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Dentons & McKenna Long to Merge, Giving Clients a Competitive Edge

Dentons & McKenna partners approve merger. Learn more about how clients inside the US will gain unrivaled access to markets around the world and international clients will enjoy increased strength and reach across the US.

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Topics: Combination

European Commission’s Green Paper on Building a Capital Markets Union: A New Era for European Infrastructure

On February 18, 2015 the European Commission released its Green Paper on Building a Capital Markets Union (“the Green Paper”). By acknowledging the need for the establishment of unified capital markets and assessing the status of capital markets in the EU, while setting out specific policy priorities, the Green Paper constitutes a tremendous opportunity for international infrastructure companies  to secure the financially viability of their projects in Europe.  More ›

Potential Pitfalls for Private Equity under the ACA

Under the Affordable Care Act, employers with 50 or more full-time employee equivalents (“FTEs”) could be subject to a penalty if they do not offer adequate health coverage to their full-time employees (generally, those expected to work at least 30 hours per week). Under a special transition rule, employers with less than 100 FTEs may delay their compliance until 2016 if they satisfy certain requirements. The penalties under this “employer mandate” can add up quickly, at a rate of $2,000 to $3,000 per full-time employee.


Private equity firms should take note that the “controlled group” rules used in determining the employer for ACA purposes could potentially combine their fund and their portfolio companies, or combine multiple portfolio companies, as one single employer group. To protect against the risk of ACA employer mandate liabilities, private equity firms (and buyers in general) should review their current structures and update their acquisition diligence and procedures. 

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Recent Belgian Constitutional Court Judgment Strikes Down Retroactive Tax Increase For Collective Investments

On January 22, 2015, the Belgian Constitutional Court delivered a judgment (Case no. 1/2015) in a case opposing a Luxembourgish company “Robeco Capital Growth Funds, SICAV” to the Belgian State (“Robeco Capital Growth case”). Robeco Capital Growth Funds had requested the annulment of Article 106 of the Belgian Act of 17 June 2013 containing tax and financial provisions relating to sustainable development. That legislative provision increased the annual tax rate applicable to undertakings for collective investment (“Belgian Subscription Tax”) from 0.08% to 0.0965% with effect as from January 1, 2013 and to 0.0925% with effect as from January 1, 2014. Article 106 (“the disputed provision”) was intended to amend the Belgian Inheritance Code.

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Most Recent EU Sanctions Against Russia: Impact on EU Capital Markets and the Financial Service Industry

On July 31, 2014, the EU adopted Regulation 833/2014 (“Regulation 833”) Council Decision 2014/512/CFSP concerning restrictive measures in view of Russia's actions destabilizing the situation in Ukraine, targets particularly Russia’s financial sector, by restricting access to the EU capital markets for certain state owned Russian financial institutions. The Regulation 833’s restrictions are immediately applicable pursuant Article 13 (a) within the territory of the Union; (b) on board any aircraft or any vessel under the jurisdiction of a Member State; (c) to any person inside or outside the territory of the Union who is a national of a Member State; (d) to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State; and (e) to any legal person, entity or body in respect of any business done in whole or in part within the Union. 

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Belgian Real Estate Company: A New Vehicle For The REIT Sector In Europe

On May 12, 2014, the Belgian legislature adopted the Act on the Regulated Real Estate Company (the "Act"), which was followed by the implementing Royal Decree of July 13, 2014 (the "Royal Decree"), introducing to the Belgian legal order a new real estate vehicle: the Regulated Real Estate Company or Société Immobilière Réglementée /Gereglementeerd Vastgoed Vennootschap) ("SIR/GVV").  

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International Taxation in Cross Border Transactions: The Recent Work of the Joint Transfer Pricing Forum

On June 4, the European Commission (“the Commission”) published a Communication to the European Parliament, the Council and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Forum (“JTPF”) in the period from July 2012 to January 2014. The JTPF was set up by the Commission in 2002 as an important source to its work on improving the practices of transfer administration and functioning in the EU in the context of international taxation of cross border transactions. The Communication addresses three different aspects of transfer pricing through three annexed reports respectively:

Secondary Adjustments: The report includes an assessment of secondary adjustments as differently applied in some Member States in order to allow for profit allocation between consecutive transactions. Secondary adjustments might lead to double taxation, thus Member States which have not made such a measure mandatory under applicable legislation, are advised not to use it. The report suggests that secondary adjustments can be re characterized as constructive dividends or constructive capital contribution pursuant to the Parent Subsidiary Directive (Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States) and operate as such.

Transfer Pricing Risk Management: The report includes advice on managing transfer pricing risks by adequate cooperation between the tax payer and the tax authorities as well as by proper identification of high and low risks areas, through the use also of special tools such as the exchange of information, common working procedures for audits, a common documentation standard under the Code of Conduct on transfer pricing documentation for associated enterprises in the EU and the dispute resolution mechanism provided by the EU Arbitration Convention. The latter provides for the procedure to resolve disputes, where double taxation occurs between enterprises of different Member States as a result of an upward adjustment of profits of an enterprise of one Member State.

Compensating adjustments: Different practice between Member States with respect to compensating adjustments may result in double taxation or double non-taxation. To that end, the relevant report suggests that Member States should only accept compensating adjustments initiated by the taxpayer, if the taxpayer satisfies certain conditions such as reporting of the price of the transaction to each Member State concerned, historical consistency in approach by the taxpayer, ability to explain differences between forecasts and actual results etc.

The Commission invites the Council to endorse the three reports annexed to the non binding in nature Communication and the Member States to implement the recommendation provided therein in their national legislation. All in all, the JTPF has produced considerable work over the years in the field of transfer pricing in the EU and its recommendations and their subsequent implementation in the different Member States should be closely and frequently observed by U.S. and multinational corporations (and their tax departments) alike operating in Europe to allow for efficient and compliant tax payments in accordance with adequate pricing of cross border transactions.

Chambers USA and The Legal 500 United States Recognize MLA in Corporate/M&A and Tax

MLA has once again been ranked by Chambers USA in the area of Corporate/M&A in Georgia. Wayne Bradley, Ann-Marie McGaughey, David Brown and Jeremy Silverman were recognized individually for their accomplishments. Chambers respondents noted MLA’s "Exceptional performance - they bring a team approach with a number of experts," and that MLA is "A top firm that provides legal services in a responsive manner."

Also, The Legal 500 United States ranked MLA in the M&A: Middle Market category. The Legal 500 noted MLA “knows how to get deals closed in the clients’ best interests. The team offers quick timing, industry expertise, and the ability to work with complex transactions and complex personalities.”

MLA attorneys recognized by The Legal 500 in this practice area include:

  • Kristen Beystehner
  • Joseph Blanco
  • Wayne Bradley (named an elite “Leading Lawyer” for fifth year in a row in this practice area)
  • David Brown
  • Mick Cochran
  • Chad Ensz
  • Jeff Haidet
  • David Ivey
  • Kurt Kicklighter
  • Mark Lange
  • Ann-Marie McGaughey
  • Kellie Newton
  • Scott Rafshoon
  • Michael Rule
  • Jeremy Silverman
  • Dan Titelbaum
  • Bob Tritt
  • Tom Wardell
  • Tony Williams

Also ranked, was Nora Wouters, in Europe, the Middle East, and Africa for Banking, finance and capital markets.

Congratulations to everyone ranked!

Facebook's Oculus VR Acquisition and Crowdfunding

Image Author: Sebastian Stabinger

The announcement of Facebook's acquisition of Oculus VR is a great starting point to explore the current state of crowdfunding.  Facebook has agreed to purchase Oculus VR (the development company behind the cutting-edge Oculus Rift virtual reality headset) for approximately $2 billion in total consideration.  Oculus developed and refined its headset in part because of significant crowdfunding capital support from Kickstarter.com users.  Crowdfunding provides a means for generating startup capital from a broad base of investors, and is an inclusive process that contrasts sharply with traditional, targeted private placements. There are some important differences to highlight between Kickstarter (a rewards-based crowdfunding site) and equity-based crowdfunding sites.

Rewards-Based Crowdfunding

Rewards-based crowdfunding sites like Kickstarter allow donors to contribute to projects in return for certain rewards.  For example, a singer-songwriter may promise an advance copy of a new album for those donors who meet a certain contribution threshold.  The actor/director Zach Braff funded the production of a movie ("Wish I Was Here") through Kickstarter, and promised rewards like posters and t-shirts.  Importantly, a donation to Kickstarter is not an investment; the site takes care to specify that "creators keep 100% ownership of their work." From a practical standpoint, rewards-based crowdfunding has two primary side effects.  First, donors have no stake in the company and no ability to influence company decisions.  Accordingly, the Oculus Kickstarter donors did not receive any proceeds from the Oculus sale, and had no influence over the sale negotiation and approval process, even though they provided the means for the company to develop its flagship product.  Second, since a donor does not receive a stake in the donee company, companies can sidestep regulatory scrutiny and associated costs with a rewards-based strategy.   Kickstarter's co-founder recently made a statement that, in his opinion, "there are things that are more important than money", highlighting the passive nature of rewards-based crowdfunding.

Equity-Based Crowdfunding

In contrast to Kickstarter, equity-based crowdfunding may allow for true "investors" in a venture, with a startup issuing shares of stock in exchange for investments.  The borders of equity-based crowdfunding are still blurred as the Securities and Exchange Commission continues to refine the rules and regulations governing crowdfunding, promulgated under the authority of the Jumpstart Our Business Startups (JOBS) Act.  However, when the dust settles and the regulations implementing Title III of the JOBS Act become effective, equity-based crowdfunding will be open to all investors, regardless of net worth or financial sophistication.  The first, and most important feature of equity-based crowdfunding is the regulatory presence of the SEC, and the associated time and expense. There are already some who argue that the costs of an equity-based crowdfunding raise may be prohibitive.  In addition to any legal and accounting costs, the regulated "portal" sites that companies use to solicit investors will charge fees for their services and further dilute any proceeds received from investors. However, as a product of this increased cost, a company with equity-based crowdfunding investors will likely have a more motivated investor base, and may also attract larger contributions from investors who know they might receive a real return on investment (as opposed to, say, a movie poster).

Rewards v. Equity: Choosing the Right Means of Crowdfunding

Having examined the key differences between rewards-based and equity crowdfunding, let's take another look at the Facebook/Oculus deal.  If the Oculus Kickstarter donors had received shares, the Facebook acquisition would have ultimately resulted in some consideration being paid to them from the $2 billion proceeds of the sale.  The shareholders may have also received a say in approving the sale.  The existence of a large body of existing shareholders may have stalled negotiations with Facebook, or even potentially killed the deal.

So how should a company choose between rewards- and equity-based crowdfunding?  The first step is for management to make sure that crowdfunding is truly the best option.  A company can always turn to a private placement for startup capital, or a more measured "advertised" private offering, with open advertisement (through a crowdfunding portal site) targeted only at accredited investors.  In considering the above, a company should also be sure to survey the current crowdfunding landscape in full. For example, debt-based crowdfunding, which is not covered in this article, may be a viable alternative for some companies.

If rewards- or equity-based crowdfunding is the right choice, a company should consider the following question: are the risks of (i) giving investors a stake in the company (and any corresponding approval rights/decision-making power), (ii) increased SEC oversight and (iii) increased transaction costs outweighed by the monetary benefits of raising capital through equity instead of donations?  For many smaller companies, the risks may not outweigh the benefits, but for businesses with substantial capital needs and significant plans for growth, equity based crowdfunding may be worth the potential risks.  Conversely, both the risks and rewards for investors are much more substantial in equity-based crowdfunding, while rewards-based crowdfunding could be an entertaining, safe way for an investor to show support for an up-and-coming project.

TTIP and Data Flows: Do Traditionally Different Legal Approaches Create a Dead End for the Free Flow of Data?

As we approach the next round of negotiations between the EU and the US on the Transatlantic Trade and Investment Partnership (“TTIP”), which will take place in Arlington, Virginia from May 19 to May 23, 2014, the inclusion of provisions allowing free data flows between the parties in the final Agreement becomes, once again, the subject of a heated debate with respect to the suitability of such inclusion given the fundamental differences between the legal systems of the US and the EU. Below we identify some of these fundamental differences and suggest potential solutions that would allow data flows provisions to make it to the final Agreement.

I. Legal Culture and Government Structure

Differences between common and civil law systems determine the different approach with respect to personal data relevant legislation. Significantly, judicially-created U.S. law results in fewer statutory restrictions in the flow of data. In addition, the US federal organization of the state as compared to the semi federal non economically unified structure of the EU gives leeway to a sovereign-based approach and different legal and judicial interpretation of data flows, thus creating legal uncertainties and inconsistencies in the application of the law.

Similar differences in approach can also be observed with respect to international trade law, affecting further the substantive elements of the respective trade policies adopted. In particular, the United States have traditionally refused to accept certain mainstream provisions of international customary law and have insisted on maintaining an insistent objector’s position in the international legal order. This approach, together with the size of the US economy and the volume of international trade transactions in which the country is involved, makes a potential alignment with trade policies of the EU even more difficult. The courts of the latter have developed jurisprudence (see the Kadi I and II cases and the relevant Opinions of Advocate General Maduro) which supports the further integration of the EU in the international legal order – with those remaining separate though – and proves the Union’s commitment to the respect of all customary and treaty international law obligations.

II. Conceptual differences

U.S. law treats data as a sui generis commodity that can be freely traded. US legislation lowers the threshold of protection of all types of personal data to enhance their commercial nature and allow for its efficient processing by US corporations.

EU law traditionally treats data as part of a fundamental rights enlistment. Data protection is an inextricable part of the EU Digital’s agenda. Similar rationales which are shaped by the need to protect data privacy as a fundamental right of the individual appear in a number of recent legislative texts and proposals. The efforts of the EU to create a uniform data protection regime throughout the European Economic Area that would prompt multinational corporations to reconsider their entire business strategy in this part of the world have received international attention and have been heavily criticized by reputable scholars, attorneys and other legal professionals.

III. Potential violations of existing legislation

The inclusion of a data flows chapter in TTIP would necessarily entail potential breaches in EU data protection legislation, especially as this will be shaped after the adoption of the new Data Protection Regulation. Free and highly unregulated data flows between the two parties to the Agreement under a reciprocal arrangement that would not comply with EU standards but which would operate on an ad hoc commercially oriented exception to the uniform application of EU legislation would not be desirable.

In addition, compliance with EU legislation would be problematic especially with respect to jurisdictional issues. As TTIP is not envisaged to introduce a jurisdictional clause, parties would need to consider the procedural aspect of potential claims stemming from violations of their respective national legislations.

Another big question mark is the dispute resolution system to which violations of the provisions of a hypothetical TTIP chapter would be brought. It would be absurd to expect an investment arbitration proceeding to deal with data flows issues as the exposure of international commercial and investment tribunals to similar issues is extremely limited if not completely inexistent. In addition, it would need to be determined whether such disputes are overall arbitral; this debate only has its individual value.

IV. Bridging the gap: Existing Paradigms

A system that would allow data flows without violations of the existing legislation in the EU and the US could have as a starting point the existing data transfer arrangements between the EU and the US.

For example, exchange of personal data between the EU and the US for the purposes of law enforcement, including the prevention and combating of terrorism and other forms of serious crime, is governed by a number of agreements at EU level. These are the Mutual Legal Assistance Agreement, the Agreement on the use and transfer of Passenger Name Records (PNR), the Agreement on the processing and transfer of Financial Messaging Data for the purpose of the Terrorist Finance Tracking Program (TFTP) and the Agreement between Europol and the US. These Agreements respond to important security challenges and meet the common security interests of the EU and US, whilst providing a high level of protection of personal data.

V. Conclusions

Bridging regulatory regimes of different legal and institutional traditions is a difficult task. It becomes even more difficult when this needs to take place in the context of a trade agreement that should also per se focus on economic realities. However, the increasing importance of the digital economy, which has developed a potential to cover more industries and reshape modern economies while creating more inequalities in development between different parts of the world calls for extensive uniform data flows regimes.

Optimizing the potential of the EU economy cannot take place without abandoning certain aspects of stringent regulatory commitment to principles of moral value. At the same time, strengthening the US economy through increased exports and enhancing the presence of US high tech companies in Europe requires an actual understanding of the EU data protection framework and a deeper commitment to international law.