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China Desk Newsletter | March 2023

| Publications | Corporate Law and M&A

Andersen's China Desk team analyzes the most relevant judgments of February in employment, tax, real estate, corporate and M&A matters
Working Time Recording System:

The recent Judgment of the Supreme Court no. 85/2023, of 18 January 2023, has pronounced about the way how the Spanish companies should carry out the working time recording system.

Please recall that the European Court of Justice previous pronounced that the time recording system must be “objective”, “reliable” and “accessible”, but the time recording based on the employees’ unilateral declaration was not a valid way. However, the above-mentioned judgement of the Spanish Supreme Court has pronounced in the opposite direction, stating that the “objectivity” and “reliability” of a working time recording system cannot be denied for the simple reason that it requires the employees’ collaboration to record working time. In fact, it would be difficult to manage a time recording system without certain collaboration of each employee.

Therefore, the fact that the employees must register the required data of working time in the computer program provided by their companies, is a way equivalent to other valid working time recording system which also requires the employee’s collaboration.

Digital Disconnection Right

 The Judgment of the High Court of Justice of Galicia nº 8117/2022, of 23 November 2022, has pronounced that the fact that an employee received calls and messages through the employee’s WhatsApp group, during non-working hours, is not considered as a case of violation of the digital disconnection right.

Although in the concrete case judged, it was proven that the WhatsApp group created by the company operated out of the working hours and there were some questions made to the employees, the Court considers that there was not a request or order to the employees to provide an immediate response, stay connected and/or remain as member of the WhatsApp group.

In short, a violation of the digital disconnection right has not been proven, since the company did not penalize, warn, or remind the employee to immediately respond to the communications sent by the WhatsApp group.

The deductibility of directors' remuneration in a unlisted company

Historically, in order that the directors' remuneration of an unlisted company could be tax-deducible, (i) the bylaws of a unlisted company should establish the remuneration system, (ii) the shareholders' meeting of the company should approve the maximum amount of the remuneration payable to the directors and, (iii) a contract should be approved in the shareholders' meeting if the directors undertake executive functions.

However, the Spanish National Audience recently has issued a judgement nº 4786/2022, of 3 October 2022, with the purpose of making more flexible the deductibility of directors' remuneration in the unlisted company, by stating that although the bylaw of a unlisted company did not establish the remunerated nature of the position, the directors’ remuneration could be deductible if the company could prove that the shareholders knew the existence of the directors’ remuneration due to that there ware previous communications of the directors’ remuneration duly received by the shareholders.

The recent modifications introduced in the Beckham Law

The recent Law 28/2022, of 21 December, on the promotion of the start-up ecosystem, has introduced certain important novelties in the special personal income tax regime for the foreign employees or director of companies who move to Spain (also known as the Beckham Law).

As known, the Beckham Law allows the foreign employees or director of companies who move Spain to be taxed as non-residents, subject to the compliance of certain requirements, and to be taxed on their income at a fixed rate of 24% (47% from €600,000).

Please note that historically it was required that the foreign employees or directors of companies should not have resided in Spain in the previous 10 years. However, the above-mentioned law has made this criterion more flexible by lowering the previous period in which the foreign employees or directors of companies had not resided in the country to 5 years.

Compensation for withdrawal from lease contracts for use other than as a dwelling

In the current economic traffic, it could be possible that two parties sign a lease contract for the use of an office without the inclusion of the clause about the consequences if the lessee withdraws from the lease contract before the expiry of the lease contract duration. In this sense, if the lease submits the withdrawal request and the lessor accepts it, the lessee should compensate the lessor for the damages caused by the withdrawal from the contract.

With the purpose of determining the amount of the compensation, a very common practice in the Spanish Courts has been to take into consideration, as a guideline, the compensation criterion established in the Spanish Urban Lease Law for the case of withdrawal from the lease of a dwelling (one month's rent for each year that remains to be fulfilled in the contract).

However, our Spanish Supreme Court has stated that the above-mentioned criterion cannot be applied directly to leases for use other than as a dwelling as a universal criterion but as a guideline. Therefore, the specific circumstances of each case should be considered, such as the remaining term of the lease, the investments made by the lessor in the property, the possibility of concluding a new lease, the price of the new lease, etc.

Legislative novelties introduced by the Omnibus Law in the Community of Madrid

On 22 December 2022, the official gazette of Madrid published the Law on urgent measures to boost economic activity and modernise the Administration, approved by the Assembly of the Community of Madrid, known as the Omnibus Law. It covers a series of legislative measures to reactivate the economic activity and the employment.

The Omnibus law introduces several important novelties in the areas of zoning, planning instruments, land use, licences, and urban planning discipline. It also contains an ambitious regulation of the urban development collaboration entities, fermenting their development throughout the Madrid Community and extending their competences to the inspection and control phase.

Amendments of the suspension of the regime of liberalization of certain foreign direct investments in Spain

 The Royal Decree-Law 20/2022, of 27 December, on measures in response to the economic and social consequences of the war in Ukraine and in support of the reconstruction of the island of La Palma and other situations of vulnerability, has amended once again the current regime for the control of foreign direct mainly in the following aspects:

  • The concept of the “foreign direct investments” has been modified and now means all the investments executed as a result of which the investor acquires a holding equal to or greater than 10% of the share capital of a Spanish company, and all others which as a result of the corporate transaction, act or legal activity carried out acquire control of all or part of it, by application of the criteria established in Article 7 of Law 15/2007, of 3 July, on the Defence of Competition, provided that one of the following circumstances is met:
  1. The investments are executed by residents of countries outside the EU and the EFTA.
  2. The investments are executed by residents of the EU or the EFTA countries whose real beneficial ownership corresponds to residents of countries outside the EU and the EFTA. Such beneficial ownership shall be deemed to exist when the latter ultimately own or control, directly or indirectly, more than 25% of the capital or voting rights of the investor, or otherwise exercise control, directly or indirectly, over the investor".
  • The second amendment is the extension of the deadline for the suspension of the liberalization of foreign direct investment executed by residents of other EU and EFTA countries until 31 December 2024.
The new whistleblowing law:

The Law 2/2023, of 20 February, regulating the protection of persons who report on regulatory infringements and the fight against corruption has established for both public and private entities the obligation to implement internal protected information reporting canals for the person who reports any corruption or fraud and violations of EU and national law. To make a special mention, the following kinds of private entities has the obligation to implement internal protected information canals:

  • Legal entities in the private sector with 50 or more employees.
  • Legal entities in the private sector that fall within the scope of application of the European Union acts on financial services, products and markets, prevention of money laundering or terrorist financing, transport security and environmental protection referred to in parts I.B and II of the Annex to Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019, must have an internal information system that will be regulated by their specific regulations, regardless of the number of employees they have. In these cases, this law shall be applicable in all matters not regulated by their specific regulations. Legal entities shall be deemed to be included in the preceding paragraph if, despite not having the corporate address in national territory, they carry out activities in Spain through branches or agents or through the provision of services without a permanent establishment.

The incompliance of the above-mentioned obligation implies the penalties ranging from very serious, serious, and minor: Up to 1 million euros.

For further information, please contact:

Juan Ignacio Alonso - Andersen Partner
| China Desk Coordinator

Wenbo Zhou - Andersen Associate
| China Desk Coordinator

You can download the full PDF file and its tranlation in Chinese here.

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