A SUMMARY OF RECENT LEGAL DEVELOPMENTS IN EUROPE AND THE UNITED STATES
COMPILED BY MEMBERS OF THE EURO-AMERICAN LAWYERS GROUP.  DISTRIBUTED BY EALG MEMBER GROVE, JASKIEWICZ AND COBERT

IN THIS ISSUE:

AUSTRIA

    • MAIN ITEMS OF THE AUSTRIAN TAX REFORM 2005

BELGIUM

    • RECOVERING LAWYERS’ FEES FROM THE OPPOSING PARTY IN BELGIAN LAW
    • SHARE CAPITAL RULES FOR THE PRIVATE LIMITED LIABILITY COMPANY WITH SOLE
      SHAREHOLDER STRENGTHENED
    • SIMPLIFICATION OF PROCEDURE TO OBTAIN PERMITS FOR BUSINESS LOCATIONS
    • NEW RULES FOR CONSUMER SALE
    • ROYAL DECREE FINALLY IMPLEMENTING EC REGULATION 2157/2001

GERMANY

    • IN THE DANGER ZONE – THE ZONE OF INSOLVENCY – PART II, A GERMAN PERSPECTIVE

SWITZERLAND

    • AGREEMENT FOR MUTUAL ASSISTANCE IN CRIMINAL MATTERS BETWEEN SWITZERLAND AND THE EU

UNITED STATES

    • BUSH RE-ELECTION SIGNALS CONTINUATION OF STATUS QUO FOR MOST BUSINESSES, BUT SOME MAJOR CHANGES IN U.S. LAW MAY BE SOUGHT IN THE SECOND TERM ABOUT THE EURO-AMERICAN LAWYERS GROUP (EALG)

    In May 2004 the Austrian Parliament passed the laws for the tax reform 2005, which will enter into force on 1 January 2005 and provide for several new fiscal incentives for foreign investors:

1. Lower Corporate Tax

    In response to the flat tax systems of some Central and Eastern European countries participating in the enlargement of the European Community, the Austrian tax reform implements a considerable reduction of the corporate income tax lowering the current nominal rate of 34% to 25%. In the event that a fiscal year deviates from the calendar year, companies may either opt for a separate determination of taxable income as of 31 December 2004, or for proportionate consideration on a monthly basis. The simultaneous abolition of some former tax benefits, which used to reduce the effective tax burden, is not likely to dilute tax savings by significantly broadening the taxable bases. Moreover, the effective tax rate is said to level off at approximately 21 %.

2. Group Taxation

    The principal item of the tax reform 2005, however, is the newly introduced system of group taxation, laying the foundation for uncomplicated consolidation of losses and profits at the level of a group parent company. The group taxation will replace the existing affiliation-concept (“Organschaft”), requiring a complex financial, economic and organizational integration of the affiliated company with the parent company, which has often led to merely tax-driven corporate structures.

    In order to take advantage of the fiscal opportunities of the new group taxation, only a direct or indirect participation of more than 50 % in another company and a corresponding application with the fiscal authorities stating the formation of a tax group (minimum duration: 3 years) is required. Hence, any further economic or organizational integration will no longer be necessary. Within such tax group, the taxable income of any domestic group member becomes fully attributable to the group parent, meaning that even if the participation ranges below 100 % of the corporate capital of the group member, 100% of its taxable losses/profits will be consolidated at the level of the group parent. Moreover, even losses of foreign group members will be entitled to be offset against domestic profits, however, limited to the extent of the participation in the foreign group member: A 60 % participation in a foreign group company, therefore, results in a 60 % setting-off of its taxable losses, ascertained pursuant to Austrian tax law principles.

    Furthermore, accompanying measures such as further tax-deduction opportunities round off the picture: From 2005 onwards, interest for loans raised for the acquisition of domestic and foreign participation will be deductible. The same applies to the goodwill of Austrian companies, purchased in order to form a tax group, which will be deductible up to 50 % (including undisclosed reserves) over a period of 15 years.

    In summary, it can be stated that the innovations implemented by the tax reform 2005, are in all likelihood going to promote Austria’s attractiveness as business location, focusing on corporate headquarters and holding companies by taking advantage of the reduced income tax rate, and will revitalize the M&A market. It will, however, also make it appropriate to reconsider established structures as well as some repatriation of profits allocated abroad in order to benefit from the new fiscal framework.

    For further details, please contact Armin Dallmann, Partner, Dallmann & Juranek, Austria, Vienna; a.dallmann@dallmann.cc; http://www.dallmann.cc

RECOVERING LAWYERS’ FEES FROM THE OPPOSING PARTY IN BELGIAN LAW
– SUPREME COURT RULING OF 2 SEPTEMBER 2004: A REVOLUTION?

    Prior to 2 September 2004, it had been well-established case law in Belgium that “lawyers’ fees are not included in the damages awarded in the case of a contractual or extra-contractual damages claim”.

    However, in the wake of the legislative provisions introduced in various neighbouring countries (Germany, France, Great Britain, The Netherlands) and increasingly critical doctrine, the Belgian Supreme Court, by its ruling of 2 September 2004, has reversed case law: in the future lawyers’ fees will be part of the damages awarded, on condition however that the said lawyers’ fees are necessarily incurred as a result of the infringement giving rise to the damages claim.

    Excellent news for clients!

    But this raises one obvious practical problem: unlike Germany (for example), there is no established scale of charges for lawyers’ fees in Belgium. There is no immediate solution in view. Should Belgium follow the French example (new code of civil procedure); the Dutch example (legal rates and scales of charges established by the Bar Councils); or the German example (BRAGO)?

    Not so good for lawyers!

    To be continued…

    For further details, please contact Caroline De Scheemaecker, De Scheemaecker, Brussels, Belgium; caroline.descheemaecker@pi.be.

SHARE CAPITAL RULES FOR THE PRIVATE LIMITED LIABILITY COMPANY WITH SOLE SHAREHOLDER STRENGTHENED

    The rules concerning the share capital in a private limited liability company have been tightened by Law of 14 June 2004 modifying Article 213 and 223 of the Companies Code.

    As of the incorporation of a private limited liability company with sole shareholder, the capital must be paid up for at least 12.400 euro in stead of 6.200 euro previously.

    The existing private limited liability companies with a sole shareholder have one year to have their capital paid up for at least 12.400 euro. In case a private limited liability company becomes single-headed, the paid–up capital must amount to 12.400 euro within one year.

    In case the paid-up capital does not amount to 12.400 euro within one year, the sole shareholder shall be personally liable for all obligations of the company originated after the company became single-headed.

    For further details, please contact Robbie Tas, Partner, Maxius, Louvain, Belgium; robbie.tas@maxius.be; http://www.maxius.be

    The law of 13 August 2004 is replacing the law of 29 June 1975 concerning the business locations. The law provides for a simplification of the procedure to obtain the necessary permits. The purpose is amongst others to diminish the term of treatment.

    The law will enter into force by royal decree at the latest on October 5, 2005.

    For further details, please contact Robbie Tas, Partner, Maxius, Louvain, Belgium; robbie.tas@maxius.be; http://www.maxius.be

NEW RULES FOR CONSUMER SALE

    A law of 1 September 2004 concerning the consumer protection, implementing the European Directive 1999/44/EC, is creating a new protection for the consumer sale.

    The seller is liable for any lack of conformity existing at the delivery of the products and that manifests itself within two years as of the moment of delivery. The term “lack of conformity” is precisely defined in the law. Any lack of conformity that manifests itself within six months is considered to have existed at the moment of delivery.

    The claim of the consumer becomes time-barred after a period of one year as of the day the consumer has knowledge of the lack of conformity.

    For further details, please contact Jan Goedhuys, Partner, Maxius, Louvain, Belgium; jan.goedhuys@maxius.be; http://www.maxius.be

ROYAL DECREE FINALLY IMPLEMENTING EC REGULATION 2157/2001

    The royal decree of 1 September 2004 is implementing the EC regulation 2157/2001 concerning the statute of the European Company and provides a legal framework for the European Company incorporated in Belgium. A new "Book XV - The European company" is added to the Belgian Companies Code and several other Articles of the Companies Code are amended.

    Although the European Council Regulation is directly applicable, the Belgian government has nevertheless decided to incorporate the provisions into the Belgian Companies Code. Its introduction into the Belgian Company Code allows the Belgian legislator to complement the European Council Regulation which is a huge advantage since the Regulation itself does not cover all corporate aspects of an SE.

    For further details, please contact Robbie Tas, Partner, Maxius, Louvain, Belgium; robbie.tas@maxius.be, http://www.maxius.be

    As in the United States (see EALG Briefing October 2004), in Germany directors of solvent companies owe the duty to act in the best interest of the company and in the end of their shareholders. Particularly in smaller companies, where the director is also the major shareholder and where the company and the business it runs is the result of a lifetime work of the director – shareholder, this bears the serious risk of personal liability, when the company comes into the zone of danger leading to the zone of insolvency. Most directors / shareholders seek to continue hoping for better deals. But if it comes to insolvency the director may be held liable for any financial transaction made form the point of being insolvent and the official opening of insolvency proceedings.

    Directors of Limiteds ruled by the German Federal Act on Limiteds (GmbH-Gesetz) have to obey Par 64 GmbHG.

    From the moment on the first signs of crisis appear, the director has to proof weather there are material insolvency reasons by setting up a special debt and credit balance and a weekly updated cash-flow status. If the director finds a company’s over indebtedness or a lack of solvency (point of material insolvency) he has to seek for opening official insolvency proceedings as soon as possible, no matter the shareholders opinions. The only way to avoid this is to set up a plan to recover solvency which has to be proofed by an external expert, who has found it reasonable.

    From the moment of material insolvency on the director generally spoken is not allowed to make payments to anybody and has to collect every payment to the company in the best interest of the company’s creditors.

    If he does not, the trustee in bankruptcy can sue the director personally for repayment of any financial transaction made during that time.

    For further details, please contact Schröder & Partner GbR, Hamburg, Kiel and Niebüll, Germany, and ask for Wolfgang E. Schröder, schroeder@schroederlaw.de; Stefan Kieback, kieback@schroederlaw.de; Sabine Axmann-Bruckmüller, axmann-bru@schroederlaw.de; or Andreas Schlisske, schlisske@schroederlaw.de; http://www.schroederlaw.de

AGREEMENT FOR MUTUAL ASSISTANCE IN CRIMINAL MATTERS BETWEEN SWITZERLAND AND THE EU

    On May 25th 2004 the Swiss Confederation and the European Community and its members States have concluded an agreement extending administrative and mutual legal assistance in criminal matters, so as to combat the illegal activities mentioned in the treaty.

    The treaty is applicable to the administrative and criminal prevention, detection, investigation, prosecution and repression of fraud and any other illegal activity to the detriment of the contracting parties’ respective financial interests concerning:

    • Trade in goods contrary to customs and agricultural legislations;

    • Trade evading value added tax or excise duties;

    • The misuse of funds allowed from the States as subventions et alii;

    • Tax frauds;

    • Money laundering.

    The crime must have a worth of more than 25.000 Euro and the treaty is applicable for crimes committed at least 6 months after the signing of the treaty.

    The procedure is the same as for internal crimes (seizure, forfeiture etc.) and representatives of the requesting State can assist the Swiss inquiring authorities.

    This agreement represents a very important improvement of the bilateral cooperation between EU and Switzerland.

    This treaty must be approved by the Swiss Parliament.  Debates are scheduled for December 2004 and, in case of a popular referendum (the deadline for which is March 2005), by the majority of the Swiss citizens, probably in June or September 2005.

    Additional information regarding the treaty may be found on the Swiss Federal Department of Finance website at: http://www.efd.admin.ch

    For additional details, please contact Dr. Sergio Salvioni, Partner, Studio Legale Salvioni E Maccanetti, Locarno, Switzerland; ssalvioni@nikko.ch

    Speculation abounds in the United States as to what major policy changes will occur over the next four years now that President Bush has been re-elected to a second term.  The President's second term agenda will not be formally introduced until after Inaugural Day this January.  Prior to then, key Cabinet changes will be made in the Administration so as to best position the Administration to seek its desired major policy changes.

    While specific legislative proposals are currently unknown, President Bush has claimed a re-election "mandate" for his policies.  The Republican Party has also increased its control of both branches of the United States Congress.  President Bush has stated that he has "earned political capital" and that he "intends to spend it." Both the White House and Congressional leaders are thus currently planning for several major legislative policy initiatives early next year.

    Two major initiatives - tort reform and tax reform - are widely perceived as being high on the agendas of both the President and Congress.  Long desired by business groups, they are considered to have their best chances in years of becoming law in 2005.

    With respect to tort reform, many businesses in the United States claim that unmerited lawsuits by "plaintiff's lawyers" and the fear of high jury awards unnecessarily increase the cost of doing business and impede business innovation.  In recent years business trade groups and Congressional leaders have sought to place limits on when and how certain types of lawsuits can be brought against businesses.  They have also sought to place limits on the maximum amount of damages can be awarded to a plaintiff in such lawsuits.

    Although many studies controvert the claim that U.S. businesses experience excessive jury awards and frivolous lawsuits, limiting such litigation was a key campaign issue for President Bush during the recent election.  The President is thus expected to push two major tort reform issues in the next Congress.  The first, and most likely to pass, would be class action reform.  The current Congress failed to enact legislation which would place jurisdiction of class actions in federal courts.  Advocates of class action reform argue that federal courts are less likely to certify such lawsuits as opposed to their state counterparts.

    The second area of possible tort reform would place limitations on monetary awards that could be made for medical liability claims.  Advocates of such limitations argue that they are necessary to control escalating health care and insurance costs in the United States.  Enactment of legislation capping monetary awards in such litigation is considered less likely.

    Tax reform is the second major pro-business initiative expected from the Administration in its second term.  The Administration is likely to seek legislation that will make permanent the major tax cuts enacted into law during its first term.  The Administration has also stated that it is exploring "simplification" of the United States tax code.  One proposal apparently being discussed is a move from an income tax system to a consumption tax system similar to the VAT.  While many tax experts believe that "simplification" of the U.S. tax code is desirable, there will be significant difficulties in enacting such reform, both from a fiscal perspective in financing government services, as well as reducing the U.S. budget deficit, and from the political perspective of interest groups who will oppose any changes to current laws granting them a favoured tax status.

    Since President Bush will remain in office, most businesses should not see significant changes in U.S. Government policy in other areas.  The President is expected to remain committed to pursuing a market-driven free trade policy on such issues as foreign job outsourcing and negotiation of free trade agreements.  The President will be expected to push hard for enactment of the Central American Free Trade Agreement (CAFTA).  Looking further out, the Administration is expected to pursue significant efforts to negotiate a Free Trade Agreement of the Americas (FTAA), a hemispheric free trade agreement from the artic to Argentina, although obstacles to such an agreement abound.

    The Administration is also expected to continue to pursue its aggressive approach to Homeland Security.  In addition to pressing for continuation of the PATRIOT Act, this means that visitors to the United States can expect increased security procedures and visa restrictions.  Importers and exporters can also expect increased inspections of their shipments and regulation of the security of their operations.  This may include mandatory, as opposed to voluntary, security procedures and processes at facilities that are used to manufacture, prepare, and ship goods to and from the United States.

    In the areas of labor, environmental, competition, and safety law, the Bush Administration has been perceived as being pro-business.  The current Administration has engaged in fewer regulatory initiatives and enforcement efforts in these areas than its predecessor, the Clinton Administration.  Instead, the Bush Administration has generally attempted to either relieve perceived unnecessary regulatory burdens on businesses or to work with affected industry groups in an effort to achieve voluntary compliance of existing regulatory standards.

    Finally, one controversial area of the law that will probably not change is the Sarbanes-Oxley Act.  While many businesses complain that the Act imposes unnecessary costs, significant changes to the law are not expected to be a priority issue for the Bush Administration or Congressional leaders next year.

    For additional details, contact Andrew M. Danas, Partner, Grove, Jaskiewicz and Cobert, Washington, D.C. 20036; adanas@gjcobert.com; http://www.gjcobert.com.

    The Euro-American Lawyers Group (EALG) is an association of Law Firms founded in 1985.  The members of the EALG believe that they can best serve their clients' interests overseas by co-operating with like-minded firms who have local knowledge of, and immediate access to, the legal system operating in their own jurisdiction.

    EALG's philosophy is that local representation is vital in today's dynamic market where both legislation and commercial practice is changing regularly at both the national and international levels.

    The EALG has steadily developed since its inception in 1985.  It now comprises twenty seven (27) law firms working in 20 different jurisdictions.  Each member has their own network of local contacts.

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    EALG BRIEFING is a free monthly e-mail publication of the Euro-American Lawyers Group (EALG) and is distributed by EALG member law firms.  The articles contained in EALG BRIEFING are a brief overview of recent legal developments in Europe and the United States.  The articles do not constitute legal opinions or advice and should not be regarded or relied upon as such.  By using this publication you agree to the Terms and Conditions of the EALG, which may be viewed on our website at http://www.ealg.com.  If you have colleagues who may wish to subscribe to EALG BRIEFING, please feel free to pass along this e-mail to them.  To subscribe and be placed on our distribution list, they may send an e-mail to adanas@gjcobert.com or to the EALG contact in their jurisdiction.  To unsubscribe, please send an e-mail to the same address(es).