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Tag Archives: Covid-19

Covid-19 Support to employment. Dividend distributions, Temporary layoffs- benefits and Tax havens.

Through Royal Decree-Law 18/2020, of May 12, on social measures in defense of employment (Official State Gazette of 05 May 2020) that extends the coverage of (Temporary) Lay-off Programs (Expedientes de Regulación (Temporal) de Empleo (“ER(T)Es”) temporary-layoffs instruments with which many employers try to mitigate the impact of confinement measures derived from the Covid-19 health emergency, until June 30, 2020. Along with employment measures, article 5 sets the following:

(A) Companies and entities with tax domicile in countries or territories classified as tax havens under current regulations do not qualify for the temporary lay-off programs.

As a preliminary comment, it would be surprising to find any company or entity of these countries or territories would have directly a permanent establishment or workplace in Spain, and should there be any, even with a PE, this would be a measure against these territories or jurisdictions. Another issue is to specifically list which territories fall under the definition of “tax havens under current regulations” which has undergone a complex, erratic process of legal changes from Royal Decree 1080/1991 which may involve some jurisdictions with non-infrequent transactions with Spain. State Tax Agency website includes a list of tax havens.

(B) Companies and other legal entities that as of February 29, 2020 have at least 50 employees who use of ER(T)Es receiving public subsidies or aids for this purpose are prohibited to declare dividends corresponding to the tax year in which these ERTEs are applied (unless they pay the social security contributions by application of ERTEs exemption). In order not to cause companies to trigger the shareholder’s right of withdrawal applicable when certain minimum amount of dividends is not distributed (pursuant to Article 348 bis of the Companies Act) the financial year of use of ER(T)Es will not be taken into account in the corresponding computation.

As urgent comments: it is difficult to find legal entities other than companies distributing dividends; one cannot think of a legal entity other than capital companies allowed to distribute “dividends”. This provision does not indicate when these “frozen” profits can be distributed, or what kind of reserve or account they ought to be booked. Besides, this prohibition does not include distribution of accumulated free reserves, nor operations of redemption of shares or similar. We trust that our legislators will soon clarify these issues.

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Spanish new Revised Consolidated Text of Insolvency Act (Royal Decree-Legislative 1/2020, of May 5th).

The deep economic crisis brought up by the outbreak of the Covid-19 health crisis, just few days after the extraordinary measures adopted through Royal Decree-Law 16/2020 of April 28, has urged Spanish legislator to speed up further legal reforms, and finally, has passed the Royal Legislative Decree 1/2020, of May 5, enacting the Revised text of Insolvency Act (published in the Spanish Official State Gazette of 07 May 2020), pursuant to the Parliament’s mandate of May 2015 to recast, harmonize, clarify and order insolvency legislation, confirmed in February 2019.

It comes into force, generally, on September 1st, 2020, although it sets a lengthy transitional regime on certain areas, many of which are subject to regulatory development. The new consolidated text has a total of 752 articles (previously 242) divided into three “books”:

  1. Insolvency-Bankruptcy.
  2. Pre-bankruptcy law.
  3. International insolvency rules.

With this, in one single consolidated text, the provisions of Bankruptcy Law 22/2003, of July 9, and the 28 legislative amendments since it came into force have been reordered and clarified: solving inconsistencies, interpretive problems and systematic alteration that had been generating legal uncertainty in such crucial matter.

It also aims to lay the foundations for the transposition of Directive (EU) 2019/1023, of the European Parliament and of the Council, of June 20, 2019, on preventive restructuring frameworks, on the discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency, and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency). This Directive provides alert mechanisms on insolvency risks, comprehensive rules for preventive debt restructuring, simplifies bankruptcy rules, improves efficiency and costs rationalization, and more possibilities for debt relief.

The unquestionable opportunity of this legal instrument, needed to relieve the effects of the Covid-19 health crisis, which has quickly turned to a profound economic crisis, recession worldwide. We hope that it is not too late and the necessary regulatory development it requires is provided as a matter of urgency that is required.

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Royal Decree-Law 15/2020 dated 21 April setting urgent complementary measures to support economy and employment (Official State Gazette April 22 de, 2020) NON-RESIDENTIAL LEASES.

With this Royal Decree-Law Spanish Government offers instruments to mitigate the impact of the Covid-19 crisis in the drastic fall in income in small and medium-sized enterprises (SME) and professionals that were either forced to suspend their activity or indirectly affected by their clients or suppliers in these circumstances.

The aim is to provide a legal instrument to moderate or reduce rental costs from non-residential urban leases of premises used by SME, self-employed and professionals in their business or professional activities, (retail stores, warehouses, offices, etc.) regulated under the current Law 29/1994 of November 24 on urban leases(“ULL”) or industry leases – it should be noted that leases regulated by the previous urban lease legislation are left out.

This Royal Decree bases its solutions on the “rebus sic stantibus” jurisprudential doctrine (to a certain extent equivalent to the hardship of Anglo-Saxon Law), which allows to moderate contractual obligations provided that certain requisites are fulfilled by the cause of the imbalance: unforeseeable and inevitable risk, disproportionate onerousness of the obligation due and contractual good faith, it all to reduce operating costs of SME and the self-employed, let’s see:

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Compliance in COVID-19 times

Spanish legal system, like that of neighboring countries, has been raising the standards of legal compliance of companies and organizations (very clearly with the 2015 reform of our Criminal Code introducing the new art. 31 bis) with greater requirements for the prevention of law non-compliance -not only to avoid criminal punishment- and reinforced sanction mechanisms-, in order to reduce the risks derived from non-compliance, although these new requirements are being adopted unevenly and the COVID-19 outbreak burst into this context.

These difficult days of sharp crisis derived from the governmental measures adopted following the state of emergency decreed on March 14, 2020, are a test on the strength of administrative and management structure of companies and organizations.

These are moments of urgent and difficult decisions that expose managers to increased risk in many aspects, also the risk of regulatory breach by making decisions or acting in violation of laws in different areas, including particularly, unduly applying rules or legal benefits in the exceptional situation.

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COVID-19 Tax measures: Royal Decree-Law 14/2020, dated April 14 that extends the term of filing and payment of certain tax returns and self-assessments.

This Royal Decree-Law extends the term for filing and payment tax returns and self-assessments whose deadline falls between April 15 2020 and until May 50,2020 until the same day May 05, 2020 (May 15, 2020 if the form of payment is by direct debit).

Filings regulated in Regulation (EU) No. 952/2013 of the European Parliament and of the Council, of October 9, 2013, of the EU customs code and implementing provisions are excepted.

Who can qualify for this extension? Taxpayers whose sales in 2019 does not exceed €600,000, except for:

  • Corporation Tax Groups in special tax consolidation regime regardless of their net sales.
  • VAT Groups under special VAT regime (Chapter IX Title IX of Law 37/1992) regardless of their volume of operations.
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Logistics Contracts amid Covid-19 crisis: Force majeure? "Rebus sic stantibus"?

The provision of logistics services is experiencing intense days. Trade and distribution in recent decades has intensified and globalized, thanks to logistics, as a comprehensive pivotal service around which the supply chain functions, that includes various types of activities also in legal terms, and our law treats as one of the so-called atypical, non-standard contracts sine does not provide for a comprehensive regulation of a logistics contract” as such (unlike sale and purchase, loan, or lease contracts).

As a “complex” contract or set of contracts, of diverse legal nature, it comprises several contracts, mainly, warehousing or deposit, transport services, packaging, stock management, quality control, testing, order preparation, customs procedures, reverse logistics, etc.

The current COVID-19 crisis requires maximizing efficiency in processes, which is precisely the raison d’être of logistics which now contributes to sustaining the life of our country at such critical moments. So now the logistics sector is affected, on the one side by the restrictions to which its clients and / or suppliers are subjected (eg “non-essential activities” are temporarily banned or put on hold) and on the other, by the sudden increase in workload, e.g. managing essential supplies, or even under requisition, with sudden and profound changes.

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