The special act requiring entities that do business with the government to register in a special register of public sector partners (the register) – and to disclose their beneficial owners – has been in force in Slovakia for almost two and a half years. It is known informally as the anti-shell company act. This act was so innovative that it was only a matter of time before the sponsor of the act – the government of the Slovak Republic – would prepare a substantial amendment. Such an amendment was passed on June 27 2019.
According to the explanatory memorandum to the amendment, the intention was to reduce the number of monitored transactions for which entities are required to register, thus lightening the administrative burden on the participating entities – public sector partners. But at the same time, several interpretational flaws/loopholes have been removed by the amendment to prevent circumvention of the act.
In place of the rather incomprehensible list of public sector legal entities where registration was mandatory for private parties when conducting business with those entities, the amendment now uses the expression 'public undertaking'. The definition of public undertaking narrows down the public sector to just legal entities established by law or by the state, municipality, or self-governing region in which these entities are an independent or joint, exclusive, direct or indirect stakeholder. Legal entities in which the state, municipality or self-governing region is a stakeholder with another non-public (private) subject are thus no longer considered public undertakings. That means that private persons who enter into contracts with such entities will no longer be subject to the registration requirement of disclosing their beneficial owners in the register. Self-governing professional organisations (associations) established by law, such as the Slovak Bar Association, are now also excluded from the definition of public undertaking.
The amendment also clarifies the existing, somewhat ambiguous, obligation of a subcontractor as relates to the register. Under the amendment, a subcontractor of another private entity is always required to register in the register too if, taking into account all circumstances, the subcontractor knows or should know that he/she is participating in a public contract. For example, if a subcontractor regularly supplies building materials for the construction of motorways or similar projects to a place where a public project is being implemented, it is presumed the subcontractor must be aware he/she is participating in a public contract, since construction of highways always involves public finances.
As to the existing financial limits of up to €100,000 ($112,000) for one-off supply and up to €250,000 for recurring supplies (annual total) paid by the state to a contractor, where the contractor is not required to register in the register, the amendment introduces new interpretation rules for the expression 'contract value' from which those financial limits must be assessed. For instance, these amounts will be considered excluding value added tax, and it will be assumed that framework contracts – when ascertaining whether the limits for registration in the register are met – will be considered as drawn to the maximum framework contracted. The amendment also reflects the existing interpretation practice of the act by explicitly providing that where there are two or more contracts entered into by the same private entity, the value of the consideration received from the state will not be calculated cumulatively. Say a limited company enters into three contracts with the same public authority and each contract has a value of €50,000, in other words, below the statutory threshold. In such a case, the limited company would not be required to register even if cumulatively the thresholds were exceeded.
The provisions relating to judicial proceedings have also been tightened. During such proceedings the court will assess whether the data in the register about a particular business entity, including data about the beneficial owner, is true and complete. In practice, there have been cases where, after the court commenced its investigation, the registered person sought to be voluntarily struck from the register to avoid major penalties, or corrected inaccurate or incomplete data that they had previously provided to the register. Even in these situations, the amendment now explicitly allows the court to impose a lawful penalty on that business entity of up to €1 million or up to €100,000 on members of the company's statutory body. More importantly, the offending business entity will now be automatically banned from registration in the register for a period of two years, meaning it will not be allowed to participate in public contracts. Also, previously, the highest penalty of €100,000 could be imposed on every member of the statutory body separately. Now, under the amendment, the members of the statutory body are held liable jointly and severally, meaning that the amount of fine imposed on all members cannot exceed €100,000 in total.
|Daniel Futej||Daniel Grigel|