Transcript Doing Business in Europe - Legal Issues

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