With effect from February 1 2017, new legislation introduced the Public Partners Register (PPR) to replace the existing Beneficial Owners Register.
As with the previous register, the main goal of the PPR is to increase transparency in the use of public funds. Only persons appearing in the PPR will be eligible to do business with the public sector.
A major change is that the registration obligation no longer applies only to public procurement. According to the new rules, in principle, the registration obligation applies to all persons receiving funds from the public sector (for example, the state and municipalities) or persons controlled by the public sector (for example, companies owned by the public sector). Hence, apart from some exceptions, persons providing services or supplying goods to the public sector must be registered. The registration obligation is very widely defined also with respect to subcontractors who know, or should know, that their supply of goods relates to a contract with the public sector.
To clarify, persons doing business with the public sector need to subscribe to the PPR if they receive funding of more than €100,000 ($106,000) per calendar year or more than €250,000 per calendar year in the case of multiple payments.
The administrator of the PPR will be the District Court in Zilina, which replaces the Public Procurement Authority.
The definition of beneficial owner has been broadened. The existing definition refers to a natural person who actually controls a legal entity. Most old definitions of beneficial ownership, such as a 25% direct or indirect participation in a legal entity or basic capital, still apply but are listed only as examples. Consequently, a beneficial owner could be a person holding a 15% stake in a legal entity.
The process of registration of beneficial owners in the PPR has changed substantially. Previously, obliged persons registered themselves. Under the new legislation, only an attorney, notary, bank, foreign branch of a bank, auditor, or tax advisor who has a place of business or registered office in the Slovak Republic (so-called qualified persons) may register beneficial owners into the PPR. A qualified person will register a beneficial owner based only on a contract with an entity which is required to be registered or wishes to be registered. The qualified person executes a registration based on the so-called verification document, which describes how and according to what documentation a natural person is designated as a beneficial owner. This mechanism is based on the fact that qualified persons have a lot of information on obligated parties and are most likely to be able to identify beneficial owners. Compared to previously, the new process of identifying the beneficial owner is more demanding, requiring close cooperation between the obliged person and the qualified person.
A new feature of the system is the requirement for periodic verification of the beneficial owner, which will occur at least twice a year (on June 30 and December 31).
The changes also affect sanctions for breach of obligations, which are very strict. If an obliged person does not prove that the information on the beneficial owner entered in the PPR is accurate and complete, the court can decide to delete that person from the PPR. There is no judicial remedy against such a court decision. Where obligations set out by the new rules are breached, the court can impose a fine in the amount of the economic benefit that the person has obtained. If that economic benefit cannot be determined, the court will impose a fine of between €10,000 and €1 million. A new element is that a fine between €10,000 and €100,000 will also be concurrently imposed upon all members of the statutory body of the obliged person. A qualified person guarantees the payment of the fine imposed on the statutory body of the obliged party, which can only be freed from this liability if it proves that it acted with due diligence. This guarantee mechanism is to ensure that the qualified person proceeds with due diligence in the identification of the beneficial owner.
Another consequence of breach, in stipulated cases, is that the party to the contract representing the public sector has the right to terminate the agreement or suspend the performance of the contract.
Persons who have been entered in the register kept by the former Public Procurement Authority are deemed to be registered in the PPR. These persons are obliged to ensure the verification of identification of the beneficial owner according to the new legislation by July 31 2017.
Taking into account the wide scope of application of the new legislation, companies dealing with the public sector (directly or indirectly) should review their contractual relations to check whether the registration obligation applies to them.
|Rudolf Sivák and Radoslava Sláviková Geržová|
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