This content is from: Local Insights

Slovak Republic: Procurement and beneficial owners

Daniel FutejRudolf Sivák

An amendment to the act on public procurement came into force on November 1 2015. One of its goals is to make public procurement transparent through the creation of a register (the Register) of beneficial owners – those who take part in public procurement. Public procurement is particularly understood to mean the procurement of goods and services by governmental agencies, municipalities and other authorities that are publicly financed. The Register should allow identification of the real owners (beneficial owners), and not just the ostensible (paper) owners, of entities that participate directly or indirectly in the public procurement process. The Register does not apply to other forms of governmental expenditure, such as state subsidies, transfers of state property, contributions from European funds, or claims made against the government.

The gist of the new legislation is to ensure that all public procurement contracts are entered into only by entities that have listed their beneficial owners in the Register. The Register is administered by the Public Procurement Authority (Authority) and is available to the public online on the Authority's website. Participants in public procurement submit applications for registration in the Register.

If the tenderer and its subcontractors have not listed their beneficial owners in the Register, neither the contracting authority nor any procurer will be able to contract with them. These contracts likewise cannot be entered into if the beneficial owners of the parties through whom the tenderer demonstrated its financial and economic position, or parties that the tenderer used for their technical and professional qualifications to demonstrate its own technical or professional qualifications, are not listed in the Register. If these requirements for demonstrating beneficial ownership are not satisfied, the law now allows the procurer to contract with the second or even third placed tenderer.

The legislation defines the criteria for proving who the beneficial owner is, and this must always be a natural person, that is, an individual. For legal entities, the beneficial owner is a person with direct or indirect participation of at least 25% in the company or in the voting rights of company, including bearer shares. Furthermore, a person qualifies as a beneficial owner if he/she has the right to appoint and remove members of the corporate bodies (statutory, supervisory) of the company or is entitled to at least 25% of the profits from the business or other activities of the company.

The requirement to list beneficial owners in the Register will also apply to the tenderer's subcontractors if they supply at least 30% of the value of the tenderer's bid for above threshold procurement where the estimated value is at least €10 million ($10.6 million), or where the amount they supply exceeds 50% of the value of the tenderer's bid for other procurement. This will be a mandatory requirement for the subcontractor for the entire term of the relevant contract. All members in a group of vendors will be required to list their beneficial owners in the Register.

The Authority will make entries in the Register on the application of an individual or legal entity, and the registration is for an indefinite time period. Among other things, the application for registration in the Register includes a declaration that the information regarding the beneficial owners as stated in the application is true and complete, and will state whether such persons are public officials. The presumption will be that the information about the beneficial owners being entered into the Register is true.

In order to verify the information about the beneficial owners, the Authority will have the right to request the cooperation of any public authority or party obligated to disclose information, such as banks, financial institutions and even lawyers, in addition to the cooperation of the entity whose beneficial owner is being registered. Persons obligated to disclose information cannot appeal to the Authority on the basis of client confidentiality or tax secret. The Authority can carry out the verification either on its own initiative or on the qualified suggestion of any other person who can provide information raising doubts that the information about the beneficial owner in the Register is true and complete.

If a tenderer or its subcontractor violates the obligations regarding the Register and the registration of beneficial owners, they are subject to fines from €10,000 to €1 million and a ban on participation in public procurement for a period of three years.

According to the legislation, the Authority will strike an individual or legal entity from the Register if for the purposes of registering a beneficial owner in the Register they submitted data, information or a declaration of honour that was false or incomplete. A fine would also be imposed on them. If the state where the legal entity or individual is domiciled refuses to cooperate with the Slovak authorities in respect of identifying the beneficial owner, and that person is unable to credibly demonstrate identification of the beneficial owner, the Authority will strike it from the Register.

The contracting authority and the procurer will be able to rescind a contract or an agreement with a participant who, at the time the contract was entered into, did not have its beneficial owner/owners registered in the Register; or, if the participant is officially struck from the Register or banned from participating in public procurement.

Daniel Futej and Rudolf Sivák

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