Doing Business in Doing Business in Europe Europe Legal rules, and Legal rules, and traps for the unwary traps for the unwary
Dec 16, 2015
Doing Business in EuropeDoing Business in EuropeDoing Business in EuropeDoing Business in Europe
Legal rules, and traps for Legal rules, and traps for the unwarythe unwary
Legal rules, and traps for Legal rules, and traps for the unwarythe unwary
Osborne ClarkeOsborne ClarkeOsborne ClarkeOsborne Clarke
Pan European Law FirmPan European Law Firm
Providing a complete range of legal servicesProviding a complete range of legal services
Technology industry focusTechnology industry focus
Recognised as European Technology Law Recognised as European Technology Law Firm of the Year 2001 and 2002 by the Firm of the Year 2001 and 2002 by the European Technology ForumEuropean Technology Forum
Office in Palo Alto – European legal advice in Office in Palo Alto – European legal advice in Californian timeCalifornian time
European Law?European Law?European Law?European Law?
Not quiteNot quite
European Treaties, Regulations and European Treaties, Regulations and Directives are in place but….Directives are in place but….
Advice is still required on a country Advice is still required on a country by country basisby country basis
Do you need a presence in Do you need a presence in Europe?Europe?
Do you need a presence in Do you need a presence in Europe?Europe?
You could use existing channels – You could use existing channels – can be more can be more cost effective to employ an agent or distributor with cost effective to employ an agent or distributor with local knowledge local knowledge
Types of relationship which are dealt with very Types of relationship which are dealt with very differently from a legal perspective:differently from a legal perspective:
Agent - generates leads or enters into agreement with Agent - generates leads or enters into agreement with customer on behalf of the suppliercustomer on behalf of the supplier
Distributor – is an independent party which buys your Distributor – is an independent party which buys your product and sells them on its own accountproduct and sells them on its own account
Distributor is usually preferred choice as you can to Distributor is usually preferred choice as you can to a certain extent leave them to ita certain extent leave them to it
Why use an Agent?Why use an Agent?Why use an Agent?Why use an Agent?
Greater control over them. You also have Greater control over them. You also have more choice over who they sell to and more choice over who they sell to and prices they sell at (important in some prices they sell at (important in some industries e.g. fashion) – Unable to industries e.g. fashion) – Unable to impose such controls in distribution impose such controls in distribution agreements without falling foul of anti-agreements without falling foul of anti-trust lawtrust law
Agents are usually paid less commissionAgents are usually paid less commission
Agency AgreementsAgency AgreementsAgency AgreementsAgency Agreements
Key Aspects:Key Aspects:
ExclusivityExclusivity
TerritoryTerritory
TermTerm
Agent’s authority Agent’s authority
Commission/payment termsCommission/payment terms
Consequences of terminationConsequences of termination
Commercial Agents Directive Commercial Agents Directive Commercial Agents Directive Commercial Agents Directive This governs agreements between suppliers This governs agreements between suppliers
and agents across Europe and gives a host of and agents across Europe and gives a host of rights and protection provisions to agents rights and protection provisions to agents including:including:
The right to have a written agreementThe right to have a written agreement
The right to a reasonable commission if nothing has The right to a reasonable commission if nothing has been agreedbeen agreed
The supplier has an obligation to act dutifully and in The supplier has an obligation to act dutifully and in good faith good faith
Non-compete provisions - only on a geographic basis Non-compete provisions - only on a geographic basis and must be less than 2 years and must be less than 2 years
Commercial Agents DirectiveCommercial Agents DirectiveCommercial Agents DirectiveCommercial Agents Directive
Notice periods for termination: Must give at least Notice periods for termination: Must give at least one weeks notice per year – up to three yearsone weeks notice per year – up to three years
Compensation / indemnity payable to agent in Compensation / indemnity payable to agent in event of termination except where the agent is in event of termination except where the agent is in breach – dealt with differently across Europebreach – dealt with differently across Europe
Compensation based on actual losses suffered Compensation based on actual losses suffered and includes loss of future earnings (UK)and includes loss of future earnings (UK)
Indemnity usually based on how much the agent Indemnity usually based on how much the agent has been paid over the last few years (Germany)has been paid over the last few years (Germany)
Commercial Agents DirectiveCommercial Agents DirectiveCommercial Agents DirectiveCommercial Agents Directive
Each member state has implemented this Each member state has implemented this differently (e.g. in the UK it is only relevant differently (e.g. in the UK it is only relevant to agreements governing the sale of to agreements governing the sale of products whereas France and Germany products whereas France and Germany extend it to products and services)extend it to products and services)
Unable to contract out – even if agreement Unable to contract out – even if agreement is subject to Californian law as was shown is subject to Californian law as was shown in Ingman GB Ltd v Eaton Leonard in Ingman GB Ltd v Eaton Leonard Technologies Inc. (Nov 2000) – freedom of Technologies Inc. (Nov 2000) – freedom of establishment and undistorted competitionestablishment and undistorted competition
Distribution AgreementsDistribution AgreementsDistribution AgreementsDistribution Agreements
No EC Directive governing Distribution No EC Directive governing Distribution agreementsagreements
Many countries in continental Europe Many countries in continental Europe have similar provisions to those in the have similar provisions to those in the Commercial Agents DirectiveCommercial Agents Directive
English law provides very little protection English law provides very little protection to distributors meaning it is possible to to distributors meaning it is possible to terminate on short notice with no terminate on short notice with no compensation payable compensation payable
Distribution AgreementsDistribution AgreementsDistribution AgreementsDistribution AgreementsKey aspects:Key aspects:
ExclusivityExclusivity
TerritoryTerritory
TermTerm
Conditions of supply/delivery Conditions of supply/delivery
Order terms and prices Order terms and prices
Local legal requirements Local legal requirements
Defective product liability/warranties Defective product liability/warranties
Confidentiality provisions Confidentiality provisions
Consequences of terminationConsequences of termination
Anti-trust LawAnti-trust LawAnti-trust LawAnti-trust Law Applicable to distribution agreements with an Applicable to distribution agreements with an
appreciable effect on trade – Look at market shareappreciable effect on trade – Look at market share
The Following are seen to be anti-competitive:The Following are seen to be anti-competitive:
Price fixingPrice fixing
Bid rigging – Agreeing tender prices with competitorsBid rigging – Agreeing tender prices with competitors
Obligations on the distributor not to purchase competing Obligations on the distributor not to purchase competing brandsbrands
Obligations on the distributor to only supply a particular Obligations on the distributor to only supply a particular buyerbuyer
ConsequencesConsequences
Other contractual mattersOther contractual mattersOther contractual mattersOther contractual matters
Currency and method of paymentCurrency and method of payment
LanguageLanguage
Insurance – Are you covered abroadInsurance – Are you covered abroad
Intellectual Property rightsIntellectual Property rights
Limitation of Liability Clauses – local advice Limitation of Liability Clauses – local advice is essential (e.g. death and personal injury)is essential (e.g. death and personal injury)
JurisdictionJurisdiction
European EstablishmentEuropean EstablishmentEuropean EstablishmentEuropean Establishment
If a physical location is required If a physical location is required registration of the business will be registration of the business will be necessarynecessary
Subsidiary company - separate legal entity Subsidiary company - separate legal entity from its parent company, but can be fully from its parent company, but can be fully owned and controlled by the parentowned and controlled by the parent
A branch - an extension of the US parent, A branch - an extension of the US parent, but which conducts business in the UK in but which conducts business in the UK in the name of the US parent the name of the US parent
Factors to consider Factors to consider Subsidiary vs. BranchSubsidiary vs. Branch
Factors to consider Factors to consider Subsidiary vs. BranchSubsidiary vs. Branch
ControlControl
LiabilityLiability issues issues
Practicalities Practicalities
Privacy law issuesPrivacy law issues
TaxTax
Formalities of EstablishmentFormalities of Establishment
Start-up Costs and SpeedStart-up Costs and Speed
On-going On-going obligations obligations
Labor LawLabor Law
ControlControlControlControl
SubsidiarySubsidiary
This is a separate entity controlled by its This is a separate entity controlled by its board of directors, but US parent dictates board of directors, but US parent dictates all board appointments all board appointments
BranchBranch
This is an extension of the US company This is an extension of the US company and is therefore directly controlled by the and is therefore directly controlled by the US parent companyUS parent company
Liability IssuesLiability IssuesLiability IssuesLiability Issues SubsidiarySubsidiary
Shareholders (i.e US Parent) not generally liable for Shareholders (i.e US Parent) not generally liable for acts of the subsidiary company acts of the subsidiary company
Liability is limited to the share capital of the subsidiaryLiability is limited to the share capital of the subsidiary Product liability is a different regime Product liability is a different regime
Directors or other company officers may be personally Directors or other company officers may be personally liable in certain circumstances (e.g. fraudulent or liable in certain circumstances (e.g. fraudulent or wrongful trading)wrongful trading)
BranchBranch
The directors of the US parent are responsible for The directors of the US parent are responsible for ensuring local law compliance ensuring local law compliance
PracticalitiesPracticalitiesPracticalitiesPracticalities
A subsidiary is regarded as A subsidiary is regarded as indicative of a more substantial indicative of a more substantial presence and this will assist with:presence and this will assist with:
Getting a bank accountGetting a bank account
Obtaining a leaseObtaining a lease
Entering into commercial agreementsEntering into commercial agreements
PrivacyPrivacy Issues 1 Issues 1PrivacyPrivacy Issues 1 Issues 1
Data Protection Directive has been implemented Data Protection Directive has been implemented by all EU member statesby all EU member states
It introduced 8 fundamental principles dealing It introduced 8 fundamental principles dealing with how personal data is collected processed with how personal data is collected processed and transferred from one party to another and transferred from one party to another
It provides the individuals concerned certain It provides the individuals concerned certain rightsrights
Privacy Issues 2Privacy Issues 2Privacy Issues 2Privacy Issues 2 Restrictions on transfer of personal data outside the EEARestrictions on transfer of personal data outside the EEA
To comply with European legislation, if a US company To comply with European legislation, if a US company wishes to transfer personal data to the US from Europe it wishes to transfer personal data to the US from Europe it may only do so: may only do so:
If the data subjects have consented; orIf the data subjects have consented; or
If the company receiving the personal data is Safe If the company receiving the personal data is Safe Harbour Certified (approx 550 US companies are Harbour Certified (approx 550 US companies are certified); orcertified); or
If there is a contract in place that ensure that the If there is a contract in place that ensure that the company receiving the personal data has adequate company receiving the personal data has adequate protection in place. protection in place.
TAXTAXTAXTAX
No one tax law relevant across EuropeNo one tax law relevant across Europe
Relevant to both branches and subsidiaries. Relevant to both branches and subsidiaries. A business is subject to tax if it has a A business is subject to tax if it has a permanent establishment in that country permanent establishment in that country
The US and EU member states have entered The US and EU member states have entered into double taxation treaties to ensure that into double taxation treaties to ensure that companies are not taxed in full both in the companies are not taxed in full both in the US and the European countries in which US and the European countries in which they trade. they trade.
Corporation Tax IssuesCorporation Tax IssuesCorporation Tax IssuesCorporation Tax Issues
Branch Vs SubsidiaryBranch Vs Subsidiary
A subsidiary is charged on the world-wide profit of the A subsidiary is charged on the world-wide profit of the subsidiary companysubsidiary company
A branch is taxed only on those profits which arise in A branch is taxed only on those profits which arise in that country that country
Start up costs usually can be carried forward and set-Start up costs usually can be carried forward and set-off against future profits both with a branch and a off against future profits both with a branch and a subsidiary. Branches can benefit from double tax subsidiary. Branches can benefit from double tax relief by setting its loses against worldwide profits of relief by setting its loses against worldwide profits of the parentthe parent
Sales TaxSales TaxSales TaxSales Tax Different sales tax laws across EuropeDifferent sales tax laws across Europe
In UK:In UK:
In UK Value Added Tax is charged on all In UK Value Added Tax is charged on all supplies of goods and servicessupplies of goods and services
Registration with UK Customs & Excise when Registration with UK Customs & Excise when UK turnover reaches or is likely to reach the UK turnover reaches or is likely to reach the VAT registration threshold (currently £58,000)VAT registration threshold (currently £58,000)
Quarterly returns thereafterQuarterly returns thereafter
Similar provisions across EUSimilar provisions across EU
Formalities: SubsidiaryFormalities: SubsidiaryFormalities: SubsidiaryFormalities: Subsidiary"Off the shelf" or form your own"Off the shelf" or form your own
Corporate name registrationCorporate name registration
Registered addressRegistered address
Share Capital requirements: In Denmark - Share Capital requirements: In Denmark - 125,000DKK, In France - €0 - €37,000 depending on 125,000DKK, In France - €0 - €37,000 depending on the type of company you incorporate, In UK - £1the type of company you incorporate, In UK - £1
How you do business and shareholders rights (UK How you do business and shareholders rights (UK - Memorandum and Articles of Association)- Memorandum and Articles of Association)
Appointment of directors and secretary Appointment of directors and secretary
Formalities: Branch Formalities: Branch Formalities: Branch Formalities: Branch
Statutory registration formsStatutory registration forms
Copy of parent company constitutional Copy of parent company constitutional documents, latest set of audited accountdocuments, latest set of audited accountss, , and other domestic filings, and other domestic filings, registration feeregistration fee
A separate branch registration is required A separate branch registration is required for each and every branch within a for each and every branch within a country that has a separate management country that has a separate management structure and separate reporting lines structure and separate reporting lines back to the US.back to the US.
Legal start-up costs/timingLegal start-up costs/timingLegal start-up costs/timingLegal start-up costs/timing
SubsidiarySubsidiary
Approximately £750 for basic company Approximately £750 for basic company formationformation
Can be achieved in 24 hoursCan be achieved in 24 hours
BranchBranch
In the range of £750 - £1000 depending on the In the range of £750 - £1000 depending on the availability of registration informationavailability of registration information
Usually takes about a weekUsually takes about a week
On-going obligations/costsOn-going obligations/costsOn-going obligations/costsOn-going obligations/costs SubsidiarySubsidiary
Approx £1000 p.a.for legal/registration Approx £1000 p.a.for legal/registration
Ongoing filing obligations including annual accounts Ongoing filing obligations including annual accounts and annual returnsand annual returns
Additional accounting costsAdditional accounting costs
BranchBranch
Ongoing filing obligations partly dependent upon Ongoing filing obligations partly dependent upon filing obligations of country of parent obligationsfiling obligations of country of parent obligations
Legal costs approx £500 p.aLegal costs approx £500 p.a
Maturity/SubstanceMaturity/SubstanceMaturity/SubstanceMaturity/Substance
Annual costs for a subsidiary are Annual costs for a subsidiary are likely to be more than a branch, BUTlikely to be more than a branch, BUT
Costs of changing a branch into a Costs of changing a branch into a subsidiary far outweigh the higher subsidiary far outweigh the higher cost of having formed a subsidiary cost of having formed a subsidiary from the outsetfrom the outset
Labor law issues 1Labor law issues 1Labor law issues 1Labor law issues 1
Work permits for non-European nationalsWork permits for non-European nationals
European labor laws are applicable to European labor laws are applicable to employees residing and working in the a employees residing and working in the a member state regardless of whether (1) member state regardless of whether (1) they are employees of a European they are employees of a European subsidiary or a branch of a US parent; or subsidiary or a branch of a US parent; or (2) (2) tthey are European nationals or non-hey are European nationals or non-European nationalsEuropean nationals
Beware: There are a host of consequencesBeware: There are a host of consequences
Labor law issues 2Labor law issues 2Labor law issues 2Labor law issues 2 Employees working in Europe have a variety rights – Employees working in Europe have a variety rights –
varies from country to country:varies from country to country:
Working Time Directive (Max hours spent working during Working Time Directive (Max hours spent working during any week (Germany, Finland, Spain – 40 hours per week. any week (Germany, Finland, Spain – 40 hours per week. Ireland 48 hours per week) Ireland 48 hours per week)
Holiday – 31 days in Germany, 29 days in Ireland, 30 days Holiday – 31 days in Germany, 29 days in Ireland, 30 days in Spain, 20 days in UKin Spain, 20 days in UK
Anti-discrimination laws (similar to those in the US)Anti-discrimination laws (similar to those in the US)
Notice – In UK - 1 weeks notice for each year of service (up Notice – In UK - 1 weeks notice for each year of service (up to 12 weeks minimum after 12 or more years)to 12 weeks minimum after 12 or more years)
Unfair dismissal claims (In UK right not to be unfairly Unfair dismissal claims (In UK right not to be unfairly dismissed arises after 1 year. Max compensation payment dismissed arises after 1 year. Max compensation payment £61,300)£61,300)
Consultants – a way out of Consultants – a way out of Labor law obligations ?Labor law obligations ?
Consultants – a way out of Consultants – a way out of Labor law obligations ?Labor law obligations ?
Genuine independent 'consultants' do not Genuine independent 'consultants' do not acquire employment rights – but …..acquire employment rights – but …..
In certain circumstances what may have In certain circumstances what may have been intended to have been an independent been intended to have been an independent consultant consultant will be treated as an employee will be treated as an employee
Income tax Income tax – company's obligation to pay – company's obligation to pay tax at sourcetax at source
Intellectual Property ownershipIntellectual Property ownership
Employee or Employee or Consultant – some Consultant – some Do's and Don'ts Do's and Don'ts
Employee or Employee or Consultant – some Consultant – some Do's and Don'ts Do's and Don'ts
No single test – courts look at the overall No single test – courts look at the overall situation. If you want a consultant situation. If you want a consultant relationship, thenrelationship, then
DO:DO:
Make clear that Make clear that any office space provided any office space provided is is temporary accommodation temporary accommodation
Address Address correspondence to the correspondence to the consultantconsultant to his to his CompanyCompany, not the individual, not the individual
Ensure that the consultant' records "fees"Ensure that the consultant' records "fees" in the in the Company booksCompany books,, not not ""salarysalary""
Employee or Employee or Consultant – some Consultant – some Do's and Don'ts Do's and Don'ts
Employee or Employee or Consultant – some Consultant – some Do's and Don'ts Do's and Don'ts
DON'T:DON'T:
Allow paid holiday or paid Allow paid holiday or paid medical absencemedical absence
Include the consultant Include the consultant in any internal in any internal documentation such as a telephone listdocumentation such as a telephone lists s etcetc
Issue instructions regarding the work Issue instructions regarding the work undertaken by the Consultantundertaken by the Consultant
Prevent the Consultant from Prevent the Consultant from accepting accepting work from other sourceswork from other sources
More Questions ?More Questions ?More Questions ?More Questions ?
Andrew GowansAndrew [email protected]@osborneclarke.com(650) 462 4020(650) 462 4020
Rupert VernallsRupert [email protected]@osborneclarke.com(650) 462 4022(650) 462 4022