#JANUARY 2017 – INTERNATIONAL NEWSLETTER
Law on gender balance on corporate boards comes into effect on January 1, 2017
Gender equality on management and supervisory boards – how the regime applies to non-listed companies – penalties – application in the event of a merger.
Law no 2011-103 on gender balance on management and supervisory boards and on professional equality
The law of January 27, 2011 requires corporate bodies to be gender-balanced, meaning that the corporate bodies of the companies affected have to have at least 40% of their directors of each gender. In boards of up to 8 members, the gap between men and women may not exceed 2 seats. This regime will come into effect on January 1, 2017. The first general meeting held after January 1, 2017 must therefore bring the company into compliance with the gender equality requirement, even if none of the directors’ mandates are coming to an end.
The gender equality requirement applies to listed companies as well as non-listed companies that (i) employ at least 500 permanent employees (although the threshold will be lowered to 250 employees starting in 2020) and that (ii) have a turnover or total assets of at least 50 million euros.
Failure to comply with the gender equality requirement will result in the following penalties being applied: appointments that do not remedy the lack of gender balance in the board’s composition will be declared null and void; and the payment of directors’ attendance fees will be suspended and recorded, in the case of listed companies, the company’s annual report.
Appointments made before January 1, 2017 will not be affected.
In the event of a merger, the gender equality requirement must be complied with on the date indicated by article L. 225-18-1 of the Commercial Code.
The obligation of good faith is now enshrined in a French law which comes into effect on October 1, 2016
The obligation of good faith sees its importance reinforced and its scope extended.
The new article 1104 of the Civil Code now states that “contracts must be negotiated, prepared and performed in good faith as a matter of public policy.”
Furthermore, the new article 1112 of the Civil Code provides that “Parties may freely initiate, carry out and terminate pre-contractual negotiations. These endeavours must however satisfy the good faith requirement. In the event of a fault committed in negotiations, the compensation awarded for losses shall only compensate for the loss of the advantages expected from the non-executed contract.”
The good faith requirement, which has long been the subject of case law, will now apply to the performance of a contract as well as to its negotiation and preparation.
Good faith is not defined any more precisely than before. In any event, it would be difficult to formulate a non-reductive definition of a concept that, due to its flexibility, is often used to regulate and improve the application of contract law. It is assumed that everybody essentially understands what good faith means. Courts will therefore continue to have the ability to rule on the basis of individual cases. In practice, they will probably retain their traditional standpoint, given that case law on the matter is now well developed.
The fact that the good faith requirement has now been codified should not substantially increase the risk of litigation. The new law does not add anything new to the original obligation in terms of the performance phase of a contract. When it comes to the negotiation phase, it enshrines the established case law, both in terms of the principle of good faith and in terms of the consequences of one of the parties’ bad faith during pre-contractual negotiations. The new article 1112 of the Civil Code actually reinforces previous case law, in accordance with which any potential compensation would not compensate for the loss of expected gains from a contract that was never concluded. It is interesting to note that the authors of the order preferred the more comprehensive term of “advantages”, rather than “gains”, which is the term generally used by the Court of Cassation. The seller’s loss of opportunity to enter into a contract with a third party does however remain subject to compensation, provided that there is evidence to prove a causal link between the wrongdoing of the party acting in bad faith and the losses suffered.
Since the principle of freedom to enter into a contract remains unchanged, judges will not have the right to force parties to enter into a contract any more so than they did before.
INTELLECTUAL PROPERTY AND TECHNOLOGY LAW
The jurisdiction clause of Amazon’s general terms and conditions of sale ruled unfair
The Court of Justice of the European Union has ruled that the clause contained in Amazon’s general terms and conditions of sale was unfair insofar as it “gave consumers the incorrect impression that only the law of the supplier member state applied to the contract.”
E-commerce: clarification on the law applicable to consumers.
The Court of Justice of the European Union (the CJEU) issued a very instructive ruling for those involved in on-line sales in terms of relations with their customers.
An Austrian consumer protection body brought before the court a case against the online giant Amazon, claiming that article 8 of the latter’s general terms and conditions of sale was unfair in imposing the laws of Luxembourg as the governing law.
The CJEU issued a decision on July 28, 2016 which held that in application of regulation no 864/2007 of July 11, 2007, also known as the Rome II Regulation, if a clause has not been individually negotiated (which is systematically the case with online sales), then it is deemed unfair as it creates a significant imbalance between the rights and obligations of the parties, to the detriment of consumers.
In this case, the CJUE held that the clause contained in Amazon’s general terms and conditions of sale was unfair insofar as it “gave consumers the incorrect impression that only the law of the supplier member state applied to the contract.” In order for the clause not to have been considered unfair, Amazon would have had to inform consumers that they were also subject to the mandatory provisions of their national laws, where these provisions offered a higher degree of protection than the law imposed by the general terms and conditions of sale.
The Court thus held that the jurisdiction clause contained in Amazon’s general terms and conditions of sale “resulted in a significant imbalance between the parties’ rights and obligations” and that “the choice of jurisdiction may not lead to consumers being deprived of the protection granted to them by the mandatory laws of their country of residence.” Amazon has already reacted to the CJEU ruling without waiting for the decision of the Austrian courts to change its general terms and conditions of sale:
It is therefore now up to companies who provide online sales to update their general terms and conditions of sale in order to give consumers the option to chose the laws of the country in which they are resident in the event of conflict.
Internet: Hyperlinks and Dangerous Liaisons
Be careful with your hyperlinks!
A hyperlink pointing to content that infringes a copyright is presumed to be infringing itself if it is exploited for profit
By a judgment of the Court of Justice of the European Union (CJEU) dated September 8, 2016, it was deemed that placing a hyperlink to content infringing copyright may be considered counterfeit, depending on the circumstances of the case.
The CJEU thus makes an interesting distinction by differentiating the case where the hyperlink is made for profit purposes or not.
Thus, if the link is published on a not-for-profit site, there is a presumption of good faith for the author of the link, even though the link is made towards a work without authorization from the content owner, provided that the author of the hyperlink was not aware of the illegality of such content.
However, where the hyperlink is included with a view to making a profit, the author of such an inclusion may be expected to carry out the necessary checks so as to ensure that the work concerned is not unlawfully published. In such a case, knowledge of the illegality of the publication on another website must be presumed.
INTERNATIONAL TAX LAW
Switzerland ratifies the Convention on Mutual Administrative Assistance
The exchange of information with Switzerland will be facilitated from January 1, 2017.
On September 26, 2016, Switzerland ratified the Convention on Mutual Administrative Assistance in Tax Matters at the OECD headquarters in Paris.
This multilateral instrument was drawn up in 1988 by the Council of Europe and the OECD. It was amended several times, notably in 2009 during the G20 summit in London. More than 100 jurisdictions have already ratified the Convention, which aims at facilitating international cooperation for better enforcement of the national tax laws of each state.
Moreover, according to the OECD, “Switzerland is committed to implementing the automatic exchange of information on financial accounts in time to start exchanging in 2018 and is one of the signatories of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (CRS MCAA) and of the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the CbC-MCAA), which are both based on Article 6 of the Convention”.
The Convention on Mutual Administrative Assistance in Tax Matters will enter into force in Switzerland on January 1, 2017.
BEPS: Publication of the decree concerning the Country by Country Reporting (CbCR)
The terms and conditions for transfer pricing reporting are specified
Following the work of the OECD on the problems of tax base erosion in the world (BEPS), many States have adopted a new declarative tool: the country by country reporting (i.e. CbCR), which allows the automatic exchange of information between tax administrations on transfer pricing.
This is the case in France, which has codified this reporting in Article 223 quinquies C of the French Tax Code (Code général des impôts) within the framework of the Finance Act for 2016. The principle and scope of the country-by-country reporting were enacted on this occasion. As a reminder, this reporting shall concern the parent companies of French groups with a consolidated turnover of at least 750 million euros, as well as French subsidiaries of foreign groups with a similar amount of consolidated turnover.
Nothing had been specified under the law as to the information to be indicated in the reporting. This is precisely the purpose of Decree No. 2016-1288 dated September 29, 2016, which provides that the reporting shall include, for each State or territory in which the group is located, the following aggregated data relating to the financial year in question:
– Turnover resulting from intra-group transactions;
– Turnover resulting from transactions with independent parties;
– Total turnover;
– Profit or loss before income taxes;
– Income taxes paid;
– Income taxes due;
– Share capital;
– Retained earnings at the end of the financial year;
– Number of full-time equivalent employees;
– Tangible assets excluding cash and cash equivalents.
As a reminder, the country-by-country reports must be filed for the financial years closed as of January 1, 2016 within 12 months of the end of financial year. Failure to file the said reports could entail the payment of a 100,000 euro fine.
TAX INCENTIVES FOR INNOVATION
French R&D tax credit: Implementation of the “rolling” tax ruling for multi-year research projects
This new system enables the revision of the initial ruling to be requested following the modification of a multi-year research project.
In order to secure a project’s eligibility for the French R&D tax credit (crédit d’impôt recherche, or CIR), companies have the possibility to request prior validation from the tax authorities in the form of a ruling.
The application for a ruling must be filed at the start of the project and in any case at least six months before the filing date of the “CIR” declaration. A positive response to the ruling validates the eligibility of the research project over time unless the latter changes compared with the description made in the initial application.
However, in multi-year projects, it is very common to change direction as work progresses. In this case, the initial ruling could no longer be referred to since the project had evolved and a new ruling could no longer be filed due to the deadline’s expiration.
As of October 1, 2016, the tax authorities have therefore set up the “rolling” ruling system, which enables a revision of the initial ruling to be requested following the modification of a multi-year research project. This application shall refer to the initial ruling and describe precisely the proposed changes to the project. It must be filed at least six months before the filing date of the CIR declaration.
This new system is welcome as it finally secures multi-year research projects over their entire duration.