments mandated by the new law are exempt from the 6.2% Social Security tax component of the employer FICA tax on wages. Employers must pay the 1.45% Medicare tax component of the FICA tax on qualified sick leave and family leave payments, but they can claim a credit for that outlay.

Credits for self-employed people. For a self-employed individual who’s affected by the COVID-19 emergency, the new law allows a comparable refundable credit against the individual’s federal income tax bill. If the credit exceeds the individual’s federal income tax bill (including the self-employment tax), the excess will be refunded via a check from the government. The credit equals:

  • 100% of the self-employed person’s sick-leave equivalent amount, or
  • 67% of the person’s sick-leave equivalent amount for taking care of a sick family member or taking care of the individual’s child following the closing of the child’s school or childcare location.

The sick-leave equivalent amount equals the lesser of:

  • The individual’s average daily self-employment (SE) income, or
  • $511 per day for up to 10 days (up to $5,110 in total) to care for the individual or $200 per day for up to 10 days (up to $2,000 in total) to care for a sick family member or a child following the closing of the child’s school or childcare location.

In addition, a self-employed individual could receive a family leave credit for up to 50 days. The credit amount would equal the number of leave days multiplied by the lesser of:

  • $200, or
  • The individual’s average daily SE income.

The maximum total family leave credit would be $10,000 (50 days x $200 per day).

Credits for self-employed individuals are only allowed for days during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. The beginning date will be within 15 days of March 18, 2020.

Important: To properly claim the credit, self-employed individuals must maintain whatever documentation the IRS requires in future guidance. Contact your tax professional for details.

Moving Target

This article only covers some of the COVID-19-related tax changes that have already been finalized. Other types of non-tax federal relief have also been made available and many states have announced their own COVID-19 relief. More federal measures and additional guidance are expected soon. Contact your tax professional to discuss financial relief measures that apply in your specific situation.

 

Time to Protect Indian Businesses from Insolvency

The medium to long term financial effects of Coronavirus are yet to unfold, but the magnitude is already anticipated to be huge. Many countries across the world are announcing financial packages for businesses. India is also on the track to take a decision on relief packages.

With widespread lockdowns, the coming months are expected to witness a series of defaults by many viable businesses, and in this situation, we need to protect viable Indian businesses from landing up in our bankruptcy tribunals, for no fault of their promoters.

Broadly speaking – today an Indian company can be pushed into insolvency proceedings if it defaults in the discharge of its liability worth over INR 1,00,000/- (USD 1,322) towards a financial creditor or an operational creditor. With a few statutory exceptions and very limited way-outs, the promoters today face a real threat of losing their businesses forever if a creditor decides to opt for a legal action upon default in a single payment above the said threshold.

The bankruptcy and insolvency landscape in India has significantly changed from the regime prevailing prior to the introduction of the Insolvency and Bankruptcy Code (“the IBC”) in 2016. The most prominent feature of the IBC is “corporate insolvency resolution process” or CIRP, during which period the creditors assume control of the company and bids to acquire its business are publicly invited by an insolvency resolution professional. The board of directors of the company is suspended during the CIRP period, and in most cases, the promoters are legally prohibited from repurchasing their companies. This mechanism of CIRP was absent under the previous regime, governed by the (Indian) Companies Act, 2013. During that time, in certain cases the High Courts granted a few weeks’ of time to the promoters to settle with the creditor(s), failing which notification of winding up was published and the official liquidator took charge to liquidate the assets of the company.

The IBC stipulates a more mechanical approach, leaving little discretion with the learned judges of the National Company Law Tribunal (“NCLT”), which is the adjudicating authority under the IBC. The practitioners of the earlier company courts would agree that during the earlier regime it was expected from a creditor to show, in addition to a default of a similar threshold, that the corporate debtor is also unviable as a business. The courts went through the past balance sheets, read auditor’s reports while quoting them in judgments, and frequently observed in courtrooms that businesses give employment, and viable businesses cannot be liquidated just because of a default.

Since the advent of the IBC, the focus changed, and for a reason – the “CIRP”. Who will buy an unviable business during a CIRP? No one. What will then a CIRP achieve? Nothing.

The “business viability/un-viability” test was perhaps therefore never propagated in the IBC. Resultantly, a default above the threshold is enough, by itself, to trigger a CIRP, with all its consequences under the IBC. What the IBC also doesn’t consider is – the reason for such default.

Time has come for us to realise that unviable businesses anyway fail the CIRP. The reports published by the Insolvency and Bankruptcy Board of India evidence that four out of every five CIRPs are not able to find a resolution anyway. Eventually, such unviable companies are thrown into liquidation. No one wins.

We should, therefore, think of a course correction, and to save numerous Indian businesses that would otherwise land up in CIRPs because defaults are now imminent – and more painful – without any fault of the promoters. We need to acknowledge, with evidence now, that each default does not indicate a fault of the promoters, and survival of the businesses of all sizes is vital for the survival of the economy. The IBC and NCLTs also have a much larger economic and functional role, beyond facilitating the buying and selling of the businesses and assets or enforcing settlements by promoters under fear of CIRPs.

We, therefore, feel that the “reason for the default” should, in some way at-least, form part of the judicial consideration while admitting cases under the IBC. Viability of the business should form another vital consideration, even if the focus is on CIRP. The thresholds also should be raised much above INR 1,00,000/-, which we note is a work in progress anyway.

Let’s save our businesses. It takes years to create each viable business. The above-suggested actions may not be exhaustive. Our hon’ble judges also have always found innovative solutions, such as reverse CIRP, when the situation demands. It is now time for the law also to consider that exceptions (habitual defaulters) are not the rule.

Force Majeure and Coronavirus: Frequently Asked Questions

Part 1: Force Majeure and Suspension/Termination of Contracts

Coronavirus (COVID-19) is turning out to be a twin fold pandemic – that started with affecting public health and soon spread throughout the economy. Sudden global shutdown and travel restrictions have brought the economy to a screeching halt before most of us could even comprehend the real impact. Many businesses are still at a loss and are only doing guesswork regarding the magnitude of potential losses and recalibration needed for the businesses to survive this time, and remain viable.

Resultantly, certain harsh realities stare at us, and certain brutal questions are to be answered. With specific reference to Indian laws, we have attempted to answer some of these questions which businesses are asking concerning the possibility to suspend, extend or cancel their contractual obligations and their ability to reduce workforce and other recurring costs and liabilities.

You are reading Part 1 of our series on “Force Majeure and Covid-19: Frequently Asked Questions”. In the next part, to be published on March 20, 2020, we would discuss the possibility of reduction in workforce and wage bills.

Question:    What is a force majeure clause and how does it help the contracting parties?
Answer:       Force majeure is commonly defined as an unforeseen irresistible force, such as an act of God or war. Performance of a contract by a party facing a force majeure situation may be impossible. Recognising this, most contracts include a force majeure clause, which permits a party, when facing a force majeure situation, to temporarily suspend its performance under the contract.

A suspension under a contract, in accordance with its force majeure clause, entitles the party suspending it to be exempted from performing its obligations under the contract. Accordingly, during the period of suspension, such party is not held liable for breach of its contractual obligations. The contract springs back to life and operation once the force majeure situation subsides. The contracts usually also provide for the termination, if the force majeure situation continues beyond a specific number of days.

 

Question: Is the outbreak of COVID-19 a force majeure situation?
Answer:       Force majeure clauses are a contractual feature. Indian laws do not define “force majeure”, from the perspective of contract laws.

The answer, therefore, lies in answer to the question – what are the identified force majeure situations in your particular contract? Most contracts illustrate various situations as “force majeure events”. Some contracts use words like “epidemic”, “Government order” (of shutdown) and “any other situation making the conduct of business impossible” as examples of force majeure situations. COVID-19 would easily qualify as a force majeure event in such cases.

On the other hand, some contracts give a more restrictive definition of force majeure, limiting it to physical damage to the business premises or change in law or policy.

As force majeure clauses permit contractual non-performance, they are likely to be given a narrow interpretation by the courts, when scrutinized.

Accordingly, to answer, the outbreak of COVID-19 does not automatically become a force majeure situation, and its classification as such largely depends on the language of your specific contract(s).

Question:    If COVID-19 qualifies as a force majeure situation in my contract, am I exempt from its performance?
Answer: Your chances of performance exemption are good, but not automatic. Even if COVID-19 can comfortably be classified as a force majeure situation in your contract, you must remember that:

Your performance is not suspended automatically: You would most likely need to issue a written notice to the other party, as specified in your force majeure clause, invoking the clause and notifying suspension of your obligations. Some contracts also require a party giving a force majeure notice to give a plan to mitigate the loss caused to the other party. Therefore, read your contract and follow what it prescribes.

Force majeure should affect your performance: The performance is also not suspended just because a force majeure situation has arisen unless it significantly affects your performance capabilities. A party invoking a force majeure clause should, therefore, be prepared to demonstrate as to how the occurrence of a force majeure situation has made performance by such party “impossible”. The common legal understanding is that a mere occurrence of a force majeure situation, without a real impact on contractual performance capabilities of such party, would not entitle it to suspend its performance under the contract. As lawyers, we see that some of the parties would face this challenge if their counterparties decide to legally oppose the suspension.

Question: If COVID-19 cannot be a force majeure situation in my contract or if my contract does not have a force majeure clause, what recourse do I have?
Answer:   It is still not ending of the road for you. Indian Contract Act, 1872 enshrines the doctrine of frustration of contracts, which means that a contract would become void if its performance is rendered impossible or unlawful after the contract has been made. Void contracts are unenforceable, the result of which, in layman terms, is that such contracts cannot render a party liable for their non-performance.

Similar to force majeure, the frustration of a contract would also need a party claiming so to demonstrate as to how the occurrence of a situation (COVID-19, being the case in point) has made performance by such party “impossible” or “unlawful”.

Please however note that, unlike force majeure, the frustration of a contract renders it void with immediate effect, and the law does not provide for a suspension of such a contract. Of course, if one party claims “frustration of the contract”, and then both the parties are willing to suspend the contract, they can contractually agree to a suspension. In economic difficult times, new contracts are also hard to come by, so the suspension is a real business possibility following frustration. The suspension, however, cannot be enforced in absence of a contractual stipulation (e.g. force majeure) or with the consent of the contracting parties.

Question:    While invoking force majeure clause, can we propose reduced/alternative performance?
Answer: Indian contract law requires that a party shall do everything within its control to mitigate the loss to the other party. Therefore, a party can propose reduced/alternative performance during a force majeure period. Such reduced/alternative performance may however not be enforced upon the other party unless your force majeure clause so provides. If the other party does not agree to such reduced/alternative performance (consider cases where insufficient raw material supply would make the running of the plant itself commercially untenable), one can revert to full suspension of performance.

Each case should, however, be assessed carefully, before reduced/alternative performance is proposed. Force majeure, when available, is a contractually enforceable suspension right. A unilateral amendment is ordinarily never enforceable. In cases where the contractual relationships are complex, a party needs to assess whether a proposal for reduced/alternative performance would give an opportunity to the other party to deny the applicability of force majeure clause itself.

Conclusion:

Force majeure and frustration of contracts are contractually and legally viable tools that provide a real possibility to the businesses to deal with the current situation. Case to case assessment is however needed before implementation of these options.

Trade Marks, Designs & Copyright: IP Review

Welcome to our Annual Review of developments relating to trade marks, copyright and designs during 2019. We have selected a number of the reports that we have published over the course of the last 12 months, commenting on issues ranging from the latest guidance on the boundaries of trade marks and designs through to a number of interesting questions on copyright protection in the light of developing technology and business models. This year’s Review mentions a couple of cases in which we acted, including in a website blocking action for Nintendo in relation to sites selling devices seeking to circumvent encryption measures, and an important case for Sky in the European Court of Justice relating to trade marks.

We also include a brief update on the Brexit position. Now that the Withdrawal Agreement has been ratified and the UK has left the EU, we are in the transition period. During this period, which will end on 31 December 2020 (unless it is extended, albeit the UK Government has said this will not happen), the status quo will be preserved. There will be no change in how IP rights will be protected and enforced during the transition period and, more specifically, EU Trade Marks and Designs will continue during the transition period to extend to the UK. As part of our Brexit preparations, we have set up Mishcon de Reya IP B.V., a trade mark practice based in The Netherlands. Mishcon de Reya IP B.V. is a wholly owned subsidiary of Mishcon de Reya LLP and will allow us to ensure continued representation in relation to EU Trade Mark and Design matters before the EUIPO following the end of the transition period. We will continue to update you on Brexit developments throughout the year.

Click here to view the pdf version of our Review.

We hope you enjoy reading the Annual Review. Please get in touch if you have comments or queries on any of the topics raised.

Trade Marks

Compared to previous years, trade mark law and practice in 2019 focussed to a much lesser extent on questions of infringement and enforcement. Instead, the key cases raised questions relating to clarity and precision of trade mark specifications (and whether this can be a ground of invalidity of a registered mark), and alleged bad faith during the trade mark application process. […read more]

Copyright

In a continuing trend, 2019 saw the CJEU issue a series of decisions following referrals from Member State national courts on various issues under the Copyright Directive and related Directives. This looks set to continue in 2020 with the CJEU due to hear more copyright referrals. […read more]

Design

Alongside an important referral to the CJEU relating to ‘first disclosure’ for Unregistered Community Designs, the implications of the Supreme Court’s Trunki decision continue to be felt in the UK Courts. […read more]

Brexit

The UK left the EU on 31 January 2020.  The EU and UK reached a revised Withdrawal Agreement which includes a transition period ending on 31 December 2020.  During the transition period, the status quo continues to apply in relation to IP rights, with EU trade marks and designs continuing to extend to the UK. […read more]

Other developments

Other interesting developments over the last year relate to competition law considerations in relation to brands and online marketplaces.

Alternative Investment Funds in Cyprus

Cyprus in the last few years is establishing itself as one of the top investment fund centers in Europe.

The Fund management industry is fast becoming one of the most promising sectors of Cyprus economy. The volume of funds and assets under management have shown huge increase, as assets under management have more than tripled from €2.1 billion in 2012 to €6.8 billion in June 2019.  Assets under management are expected to reach €20 billion in the next five years.

What is an Alternative Investment Fund or AIF in short?

Alternative Investment fund is joint investment agreement raising capital from a number of investors with a view to investing it in line with an investment policy for the benefit of the involved investors.

Legal framework.

Alternative Investment Funds legislation has aligned Cyprus legal and regulatory framework with the European directives on asset management enhancing transparency and investor protection.

Cyprus has introduced a new law offering more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus AIFs. In addition, new rules shape the regulation on the role and responsibilities of their directors, custodians but also external managers.

AIFs that are established under domestic Cyprus fund legislation can be sold on a private placement basis or marketed to professional investors across the EU under the AIFMD passport.

An AIF can take the following legal forms and may be established with limited or unlimited duration:

  • Fixed Capital Investment Company – FCIC
  • Variable Capital Investment Company – VCIC
  •  Limited Partnership – LP
  • Common Fund – CF

A Variable Capital Investment Company (VCIC) and Fixed Capital Investment Company (FCIC) may be set-up as self-managed, or it may be externally managed. A Limited Partnership (LP) and Common Fund (CF) must always appoint an external manager.

Types of Investors.

Professional.

A professional investor is the person who has the experience and expertise to make his/her own investment decisions and assess the risks involved. The investor must also comply with the criteria prescribed in the Markets in Financial Instruments Directive.

Well-informed.

When a person is not considered a professional investor confirming in writing that he is a qualified investor aware of the risks involved with an investment in the relevant AIF. Also, a Well-informed investor has to make an investment of a minimum €125,000 or has been evaluated by a licensed bank, or an authorised investment firm or an authorised Management Company that he has the experience and knowledge in evaluating an investment opportunity.

Retail.

Any investor who not considered either professional or well-informed investor.

Types of AIF’s. There are two different types of AIF’s.

AIF with unlimited number of persons.

  • May be marketed to “retail”, or “well-informed” and/or “professional investors”
  • Freely transferable investor shares
  • Minimum capital requirements of €125,000 or €300,000 if a self-managed fund
  • Must be appointed to a global custodian
  • Can be listed on stock exchange, and AIFs marketed to retail investors can be traded
  • Depending on the investor type and the overall investment policy may fall under certain investment restrictions

AIF with limited number of persons.

  • May be marketed only to “well-informed” and/or “professional investors”
  • Cannot exceed total number of 75 investors / unit holders
  • Freely transferable investor shares, with the condition that their transfer does not result in the AIF having more than 75 investors
  • May not be required to appoint a licensed manager or a custodian in some cases
  • Assets under management do not exceed the AIFMD thresholds of €100 million (including leverage) or €500 million (5-year lock-up period without leverage)

Tax advantages of AIF in Cyprus.

  • Notional Interest Deduction (NID) for new equity may reduce taxable base for interest received by up to 80% (for company-type funds) reducing the effective tax on interest to 2.5%Tax resident funds are eligible to all benefits under a double tax treaty or the EU Directives
  • Services provided by the Investment Manager of fund are not subject to VAT
  • No withholding tax on any type of payments to non-residents
  • No subscription tax on net assets of a fund
  • Extensive network of Double Tax Treaties in place with more than 60 countries
  • Dividends received, capital gains arising from sale of property abroad, capital gains from sale of shares of foreign property companies are excluded from tax

Other advantages of AIF in Cyprus.

  • Easy to set-up, cost-efficient management and operations
  • A framework fully in line with EU directives
  • Full transparency through annual audited reports to CySEC and investors (That includes financial statements, borrowing information, acquiring portfolio information and Net Asset Value)
  • Supervised by a competent and accessible regulatory authority
  • No restrictions imposed by the Regulator on type of investments
  • Can be self-managed – subject to the approval of the Regulator
  • Can be set-up as umbrella funds with multiple compartments
  • Can be listed on Cyprus Stock Exchange and other recognised EU stock exchanges ( in case the number of investors is not limited)

Amendments to Tax Code: Azerbaijan

Law of the Republic of Azerbaijan “on Amendments to the Tax Code of the Republic of Azerbaijan” was approved by the President of the Republic of Azerbaijan on 29 November 2019. These amendments become effective from January 1st, 2020.

The amendments concerns the following matters:

  • E-tax invoice cancellation and application of various types of electronic invoices depending on the nature of the transaction;
  • Application of a single approach to VAT calculation and payment (cash method);
  • Abolition of simplified tax on building;
  • False Transactions and Potentially Dangerous Taxpayer;
  • Changes on excise rates;
  • New tax exemptions;
  • Control of installation of POS-terminals and introduction of new generation cash registers;
  • Improvements in the simplified tax payment;
  • Centralized tax registration;
  • Taxation by state-owned subsidies from residential and non-residential areas;
  • Reporting on transnational group of companies;
  • Carrying out of joint inspections with tax authorities of other state as regulated by international treaties;
  • Editing and refining.

General provisions and new concepts

The following new concepts were added to the Tax Code:

Non-Commodity Transaction – is a transaction disclosed in the course of tax control, concluded for the purpose of concealing another transaction and generating profit without the provision of goods, works and services;

Risky Taxpayer – means a taxpayer regarding whom there is a decision of the relevant executive authority (body) and who meets the criteria approved by the decision of the relevant executive authority (body), as well as a taxpayer who carries out non-commodity and/or risky transactions; A taxpayer may be considered as a risky taxpayer upon respective decision of the competent body.

Transnational group of companies – a group of companies, which includes two or more companies that are residents in different countries, or a company that is resident in one country and operates through a permanent representation in another country.

New provisions (Article 16.1.4-2) to the taxpayer’s responsibilities regarding the Transnational Group of Companies will be added in the following content:

If the total income for the fiscal year of the Transnational Group of Companies exceeds the manat equivalent of 750 million euros, the enterprise, which is a member of a transnational group of companies for the purpose of automated information exchange with the competent authorities of other countries under international treaties supported by the Republic of Azerbaijan and is a resident of the Republic of Azerbaijan, submits the report to the tax authority in the form and manner specified by the relevant executive authority (body).

A tax sanction of 500 manat is applied to the taxpayer in case of failure to submit the electronic report in prescribed manner and time to the taxpayer.

Registration of taxpayers

The article 33.7 (Registration of taxpayers) will be amended in the following content:

The following taxpayers can be registered in a centralized manner by the tax authority as determined by the relevant body (body) of the relevant executive authority:

  1. Natural monopoly subjects;
  2. Enterprises with special tax regime;
  3. Taxpayers who meet one of the following requirements:

– Average number of employees 251 and above;

– The average annual residual value of fixed assets on the balance sheet exceeds AZN 5,000,000.

Persons who have been registered at the place of their taxation are then registered in the centralized order with the previous identification numbers when referring to taxpayers or enterprises with a special tax regime.

Tax registration of taxpayers and branches, representative offices or other economic entities (objects) of the special tax regime, registered in the centralized manner, shall be carried out in the aforementioned manner.

Legal entities, registered at the place of their taxation, are required to apply to the relevant tax authority for centralized registration within 15 days of commencement of activities under the special tax regime.

Centralized re-registration or de-centralization of enterprises operating under special tax regimes, commencement or termination of their activities under a special tax regime shall be made within 15 days from the date of their application to the relevant tax authority.

III. Responsibility for violation of tax legislation

Provisions about the expiration of the term for calling to account for violation of tax legislation and application of financial sanctions (Article 56) will be amended to the following content:

Except for the results of on site tax inspection conducted in accordance with the relevant decision on the conduct of tax inspection in accordance with the criminal procedure legislation, the person cannot be called to account for violation of tax legislation and no tax liabilities may arise if the period of 3 years (the period of 5 years after the relevant information from the competent authorities of foreign countries on income received abroad) had passed from the date of the tax violation.

The period specified in this article covers a period of 3 years preceding the date of the decision of the tax authority to conduct on site tax inspection, irrespective of the date of making a decision on liability in accordance with the article 49.1 of the Tax Code.

Electronic delivery notes and purchase act of goods

The provisions regarding electronic delivery notes (Article 71-1) will be amended to the following content:

In the cases established by this Code, a person providing goods, performing work and rendering services to individual entrepreneurs and legal entities shall issue an electronic invoice to them within the following terms:

– providing goods – time of delivery of goods;

– providing not pre-ordered goods – within 5 days from the date of issuance of the document confirming delivery of goods;

– performing works and rendering services – within 5 days from the date of performance of works and rendering of services.

New provisions to the electronic delivery notes (Article 71-1) will be added in the following content:

When goods (works, services) are delivered to buyer not registered as a taxpayer, he / she will be given a receipt or a check.

Tax invoices are subject to the following types of electronic invoices, depending on the nature of the operation:

on the provision of goods, works and services;

on return of goods;

according to the article 163 of the Tax Code, except for return of goods;

on transfer of goods to agent (commissioner);

provided by agent (commissioner) to buyer of goods;

on acceptance to eventual processing of goods;

according to the article 177.5 of the Tax Code.

Purchase act of goods (Article 71-2) will be added to the Tax Code:

Within 5 days from the date of purchase of goods, purchase act and electronic purchase act (the form of which is established by the relevant executive autority) shall be drawn up for goods purchased for the purpose of economic activity (excluding individual consumption) by legal entities and individuals.

In the event that an electronic purchase act issued by a taxpayer has been printed and signed by an individual not registered within the tax authority, this document shall be considered as a document confirming purchase of goods and a purchase act shall not be drawn up on paper.

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Adoption of EU Money Laundering Legislation

As a Romanian law firm, we are aware of the issues concerning money laundering not only from a professional point of view (know your client), but also from advising clients of their liabilities.  This short article is to highlight issues which may not be immediately apparent and of which clients should be aware and at the same time to draw attention to registration and other requirements required under the Law.  We urge those in the relevant fields to contact advisors for further information as required.  The penalties are not insignificant.

In July 2019 Law no. 129 (“Law”) for the prevention and combating of money laundering and terrorist financing was adopted.

The Law established the national framework for preventing and combating money laundering and terrorist financing, and includes, but is not limited to authorities, institutions and private companies and individuals who carry on business in their own name.  This article is intended to give an overview of the legislation and some guidance as to how it will affect business in Romania and that business needs to be aware of its provisions and impact.

The Law transposed the two European directives, Directive (EU) 2015/849 which amended the Regulation (EU) no. 648/2012 of the European Parliament and Directive (EU) 2016/2258 amending Directive 2011/16.

The following persons and businesses in Romania are now subject to the Law and become reporting entities.  Romanian credit institutions, and branches of foreign credit institutions; Romanian financial institutions and branches of foreign financial institutions; administrators of private pension funds in their own name and for the private pension funds that they manage.  Providers of gambling services; auditors, accounting experts and authorized accountants, auditors, persons providing tax, financial, business or accounting advice.

Public notaries, lawyers and judicial executors if they provide assistance regarding the purchase or sale of immovable property, shares or social shares or elements of the fund; trading in and administration of financial instruments, securities or other assets of clients, transactions that involve sums of money or the transfer of property.

Persons involved in the establishment or administration of bank accounts, savings or financial instruments, organizing the process of underwriting contributions necessary for the establishment functioning or administration of a company.  Those involved in the establishment, administration or management of such companies; collective investment undertakings in securities or other similar structures, as well as participating on behalf of or for their clients in any operation of a financial character or targeting immovable property; service providers for companies or trusts; real estate agents.

Finally other entities and natural persons who trade like professionals in goods and/or provide services who carry out cash transactions whose amount represents the equivalent or more in RON of ten thousand EUR regardless of whether the transaction is executed through a single operation or through several operations that have a connection between them.

It can be seen by these definitions that the provisions of the Law are wide and potentially involve nearly every aspect of commercial life.

The Directives and the Law require that matters are now approached on a risk-based approach. Countries and their competent authorities and banks will have to identify, assess, and understand the money laundering and terrorist financing risk to which they are exposed, and take the appropriate mitigation measures in accordance with the level of risk.

This will mean that these authorities can require that all relevant persons and bodies in Romania who could be involved, even without realising it in such transactions are to report any suspicious or potentially suspicious transaction.  Already several of our clients have been asked to justify certain transactions to their banks and authorities and more stringent reporting requirements will evolve over a period.

The risk-based approach is achieved, at a national level, through establishing the businesses and categories of reporting entities based on the analysis of the risk of money laundering and terrorist financing to which they are exposed and establishing administrative obligations on them in order to mitigate these risks.

The authorities also must assess the fulfilment of these obligations imposed by the measures that have been adopted and applied by the reporting entities according to their individual evaluated risks.

Romania has established its own office in relation to the prevention and combating money laundering (Oficiul Național de Prevenire și Combatere a Spălării Banilor) who will ensure the publication on its own website a summary of the national risk assessment and will transmit to the EU supervisory authorities the relevant elements of the national assessment.

In addition, the National Agency for Fiscal Administration is required to immediately send a report of suspicious transactions to the Office when applying Regulation (EC) no. 1.889 / 2005 regarding the control of cash entering or exiting the European Union and which it knows, or suspects or has reasonable reasons to suspect that the goods/funds come from the commission of offences or related to the financing of terrorism.

The reporting entities as described above have the strict obligation to report to the Office transactions in cash, whose minimum limit represents the equivalent in RON of 10,000 EUR whether in Ron or foreign currency.  Credit institutions and financial institutions defined in accordance with this law will submit online reports on external transfers to and from accounts where the minimum limit represents the equivalent in RON of EUR 15,000.

Customer awareness measures for Reporting entities now impose an obligation to keep in written or electronic format all the records applying these measures.  These can be copies of the identification documents, the verification documentation of a transaction, including information obtained through the means necessary to comply with the know your client principal imposed on businesses.  This information must be retained for a period of 5 years from the date of termination of the business relationship with the client or from the date of the transaction.

The criminal investigation bodies will communicate to the Office annually the stage of resolving the information transmitted, as well as the amount of the amounts in the accounts of the natural or legal persons for whom the blocking was ordered, as a result of the suspensions carried out or of the insurance measures ordered.

The Know your Client measures are divided, according to the law, in standard measures, simplified measures and additional measures, depending on the degree of risk of the client.  The reporting entities must apply the standard measures of Know the client in the case of entities from which they receive funds greater than the equivalent in RON of EUR 1,000.

Another change is the one related to the politically exposed persons.  Not included in this legislation are references to presidential and state councillors but now are introduced members of the governing bodies of the political parties.

The Sanctions under the legislation have also been increased.  They range between 25,000 RON to 120,000 RON in certain cases.

For legal entities, breaches of certain provisions can be sanctioned with a warning or with the fine with a maximum amount of 10% of the total incomes reported for the last fiscal period.  The sanctions can be applied to the members of the board of management and to other people who are responsible for breaking the law.

In the event that any of contraventions committed by a financial institution, other than those supervised by the National Bank of Romania, and if the breach is serious, repeated, systematic or a combination the upper limits of the fines are for legal persons with RON 5,000,000 and for individuals RON 50,000.

Each company who is liable to supply reports and notifications must designate one or more persons with responsibilities in respect of the law.  The communication of the designated person’s identity will be made to ONPCSB only in electronic format.  The obligation to appoint a person does not apply to individuals who have the status of a reporting entity.

All reporting entities whether individual or corporate should establish internal policies and rules for managing the risks of money laundering and financing terrorism.  These should include policies in respect of the following (i) know your client, (ii) rules applicable to reporting, keeping records and all documents in accordance with the law, (iii) internal controls, risk assessment and compliance management and communication,(iv) protection of employees in the process and periodic training and evaluation of employees.

Depending on the size and nature of the company it is required to have an independent audit function for the purpose of testing policies, internal rules, mechanisms and procedures and monitoring these policies, internal rules, mechanisms and procedures.

The application of the above measures imposes the obligation to keep for a period of 5 years from the date of termination of the business relationship or from the date of the transaction in hard copy/electronic format all records obtained through the application of the measures including copies of identification documents.  This can include identification information obtained electronically.

If it is necessary to extend the period of keeping the documents in order to prevent, detect or investigate money laundering or terrorist financing activities, the reporting entity is obliged to extend the period for a further period indicated by the authorities.

At the expiration of any retention period, there is an obligation to delete personal data, except when other legal provisions require the retention of the data.

All the above will impose more administration on business both small and large.  Our advice is to confront the problem now before issues arise.  Money spent now in dealing with this issue will help resolve any problems which may arise in the future.