WHAT ARE THE SANCTIONS ON RUSSIA?
In the period between 23rd February 2022 and 1st March 2022 the European Union adopted a package of restrictive measures in connection with the attack to the territorial integrity, sovereignty and independence of Ukraine. These measures were implemented mainly through the amendment of Regulation (EC) No. 269/2014 (concerning restrictive measures relating to actions that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine) and the amendment of Regulation (EC) No. 833/2014 (concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine).
More specifically, art. 2 of Regulation (EC) No. 269/2014 provides for the freezing of all funds and economic resources belonging to, owned, held or controlled by any natural persons or natural or legal persons, entities or bodies associated with them as listed in Annex I of the said regulation. In addition to the above, no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural persons or natural or legal persons, entities or bodies associated with them listed in said Annex I. This prohibition shall not prevent the crediting of the frozen accounts by financial or credit institutions that receive funds transferred by third parties into the account of a listed natural or legal person, entity or body, provided that any additions to such accounts will also be frozen. Furthermore, the financial or credit institution shall inform the relevant competent authority about any such transaction without delay.
Furthermore, Regulation (EC) No. 833/2014 establishes inter alia that:
– it is prohibited to sell, supply, export, directly or indirectly, dual-use goods and technology, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia, if those items are or may be intended, in their entirety or in part, for military use or for a military end-user. This prohibition also includes technical assistance, brokering services, the provision, directly or indirectly of financing or financial assistance related to prohibited goods and technology;
– it is also prohibited to directly or indirectly purchase, sell, provide brokering services or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments by the entities specifically indicated in the attachments to the Regulation or subject to the control or influence of said entities or persons established in Russia and whose activities mainly concern the design, production, sale and export of military equipment or services;
– prohibition (except in case of emergency) for any aircraft operated by Russian air carriers, or for any Russian registered aircraft, or for any non-Russian-registered aircraft which is owned or chartered, or otherwise controlled by any Russian natural or legal person, entity or body, to land in, take off from or fly over the territory of the European Union.
In Italy the legal basis for the adoption of restrictive measures is Legislative Decree no. 109/2007 (“Measures to prevent, combat and repress the financing of terrorism and the activities of countries that threaten international peace and security, in implementation of Directive 2005/60/EC”).
Article 2 of this decree identifies the « measures to prevent the use of the financial system for the purpose of financing terrorism and financing the proliferation of weapons of mass destruction and to implement the freezing of funds and economic resources to combat financing of terrorism, financing of proliferation and activities of countries that threaten international peace and security arranged on the basis of United Nations resolutions, the deliberations of the European Union and at national level by the Minister of Economy and Finance« .
Essentially, these are restrictive measures of freezing of funds and freezing of economic resources held by natural and legal persons, groups and entities identified by the United Nations, the European Union and the Minister of the Economy and Finance, and the infliction of sanctions in case of breaches.
In line with Regulation (EC) 269/2014 the legislative decree No.109/2007 defines the (very broad) concept of « funds »: these are understood to be financial assets and benefits of any nature whatsoever, held also through a third party, whether natural or legal, including but not limited to 1) cash, cheques, pecuniary credits, bills of exchange, payment orders and other payment instruments; 2) deposits with financial institutions or other entities, balances on accounts, receivables and bonds of any nature; 3) publicly and privately traded securities and financial instruments; 4) interest, dividends or other income and increases in value generated by assets 5) credit, right of set-off, guarantees of any kind, securities and other financial commitments; 6) letters of credit, bills of lading and other securities representing goods; 7) documents evidencing an interest in funds or financial resources; 8) all other instruments of export financing; 9) life insurance policies.
The definition of economic resources is also very broad: according to legislative decree No.109/2007 economic resources are assets of any kind, whether tangible or intangible, and property, whether movable or immovable, including accessories, appurtenances and economic benefits, which are not funds but which may be used to obtain funds, goods or services, owned, held or controlled, even partially, directly or indirectly, or through intermediaries, by designated persons, or by natural or legal persons acting on behalf of or under the direction of the latter.
“Designated persons” are natural persons, legal persons, groups and entities designated as recipients of the freezing measure on the basis of EU regulations and national legislation.
Pursuant to EU regulations and national legislation, freezing of funds consists in prohibiting any move, transfer, alteration, use of, access to, or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or other change that would enable the funds to be used, including portfolio management; while the freezing of economic assets is the prohibition on the transfer, disposition or, in order to obtain funds, goods or services in any way, use of economic resources, including, but not limited to, the sale, lease, rental or provision of security interests by virtue of EU regulations and the national legislation.
Therefore, if funds and economic resources are frozen, they cannot be transferred, disposed or used in any way whatsoever, and any acts carried out in violation of the prohibitions are null and void. It is also prohibited to participate in activities knowingly and deliberately with the aim or result, directly or indirectly, of circumventing the freezing measures.
The freezing of funds and economic resources is effective on the day of entry into force of the EU regulations or the day after the publication of the Ministry of Economy and Finance decrees in the Official Gazette of the Republic of Italy. The persons obliged to notify the Financial Intelligence Unit (FIU) pursuant to legislative decree No 231/2007 (i.e. those persons who must report to FIU, in case they suspect or have reasonable grounds to suspect that money laundering or terrorist financing is being, or has been, committed or attempted, therefore a long list which includes financial and insurance intermediaries, notaries, lawyers and chartered accountants, etc.) must apply the freezing of funds and economic resources. These persons must inform FIU about the applied measures pursuant to legislative decree No. 109/2007 and such notice shall include the affected persons, the amount, the nature of funds or economic resources. FIU checks the application of financial sanctions on the designated persons. For the freezing of economic resources the Guardia di Finanza (Financial Police) must also be informed.
In case of transactions in which the designated persons (object of the freezing measures) or also through third parties take part, there is the obligation to report the transaction to the FIU. Finally, it is worth noting that the reporting obligations pursuant to legislative decree No. 109/2007 are autonomous with respect to those of reporting for money laundering purposes.
s.dellatti@macchi-gangemi.com
CAN A DEBTOR BE DECLARED INSOLVENT WITHOUT PRIOR TERMINATION OF THE APPROVED COMPOSITION AGREEMENT? THE JOINT CIVIL SECTIONS OF THE COURT OF CASSATION CLARIFY THE ISSUE.
The Joint Civil Sections of the Supreme Court of Cassation, with sentence no. 4696 published on 14 February 2022, which were called upon to rule on a long-debated and particularly important issue, have confirmed the legal approach, criticised by authoritative legal literature, according to which, in the bankruptcy law regulations resulting from the amendments made by legislative decree no. 5 of 2006, and by Legislative Decree no. 169 of 2007, the debtor admitted to the approved composition agreement, who does not fulfill the payment of the debts provided under the agreement, can be declared bankrupt, upon request of the creditors, the Public Prosecutor or upon his own request, even before and regardless of the termination of the composition agreement under Article 186 of the Bankruptcy Law.
With judgment no. 4696 of 14 February 2022, the Joint Civil Sections of the Supreme Court of Cassation upheld the appeal of the bankruptcy trustee (receiver) against judgment no. 394/2016 issued by the Court of Appeal of Campobasso which had revoked judgment no. 12/2016 whereby the Court of Campobasso had declared the company bankrupt at the request of the Public Prosecutor. In such judgement, the debtor company – which had already been admitted to the procedure for a composition agreement on a going concern basis approved in 2013 – had lodged a complaint pursuant to article 18 of the Bankruptcy Law.
The Court had considered the company unable to meet its obligations under the approved composition agreement, declaring it bankrupt. In the Court of Appeal’s view, this decision was taken without considering the need to first terminate the composition agreement in execution, as provided for by Article 186 of the Bankruptcy Law, which provides, inter alia, that « any creditor may request termination of the composition agreement on the grounds of non-performance » and that « an action for termination must be brought within one year of the expiry of the deadline set for the last performance under the composition agreement« .
When asked by the First Section on « the question of the admissibility of a bankruptcy petition under articles 6 and 7 of the Bankruptcy Law in respect of a company that has already been admitted to a composition agreement, then approved, regardless of whether the agreement has been terminated, as a matter of utmost importance« , the Joint Sections affirm the principle of law according to which « in the discipline of the bankruptcy law resulting from the amendments made by Legislative Decree no. 5/2006 and by Legislative Decree no. 6/2006, the debtor admitted to the approved composition agreement who does not fulfill the payment of the debts under the agreement may be declared bankrupt, upon request of the creditors, the Public Prosecutor or his own request, even before and independently of the termination of the agreement pursuant to article 186 of the Bankruptcy Law« .
Therefore, the interpretation expressed by the Court of Cassation in rulings nos. 17703/2017, 29632/2017 and 12085/2020, on the subject of bankruptcy that can be declared even in the absence of the termination of the composition agreement, is not disregarded. This guideline is not shared by an authoritative part of the scholars, according to which the possibility of bankruptcy omisso medio would instead find an obstacle, among others, in the special nature of the composition agreement rules (in particular, art. 186 of the Bankruptcy Law) compared to the general rule pursuant to art. 6 of Bankruptcy Law and in the fact that, since the exdebitatory effect of the approved composition eliminates the insolvency and determines the return in bonis of the debtor, then that insolvency cannot give rise to a subsequent bankruptcy unless after, in the manner of the resolution of Art. 186 Bankruptcy Law, the effect has been eliminated.
In their reasoning the Joint Sections affirm, on the other hand, that it is the same discipline of the Bankruptcy Law, as amended by Legislative Decree no. 5/2006 and by Legislative Decree no. 169/2007, to provide for the principle that where the debtor has not succeeded in achieving sufficient revenues to execute the plan as a going concern, or where the liquidation of the company’s assets has not allowed the guaranteed satisfaction percentages to be reached, the breach of the composition agreement is subject to the common rules on liability and, therefore, entitles the creditors to take action against their debtor, who may also request bankruptcy omisso medio.
The judgment is particularly interesting because, in the grounds, the Joint Sections go over each of the suggestive arguments developed by the scholars, according to which bankruptcy would be precluded without the prior termination of the composition agreement: each thesis is illustrated in detail and then refuted either with reference to the starting assumptions (for example the alleged « speciality » of article 186 of the Bankruptcy Law with respect to the rules which govern the institutions of bankruptcy), or in relation to the conclusions which the scholars have drawn (according to the Supreme Court, the sentence of the Constitutional Court no. 106/2004 does not allow any conclusion to be drawn to the contrary of the possibility of bankruptcy omisso medio). The thesis of « bankruptcy without resolution » comes out much stronger and even more persuasive than before.
Beyond the succession of reforms, the Court of Cassation emphasises that the central theme is represented by the general rule of the bankruptcy of the insolvent commercial entrepreneur: well, when it turns out – even without the need for judicial ascertainment of the conditions for termination – that the approved agreement is not feasible because the debtor cannot fulfil it, and indeed finds himself in a situation entirely comparable to that of insolvency, the reasons for public protection of bankruptcy must regain strength in their entirety.
Moreover, as the Court of Cassation points out, the state of insolvency which may be found to be rooted in the non-performance of one or more contracts generally determines bankruptcy without ever requiring or assuming that those contracts are first formally terminated.
As regards the relationship between the two procedures, if it is true that through the approval the state of insolvency is « definitively and irrevocably assigned to the agreed composition agreement« , this does not mean that the declaration of bankruptcy should be precluded every time the satisfactory modalities provided for in the proposal of composition agreement turn out to be not feasible (attention: not pending the composition agreement procedure but in the phase of fulfilment of the agreement reached), which ascertains the state of insolvency even after the composition agreement procedure. The consequence is that the non-fulfilment of the agreement constitutes a « supervening fact » (in addition to the cases of termination and annulment) in the presence of which the filing of the bankruptcy petition must be considered admissible.
Ultimately, « the approval, the closure of the composition agreement procedure and the debtor’s access to the executive phase of the agreement entail the application of the general principles of liability including the declaration of bankruptcy, if elements of insolvency are to be drawn from the non-execution of the agreement « .
The Joint Sections also wondered whether an interpretative value could be attributed, for the purposes of the decision, to Article 119 of the Code of the Crisis. This provision, although not yet in force, provides that the Court may declare the judicial liquidation open (unless the state of insolvency is the consequence of debts arising after the filing of the application for the opening of the composition agreement) only after the termination of the composition agreement. The Joint Sections have denied that Article 119 can have any influence on the issue on which they have been called to express their opinion, on the basis of the principle that, in order to be useful for interpretation, the rule of the Code of the Crisis and that of the body of law in force must have a scope of continuity which, on the issue under discussion, the Supreme Court has denied there is. One of the points of discontinuity between the two regulatory regimes concerns, for example, the different role of the commissioner, who in the new regulation of the termination of the agreement is entitled to request it, together with the creditors, albeit at the instance of one or more creditors. In the current set-up of the execution phase of the composition agreement, on the other hand, the commissioner has no right of action, but is invested only with supervisory and reporting functions. In the Code of the Crisis, the innovation marks a discontinuity that was deemed necessary in order to give a turn to a state of affairs – in which the resolution pursuant to art. 186 of the Bankruptcy Law is perceived by the creditors as a judicial remedy unnecessarily tedious and expensive in a framework of already evident dissatisfaction – characterised by the presence of a very high number of dormant agreements, i.e. of « concerted procedures that are prolonged for years unexecuted as the creditors often discouraged by the progress of the procedure and worried about the costs of starting a judicial procedure, do not want to take on the burden of requesting judicial resolution« .
s.rossi@macchi-gangemi.com
g.bonfante@macchi-gangemi.com
THE JOINT SECTIONS OF THE COURT OF CASSATION, WITH JUDGMENT NO. 41994/2021, CONFIRM DIRECT PROTECTION OF THE CONTRACTOR DOWNSTREAM OF AN ANTI-COMPETITIVE AGREEMENT DECLARED NULL AND VOID BY THE ANTITRUST AUTHORITY.
The recent judgment of the Joint Sections of the Court of Cassation no. 41994 of December 30th, 2021 has resolved a contrast in case law concerning the validity of omnibus sureties guaranteeing bank transactions issued on the basis of the model form drawn up in 2002 by the Italian Banking Association (ABI), which contains certain clauses censored in 2005 by the Bank of Italy, in its capacity as Antitrust Authority, for violation of the principles of fair competition.
This ruling is of particular interest because the principles provided therein are applicable not only to sureties complying with the ABI model form but, more in general, to all agreements entered into downstream of agreements between undertakings which have been declared null and void by the Italian Competition Authority (“AGCM”) for being contrary to antitrust law.
As is well known, article 2 of the Competition and Fair Trading Act (Law 287/1990, hereinafter the “Act”) prohibits agreements between undertakings that have as their object or effect the prevention, restriction or significant distortion of competition within the national market or in a substantial part of it. The same Act specifies that “Prohibited agreements are null and void to all intents and purposes”.
A similar provision is also present in the Treaty on the Functioning of the European Union (article 101) for the European market.
It is up to AGCM to ascertain and sanction the illicit antitrust behaviours and the relevant decisions are subject to the administrative judge’s review. The Act also provides for a civil law protection, which is autonomous and concurrent with the functions exercised by AGCM, consisting of an action for the nullity of the anti-competitive agreement and an action for damages to be brought before the specialised business division of the competent Court (Article 33(2) of the Act), previously before the Court of Appeal.
AGCM’s decision ascertaining the antitrust infringement, where it has become final, has binding effect in the civil proceedings (Article 7 of Legislative Decree 3/2017).
Over the years, case law has provided for ambiguous solutions regarding the effects that the nullity of an agreement between undertakings for violation of antitrust law produces on the downstream agreements and regarding the remedies available to individuals who signed them.
An initial orientation of the Court of Cassation (Civil Court of Cassation of December 9th, 2002, no. 17475) denied the legitimation of the consumer to bring the action for nullity of the anti-competitive agreement and the action for damages provided for by article 33 of the Act.
In 2005 the Joint Sections (Civil Court of Cassation, Joint Sections, of February 4th, 2005, no. 2207), called to rule on the competent judge for the action for restitution of the higher premium of a car insurance policy drafted in accordance with the conditions established by the so called cartel of the insurance companies, affirmed the competence of the Court of Appeal (at the time competent under article 33 of the Act) and, in contrast to the previous case, they also recognised the consumer’s right to bring an action for nullity of the cartel and for compensation under article 33 of the Act. However, they did not clarify whether the private individual could also bring an action for the nullity of the downstream contract concluded between him and the insurance company.
With the issuance, in the same year, of the aforementioned provision of the Bank of Italy and the consequent proliferation of nullity actions brought by guarantors who had granted guarantees by means of contracts drawn up in compliance with the ABI model form, the Joint Sections were once again called upon to clarify whether the total or partial coincidence with such a model justified the declaration of nullity of the surety or only legitimised the exercise of the action for compensation of damages and, in the first case, whether it was an issue of total or partial nullity of the surety.
The Joint Sections, with judgment no. 41994 of December 30th, 2021, have definitively clarified that “The surety contracts entered into downstream of agreements declared in part null and void by the Antitrust Authority for violation of the Italian and European antitrust regulations are partially null and void. This nullity is limited to the individual clauses that reproduce the unilateral model form that constitutes the prohibited agreement, unless it is possible to infer from the agreement, or is otherwise proven, a different will of the parties”.
This decision, in addition to the material impact on the many sureties that comply with the ABI model form, sets forth important principles applicable in all cases of agreements entered into downstream of anti-competitive agreements, thus offering direct protection, such as an action for nullity and compensation of damages, to all those subjects who, although not operators in the reference market, suffer the negative consequences of the unlawful agreement.
On the basis of these principles, it can therefore be expected that litigations brought by downstream contractors in the event of a finding of cartels restricting competition will increase.
s.lazzeretti@macchi-gangemi.com
s.mavelli@macchi-gangemi.com
THE SUPREME COURT RULES THAT THE EU SUBSIDIARY RECEIVING INTEREST FROM ITS ITALIAN PARENT COMPANY AND FULLY REPAYING IT TO NON-EU INVESTORS QUALIFIES AS BENEFICIAL OWNER FOR THE INTEREST AND ROYALTY DIRECTIVE.
Good news from the Supreme Court regarding the withholding taxes on payments made by Italian companies to subsidiaries resident in the European Union applying the withholding tax exemption of the EU directives and repaid by them to non-EU persons.
In the recent order no. 3380 of last 3 February, the Supreme Court (Corte di Cassazione) ruled in favor of the taxpayer in relation to the beneficial owner requirement provided for by the interest and royalties directive and in relation to the issue of abuse of the directive, as outlined by the EU Court of Justice in the Danish Cases of 2019.
A major Italian publishing company had resorted to the financial resources of US investors through bonds issued by its 99% subsidiary Luxembourg company. The Luxembourg company in turn financed the Italian parent company on terms and conditions equivalent to those provided for in the bond loan, without any mark-up. No withholding tax was levied either on the interest paid by the Italian company to the Luxembourg subsidiary pursuant to the Interest and Royalties Directive or on the interest paid by the latter to the US investors, pursuant to the Treaty between Luxembourg and the United States.
At the time of the issuance of the bond, the statutes of the Italian company (which were changed shortly after) did not allow the issuance of bonds. If the bond had been issued by the Italian company, the interest would have been subject to 12.5% withholding tax, possibly reduced to 10% pursuant to the tax treaty between Italy and the United States. The Regional Tax Court had ruled in favor of the Revenue Agency which challenged the status of the Luxembourg subsidiary as beneficial owner, since it did not derive any economic benefit from the transaction, as it immediately and fully turned over to the US investors the interest received by the Italian company.
The Supreme Court, on the contrary, considered that the application of the exemption from withholding tax provided for by Article 26-quater of Presidential Decree 600/73 (implementing the Interest and Royalties Directive) was legitimate since the Luxembourg subsidiary was to be considered the beneficial owner of the interest received and immediately repaid to the subscribers of the bonds. According to the Supreme Court, the fact that the company did not obtain any economic benefit from the transaction (by not retaining any mark-up) was not in itself an obstacle to the recognition of the status of beneficial owner. What matters, indeed, is the existence of “entrepreneurial autonomy and patrimonial responsibility of the Luxembourg company” due to the absence of limits or obligations to transfer to the United States the income that the Luxembourg company received from Italy.
The ruling examines the case also in light of the indications of abuse highlighted by the EU Court of Justice in the Danish Cases.
The conclusion, favorable to the taxpayer, is based on the following circumstances:
– the Luxembourg company has existed for more than fifty years, has its own real operational structure and “has as its corporate purpose the holding and sale of shareholdings in publishing companies” (in the present case, however, it financed its parent company);
– produced profits of over eight million euros in the relevant tax year;
– issued the bond six months before, when the Italian company could not do so;
– the interest received by the Italian parent company was accounted for in the Luxembourg company profit and loss account and was considered as income (the ruling says nothing about the fact that the interest expense of the same amount due to the subscribers have also been deducted);
– the Luxembourg company has the effective availability of the interest, in the absence of contractually established obligations to (re)transfer them;
– the Luxembourg company has issued its own bonds placing its assets as collateral for the US investors.
This ruling of the Supreme Court is in line with other rulings in favor of taxpayers in relation to interest (14756/2020 in a case of interest paid to the Luxembourg parent company and repaid by it to the non-EU parent company by retaining a mark-up) but also to dividends (Cass. 25490/2019).
In ruling 3380/2022 there is also a further statement of the principle (already expressed in the well-known rulings of 28 December 2016, nos. 27112, 27113, 27115 and 27116) that the structure and substance of a holding company must be evaluated taking into account the specificity of this type of company: “in the case of a « pure » holding or subholding, therefore, no reference can be made to the typical features of an operating company, highlighting the modest operating receivables, the lack of employees and of an adequate organizational structure, but it must be evaluated the organizational and managerial autonomy of the company. Furthermore, the control relationship between the parent company and the holding company, or sub-holding company, that merely have shareholdings does not in itself exclude that the latter has and organizational and managerial autonomy”.
This ruling has also the merit of having expressly stated that in the case of cascading payments involving a holding company resident within the European Union, the absence of the status of beneficial owner and the existence of the abuse cannot be automatically deduced from the absence of economic benefits obtained by the holding company itself or from the fact that the income received is immediately turned over to a non-EU subject.
Therefore, this judgment is a partial overcoming of the Danish Cases that had considered to constitute indices of abuse both the fact that the flows were transferred back to a non-EU subject “very soon after its receipt” and the fact that from the transaction a company obtained “an insignificant taxable profit” and constitutes an important precedent to be used also in relation to the assessments on dividend distributions to EU intermediate parent companies which in turn transfer the flows to the non-EU parent companies.
b.pizzoni@macchi-gangemi.com
THE INSPECTION PLAN OF THE DATA PROTECTION AUTHORITY FOR THE FIRST SEMESTER 2022.
The Data Protection Authority has, as usual, published the areas that will be subject to inspection activities for the first half of this year.
Specifically, economic operators carrying out activities relating to
(i) smart toys
(ii) cookies
(iii) apps that require a large amount of personal data
(iv) dating sites
(v) data monetization
(vi) video surveillance
(vii) databases
will be subject, with significant probability, to audit activities by the Data Protection Authority.
The areas subject to verification, with the exclusion of dating sites and smart toys, may concern a large number of Italian economic operators, in particular medium and large operators.
The Data Protection Authority, will presumably, pay particular attention to the verification of the economic operator’s correct implementation of the recent guidelines on cookies.
The Data Protection Authority’s activity, will as always, be carried out together with the special nucleus privacy protection and technological frauds of the Guardia di Finanza (Italian Financial Police).
The scheduled inspection activity carried out by the Data Protection Authority will be carried out in addition to activities deriving from reports or complaints, which in Italy is a source of considerable sanctioning activity by the Authority.
It is therefore advisable for all economic subjects included in the areas listed by the Data Protection Authority to verify their privacy system compliance, with particular attention to the implementation of the provisions on cookies, in order to avoid significant penalties (up to 20 million euros or 4% of global turnover) and avert inevitable damage.
r.demarco@macchi-gangemi.com
f.montanari@macchi-gangemi.com
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