Hungary

The coronavirus pandemic has been affecting both domestic and international trade and commerce around the world. States have reacted with robust mitigation measures, including closing borders, implementing a range of travel bans and engaging a myriad of internal domestic health and wellbeing procedures. These measures are causing unprecedented disruption to the trade, transport, labor market, production and supply chains. COVID-19 and the construction industry The impacts of COVID-19 and its mitigation measures on domestic and international trade and commerce is already palpable. Companies globally are being impacted through the labor market, production and their supply chain. The construction industry is heavily influenced worldwide by Chinese-made goods and materials, including everything from structural steel (China is the number one steel producer and exporter) and other building materials (copper, iron ore, zinc, nickel) to cabinet caseworks and fixtures. Next to these standard materials, China is also the largest producer of photovoltaic power since 2015. Finding and establishing alternative supply chains could mean higher material costs and potentially slower project completions. Given the facts that the construction industry heavily relies on human workforce and that China’s manufacturing output is declining, the possible consequence appears that many companies could find themselves either unable to perform their contractual obligations in time or at risk of not being able to do so at all in the future. Force Majeure in general Force Major (FM) clauses are included in long-term contracts as a way for the parties to delay or take a break in their performance obligations or to terminate the contract in extreme circumstances, typically extraordinary events beyond human control such as wars, riots, crimes, or natural calamities which would legitimately excuse their performance of the contract. Most building contracts have reasonably detailed definitions of what will amount to a FM event. Although the precise terms may vary, the general framework of FM in most construction contracts is similar. However, there are key differences in the treatment and recognition of FM across different jurisdictions. Force Majeure in Civil Law Systems Contrary to English law, where courts do not imply FM in the absence of an express contractual provision, civil law systems have a more developed concept of FM and may, in appropriate circumstances, excuse non-performance of a party based on FM, even in the absence of an express FM clause. In countries with a codified legal system, the civil code generally provides that a party will not be considered to be in breach of contract, and the performance of its contractual obligations will be suspended, if and to the extent that it has been prevented from carrying out those obligations by virtue of an event which was unforeseeable, is not attributable to any of the parties and was unavoidable. It is, therefore, important to consider the potential applicability of FM in the context of the governing law of the contract. Regardless of the law system, it is a mandatory requirement that the unforeseen FM event has to occur after the date of entry into force of the contract. Force Majeure Certificates Issued in China On 30 January 2020, the China Council for the Promotion of International Trade (“CCPIT”) announced that it would offer “force majeure certificates” to help affected enterprises minimize losses arising from COVID-19. The expectation was to help them in imminent disputes with foreign counterparties emerging because of the actions being taken then by the Chinese government. By the end of April 2020, more than 7,000 FM certificates covering contracts worth a combined USD 98 billion had been issued. To apply for the certificate, companies must provide legitimate documents such as proof of delays or cancellation of transportation to the agency. CCPIT has clarified that the clause does not excuse a party’s non-performance entirely but only suspends it for the duration of a period. However, there is no guarantee that a government certificate will make any difference, in fact, it might give Chinese companies a false sense of comfort. As to the future, it is likely that parties will continue to rely on FM certificates when invoking FM, and there appears to be some degree of international consensus that, while these certificates will have evidential weight, their issuance will not be determinative of the existence of a FM event. Unforeseeable event? Since FM clauses in general require that the event was unforeseeable at the time the contract was entered into, some commentators argue that after previous pandemics (e.g. SARS in 2003 or H1N1 in 2009), it may have been foreseeable that a similar virus could occur again and the parties may not be entitled to relief. It may be interesting to note that Hungarian courts had accepted the H5N1 (bird-flu) epidemic of 2006 as FM, e.g. where the party either could not deliver the animals due to transport restrictions, or simply had to slaughter them out of precaution. It is important that even if the outbreak of epidemics may not be seen as an unforeseeable event, due to the unprecedented scale of the lockdowns it is likely that the courts will accept that this outbreak does not constitute a foreseeable contingency such that reasonable steps could have been taken by the party affected by it. The party seeking to invoke a force majeure clause in its contract will need to prove that there are no alternative means for performing its obligations, or that it has taken all reasonable steps to avoid the operation of the clause. Increased costs or hindrances such as getting building materials from alternate sources, or hiring different manpower alone will not be sufficient to prevail on a claim of FM. Just because a contract has become more expensive or even uneconomic to perform, that will not constitute FM. Conclusion It is clear that this is a historical time from all aspects of life, including the consideration of pandemics as FM in the construction industry. With all the mitigation measures around the world, many cases may serve as precedents for the future and there will definitely be great lessons to be learned for future construction contracts. Authors: Gabriella Gálik, Dénes Glavatity

With numerous reports of energy-related business shutdowns, we reached out to local experts across CEE to understand what different markets have been dealing with, in terms of work and production stoppages, and look into the broader impact. The energy crisis in 2022 took its toll on energy-intensive companies and deeply affected many other businesses. The major factor behind it, according to Penteris Senior Partner Andrzej Tokaj, is “the high price of commodities – reflected in rising food and energy prices, leading to the increased operating costs of companies.” “Simply put, the Russian invasion of Ukraine means that the Slovak economy is exposed to potential serious gas supply disruptions, as approximately 85% of its natural gas is imported from Russia,” Havel & Partners Partner Ondrej Majer says, with ACI Partners Managing Partner Igor Odobescu adding that  energy-related shocks in Moldova have resulted in a sharp rise in natural gas prices: “the average price paid by consumers, not including power plants, has increased sixfold in one year.” Consequently, the markets in different countries are coping with the increased energy prices and potential scarcity of resources in different ways. Some markets have already seen temporary or indefinite shutdowns being announced. Energy-Intensive Industrial Production Grinds to a Halt In Poland, “the industries that consume the most energy in their operations have been hit the hardest,” Tokaj notes, adding that those energy-intensive sectors “include the paper industry, fertilizers and the nitrogen compounds industry, and those producing cast iron and iron alloys.” According to Tokaj, “to date, the most high-profile production stoppage on the market has been at the chemical giant Grupa Azoty, which, in August, decided to suspend or reduce production at some of its plants due to the high gas prices.”  He explains that Grupa Azoty “is Poland’s largest chemical industrial company.” Until now, “the production of melamine, a chemical compound used in the adhesives, paints and varnishes, automotive, and textile industries, has not resumed,” he adds. “In Moldova, building materials manufacturing is, so far, the industry most affected by the higher gas prices,” Odobescu reports. “At least two major players – the biggest brick and insulation materials manufacturer and the only significant porcelain tile producer – have announced production stoppages for an undetermined period.” According to Odobescu, “besides that, local authorities in the breakaway eastern region have reportedly limited the supply of gas and electricity to the only steel factory in Moldova, halting production.” Majer highlights that, in Slovakia, the factories in the metallurgical, automotive, chemical, glass, and food industries are experiencing the most acute problems: “one of the major aluminium smelters […] discontinued its operation at the beginning of autumn. In the summer, a diversified Central European ferroalloy producer also had to discontinue its operations and dismissed approximately 150 employees. It is currently unclear when these companies will restart their operations.” According to Majer, both companies belong to the largest metallurgical players in Slovakia. Kavcic Bracun & Partners Managing Partner Matej Kavcic highlights that Slovenia’s “metals industry, non-metallic mineral production, and paper production account for almost half of all the energy consumed in Slovenia, especially electricity,” with the “metals industry among the top manufacturing industries in terms of both turnover and exports.” Companies in the metals industry “have announced a reduction in production,” he reports, “with Slovenia’s biggest metals producer, the SIJ Group, announcing it will reduce production volumes by about one-third in September due to the extremely high energy prices and the uncertainty of customers accepting such price conditions.” According to him, “it is also expected that overall production will be about 40% lower in the fourth quarter of 2022” and, while those companies informed the public that there will be no redundancies for the time being, they “have introduced shorter working-hours and temporary paid layoffs.” Serbia has also seen some shutdowns, Gecic Law Partner Ognjen Colic notes, highlighting that “the factory in Novi Sad, part of the American Lear Corporation, has suspended work due to the situation in Ukraine. According to a management letter to employees, there were problems with the supply of components for production and customer orders, which led to the production stoppage.” He says that “approximately 2,500 workers were employed by this factory, which ceased operation” and, “therefore, the impact is significant.” According to Cobalt Partner Elo Tamm, in Estonia, the food production sector has been vocal that high energy prices are affecting its ability to continue production. Even worse, “permanent production stoppages and lay-offs have been announced in the furniture production and wood industry,” she notes. Transport, Hospitality, Retail, and Small Businesses Under Pressure In Croatia, Cipcic-Bragadin Mesic & Associates Partner Marina Mesic reports that “transport companies were most affected by the increase in fuel prices, where fuel prices directly affect the growth of input costs the most, since they make up 20 to 50% of their total variable costs.” And the crisis also seems to be impacting sectors that are traditionally not considered energy intensive. “Smaller businesses that may be affected by the increase in energy prices are those in the hotel, restaurant, arts, entertainment, recreation, and other services sectors, also hairdressers, and beauty salons, amongst others,” Tokaj notes, highlighting that these industries are struggling, as they “had already been affected by restrictions introduced in connection with the COVID-19 pandemic.” Kavcic agrees, saying that “the rising costs of energy are also affecting the Slovenian tourism and leisure industries that consume a lot of energy, like ski-resorts, spas, etc.” According to KCG Partners Founding Partner Eszter Kamocsay-Berta, the most affected companies in Hungary include “shopping malls, restaurants, theatres, kindergartens, and spas, where large spaces need to be kept warm.” Many restaurants are likely to opt for a temporary winter shutdown, she says, “but, in reality, this can be a very dangerous move, as they are unlikely to be able to keep their workers or lure them back when they reopen. 20 to 25% of Hungarian hotels are planning temporary closures in the first half of 2023.” Kamocsay-Berta reports that measures such as turning off “the evening outdoor lighting in restaurants before closing time” and “going digital, avoiding the energy costs of operating buildings,” are also frequently applied. A Metered Government Response The measures introduced by CEE governments range from price caps and subsidies to temporary export bans.  “Due to high energy prices and limited energy sources, the Polish government has introduced several regulations providing solutions for citizens, vulnerable parties, and energy companies so that, based on supplements and compensation, the final energy price is lower, known as the government energy shield,” Tokaj says. In Serbia and Hungary, price caps have been introduced on some basic foodstuffs. “Regulations that limit the prices of oil derivatives have also been adopted in Serbia, which, as a result of global market activity, last for a brief period and are subject to change,” Colic reports. “The government also set limits to the price of electricity for businesses, to run at EUR 95 per megawatt-hour from September 1 to December 31.” In addition to foodstuff price caps, Hungary’s government “has also imposed a 25% saving on gas consumption in state institutions and state-owned companies, except for hospitals and residential institutions,” Kamocsay-Berta notes. Other than energy price caps, among the measures introduced in Croatia “are the reduction of the VAT rate on gas and some agricultural products, subsidies for the price of gas for households, changes in the system of benefits for the socially disadvantaged, one-time benefits for pensioners, and some others,” Mesic reports. And Tamm notes that, while Estonia’s government “has instituted regulated energy prices for residents and SMEs, there have been no significant measures to help industrial and other businesses cope with high energy prices.” Meanwhile, in Moldova, the state also provides compensation and subsidies to ease the burden on companies. “To prevent shutdowns caused by high energy prices, monetary payments to compensate for increased natural gas prices were approved in March 2022,” Odobescu notes. Similarly, Slovenia’s government “introduced three different types of aid available to beneficiaries, namely: basic economic aid, special economic aid, and aid for energy-intensive businesses,” Kavcic points out. And in Slovakia, Majer reports an act was adopted allowing companies to request “subsidies covering additional costs caused by increases of gas and electricity prices,” and, additionally, “a special aid scheme was designed for electricity-intensive companies, which are allowed to request compensations.” Majer and Odobescu both highlight that other special measures have been introduced to prevent potential shutdowns caused by energy scarcity. According to Odobescu, “natural gas reserves were created, for the first time ever, by the state-owned energy trader. The gas is stored in Ukrainian and Romanian gas storage facilities and is sufficient to cover more than one month of consumption during the winter.” Finally, Colic points out that temporary export bans were also introduced in Serbia in 2022, with the government banning the export of certain goods, including “wood, gas, milk, oil, wheat, corn, and flour.” Odobescu adds that “as a response to the electricity deficit in Moldova, a temporary ban on crypto-mining activities was also ordered.” Author: Eszter Kamocsay-Berta

Tourism is an important economic sector substantially contributing to Hungary’s economy. Achieving growth in this increasingly competitive national and international market requires a supportive regulatory environment. Governments are introducing tax systems that are core to the sector’s development potential. The EU has recently conducted a study on “The Impact of Taxes on the Competitiveness of European Tourism.” It suggests reducing tourism taxes to improve tourist destinations’ competitiveness and support the local tourism sector. Hungarian Tourism Numbers If we compare the figures of Q1 2023 to the same period in 2022, we see that foreigners made 8.8% more trips to Hungary, and their expenditure increased by more than a third. The number of Hungarian trips abroad increased by 29% compared to a year earlier. Foreigners arriving in Hungary spent HUF 517 billion, and Hungarians traveling abroad spent HUF 252 bln. All these figures show that domestic tourism has performed well above expectations, and it is expected that, in»2023, the sector can experience a year similar to 2019, which brought the highest numbers before the coronavirus pandemic. Tourism-specific Taxes Seeing the vitality of tourism, the Hungarian state has recently re-introduced taxation of the tourism sector. One way of helping businesses hit hard by the coronavirus pandemic was for the state to waive the tourism development contribution (TDC) for touristic operators. However, this moratorium is now over, and the 4 % tax became due again from April 1. The TDC was introduced in 2018 under the tax package adopted in 2016, and it is payable on services such as: catering services of food and nonalcoholic beverages prepared on the premises (catering services can be restaurant services, confectionery services, catering vehicles, self-service catering, or other catering services); commercial accommodation services. TDC shows similarities to VAT. The service providers, however, pay 4% as TDC in addition to 5% as VAT. Both are calculated on the VAT-exempt income from the services. Another similarity is the due date of the contribution. Those who declare VAT monthly must also declare TDC by the 20th of the month following the month in question. Those who report quarterly must do so by the 20th of the month following the quarter, while those obliged to file an annual return must do so by February 25 of the following year. A significant difference between the two burdens is that TDC shall also be paid by those who are not liable to pay VAT, for example, because they received a tax exemption. This is typically the case for properties rented out for short periods for tourism purposes via Airbnb, where the contribution is also payable on the income generated. The revenue from TDC must be used by the state for tourism development purposes included in the state budget’s tourism earmarking, such as spending on promotion activities related to the Tour de Hongrie, the organization of Hungarian regional tourism development projects or the development of sector-specific IT systems. Similar Taxation Schemes A similar tax is payable by a wide range of Croatian businesses and individuals working in the tourism industry to help fund Croatia’s tourism boards. This tax is applied to total income, with rates varying according to a business’s location and activities. A total of 24 different rates apply, ranging from as low as 0.00646% to as high as 0.1615%. As with the accommodation tax, the law specifies the proportion of revenues generated by this tax that must be transferred to each level of tourist board (municipal, city, county and national). In summary, regulators have a crucial role in maintaining competitiveness in the tourism industry, particularly with the increasing global competition. Given the need of the governments to raise revenue on the one hand and to maintain competitiveness on the other, policymakers need to design the tax system carefully to balance these conflicting objectives. Authors: Eszter Kamocsay-Berta, Lilla Majoros

The European Commission had previously indicated that it will review the provisions of the General Data Protection Regulation (GDPR) this year to see if any changes are needed in light of the experience of the past six years. However, the Commission later stated that the review would not happen until 2028, although the GDPR obliges the Commission to submit its report on the review to the Parliament and to the Council every four years. The Commission claims that 10 years are needed to gain sufficient experience and it will also be necessary to see how the EU's artificial intelligence (AI) legislation develops and what problems it will raise. These can be reviewed at a later stage so that all stakeholders can be involved. It was expected that the Commission’s review would modify the GDPR in such a way that focuses a little more on practical problems, for example, the relaxation of extensive documentation requirements for small businesses. Others say that the dynamic development of AI demands a shift in the spirit of the GDPR. Its rather strict rules have already forced the EU legislator to grant exemptions from certain GDPR requirements for AI applications, this is how the so-called ‘regulatory sandbox’ rules were introduced into the EU Artificial Intelligence Regulation. However, according to stakeholders, these exemptions are still not enough to ensure the competitiveness of the European AI development. In the Commission’s view it was already known that if the GDPR is indeed amended, the amendment will not be comprehensive, since it is extremely time-consuming to negotiate with Member States and stakeholders and it would be doubtful to find a compromise. In April 2023, the European Parliament voted that it was essential to amend the GDPR implementing rules. In this context, several other actors had called for changes to certain provisions. For example, there is a lack of consistency in the practice of supervisory authorities about the legal bases for data processing, especially for clinical or scientific trials. In the Member States, the authorities’ practices on compliance requirements differ significantly. The EU Commission has therefore asked the European Data Protection Board to guide in these areas, but this has not yet been done. In addition, data protection authorities are so overwhelmed by complaints that they do not have the resources to deal with other issues (e.g. awareness campaigns, guidelines) and supervisory bodies are understaffed in many cases. The enforceability of children's rights also raises practical problems, which also would require certain amendments to the GDPR enforcement rules. Author: Rita Párkányi