The following members of McGuireWoods’ offices contributed to this issue:

McGuireWoods LLPrue des Colonies 56 (bte 3) 1000 Brussels, Belgium

McGuireWoods London LLP11 Pilgrim StreetLondon EC4V 6RNUnited Kingdom

European Business Law

VOLUME 25 | SPRING 2012

900 Lawyers | 19 Offices | www.mcguirewoods.com

A Publication of McGuireWoods’ Brussels & London Offices

UpdateHubert André-Dumont (Partner, Brussels) focuses on commercial law, company law, real estate and construction law, with a special focus on real estate finance, mining (with a focus on francophone Africa), and mergers and acquisitions.

William J. Cook (Partner, Chicago) focuses his practice on IP litigation, internal investigations, data security and privacy counseling and litigation and export and import regulatory compliance and litigation.

Martin Donaghy (Counsel, Brussels) focuses on commercial law, company law, mergers and acquisitions, real estate law and European Union law.

Petar Orlic (Senior Counsel, London) focuses on all aspects of real estate work with primary emphasis on commercial acquisitions, property finance and property management both in the UK and mainland Europe.

Bénédicte Raevens (Partner, Brussels) focuses on commercial and contract law, European Union law (i.e., personal data protection, free movement of goods, regulatory issues), and litigation.

Phillip R. Rees (Partner, London) advises on outsourcing, technology, media, telecommunications, intellectual property and sport matters, with particular emphasis on European regulatory issues, including data protection and data security, cross-border data transfers, privacy, encryption, export controls, technology and EU public procurement regulations.

Josip Stajfer (Trainee Solicitor, London) is undertaking his first seat in the firm’s Labor and Employment and Real Estate and Land Use Departments.

European Business Law Update is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. McGuireWoods does not intend to create an attorney-client relationship by offering this information, and anyone’s review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention. For further information, please contact a McGuireWoods lawyer. ©2012 McGuireWoods LLP (continued)

The EU Commission recently published a draft Regulation on the protection of individuals with regard to the processing of

personal data and on the free movement of such data (the “draft Regulation”).

The draft Regulation aims at replacing EU Directive 95/46 on the same subject matter. Contrary to the Directive, which was implemented by EU member states into their national law with a certain room for manoeuvre, the draft Regulation contains rules that will be directly applicable in a uniform way in the 27 EU member states (plus Norway, Iceland and Liechtenstein). Under this harmonized set of rules, enterprises will no longer have to deal, as in the current regime, with diverging national legislative regimes and authorities.

Regarding its contents, although the main existing principles will remain (e.g. legitimacy, transparency, proportionality and specific requirements for sensitive data and for international transfers), the draft Regulation brings some significant changes for individuals, enterprises and the national data protection authorities (DPA), notably the following:

Individuals The data subject’s rights will be reinforced.

In order to target non-EU companies that operate on the Internet, the draft Regulation will apply also to enterprises not established in the EU if they process personal data in relation to (i) the offering of goods or services to EU residents or to (ii) the monitoring of their behaviour. This would lead to an extra-territorial application of the EU data protection rules.

The use of consent as a means for legitimizing data processing will be limited. Thus, where there is a significant imbalance between the position of the data subject and the data controller, such as in the employment context, consent shall not provide a legal basis for data processing. Wherever consent may still be used for legitimizing personal data processing, it will no longer be considered as assumed in light of the circumstances but must be given explicitly, either by a statement or by a clear affirmative action. The data subject will have the right to withdraw his/her consent at any time. The draft Regulation also provides for specific rules regarding the processing of personal data of children.

In order to increase the transparency of data processing, the information to be provided to the data subjects about the processing of their personal data will be

A Significant Step Forward for Personal Data Protection in the European UnionEU Focus on Privacy Affects Global Companies, Including Those in the US

By Bénédicte Raevens, Phillip R. Rees & William J. Cook

extended (retention period, right to lodge a complaint, data transfer to a non-EU country, etc.) and data controllers will have to implement detailed procedures for allowing individuals to exercise their right of access.

The new right to be forgotten, in fact an extension of the existing right to erasure, targets in particular an effective deletion of the personal information provided by an individual to social media networks once he/she has decided to close his/her account.

The new right to data portability, defined as the right to obtain a copy of data undergoing processing in an electronic and structured format, should allow data subjects to change online service providers more easily.

Enterprises The draft Regulation enhances the compliance obligations of data controllers (the entities that determine the purposes, conditions and means of the data processing) and data processors (entities that process personal data on behalf of the controller, such as IT service providers).

The draft Regulation imposes duties of responsibility and accountability on data controllers, in particular:

• Keeping detailed documentation on the processing;

• Implementing data security requirements appropriate to the risks represented by the processing and the nature of the personal data;

• Performing impact assessment studies in case of risky data processing, such as profiling; processing of information on sex life, health and ethnic origin for the provision of healthcare; video surveillance on a large scale; filing systems on children; and

• For enterprises employing at least 250 persons, designating a data protection officer.

The compliance measures will be independently verified, either by internal or external auditors.

In accordance with the new concept of data protection by design and by default, data controllers will have to implement

technical and organizational measures in such a way that the data processing will meet the requirements of the draft Regulation. Moreover, products and services will have to be featured in such a way that privacy-friendly settings are activated by default when they are used.

The draft Regulation introduces a general data breach notification requirement. Data controllers will be obliged to notify their DPA of the breach within 24 hours as a matter of principle, and to all data subjects concerned by the breach without undue delay. The same obligation is imposed on the data processors vis-à-vis their controllers.

As far as international data transfers are concerned, the draft Regulation clarifies and amends the various means for legitimizing a transfer from the EU to a non-EU country. In this framework, the Binding Corporate Rules (BCRs), which allow intra-group transfers beyond EU borders, are legally recognized as a means for legitimizing such transfers.

As a matter of obvious simplification, companies with operations in several EU member states will no longer have to deal with several national DPAs, but will be subject only to the jurisdiction of the DPA of its main place of establishment, which will be a “one-stop shop” for data protection-related issues. Companies will also welcome the elimination of the general requirement to notify DPAs of data processing activities.

Data Protection Authorities The draft Regulation provides DPAs with increased enforcement powers. They will be able to impose fines up to EUR 1,000,000 or up to 2 per cent of their worldwide annual turnover on organizations that violate the data protection rules.

ConclusionThe draft Regulation should eliminate administrative burdens and costs to companies incurred as a consequence of the current need to deal with various national data protection rules and DPAs. The downside for companies is that it imposes new significant and onerous obligations, with potentially substantial sanctions.

The draft Regulation, even if adopted as is, will not be applicable until at least two years after its adoption. However, companies should begin adjusting now, not only by complying with the existing rules, especially with those that will endure beyond the reform, but also by planning ahead about how to comply when the new rules become effective.

The McGuireWoods data privacy and security team is working on and will issue soon an in-depth analysis of the cost/risk management implications of the draft Regulation for businesses, together with compliance issues that will flow in particular from the mandatory data breach notification.

McGuireWoods Data Privacy and Security Team

Counselling regarding data protection, including global data breach and privacy issues, is one of the services of McGuireWoods’ interdisciplinary Technology & Outsourcing practice, which provides legal services for business transactions driven by technology. Foremost among our diverse services are IT procurement, outsourcings, e-commerce transactions, data security, and dispute prevention and resolution. Our clients include Fortune 100 corporations, governmental entities, nonprofit organizations, and emerging business enterprises spanning the industry spectrum. For more information, see our Brussels EU Data Protection practice or our London office page.

European Business Law Update

(Data Protection, continued)

On 24 December 2011, the Democratic Republic of Congo (D.R.C.) finally ratified the income tax treaty it

signed with Belgium on 23 May 2007. The treaty was ratified by Belgium in January 2009. The treaty became effective 1 January 2012. The treaty, which is the first of its kind ratified by the D.R.C. (a tax treaty with South Africa was signed in 2005 but has not yet become effective), is likely to promote Belgium as a hub for inward investment into the D.R.C. Investors in the D.R.C., subject to home-country tax provisions, may have an interest in opening an intermediary holding company in Belgium to benefit from the advantages offered by the treaty. D.R.C. borrowers should also benefit from the withholding tax exemption on interest payments on loans with Belgian banks.

The treaty also contains a most favored nation clause, under which Belgium would be granted at least equally favorable withholding tax rates on dividends, interest, and royalties as those granted to other EU member states in the event that the D.R.C. concludes income tax treaties with those member states. The treaty contains the classic solutions for the avoidance of double taxation, but also offers some more original and attractive provisions.

Corporate TaxCurrently, a Belgian company opening a permanent establishment in the D.R.C. without creating a subsidiary will be taxed on its profits in both the D.R.C. and in Belgium. The treaty provides that profits generated through a PE in the D.R.C. will be taxed in the D.R.C. and exempted in Belgium.

The treaty also establishes a series of situations that are not considered as constituting a PE in the D.R.C. and are therefore not taxable in the D.R.C., including:

• a construction or assembly site of less than six months;

• installations for the storage, display, or delivery of goods;

• the storage of goods for warehousing, display, or delivery;

• the storage of goods for processing;

• a fixed place of business used only for purchasing products, information gathering, or other preparatory or auxiliary activities; and

• an accumulation of the above, as long as all those activities have a preparatory or auxiliary nature.

Moreover, a Belgian company’s PE in the D.R.C. will not be subject to withholding tax on the profits made by the PE that will be repatriated to Belgium, because those profits will be taxed in the D.R.C.

DividendsFor dividend payments between companies established in the D.R.C. and Belgium, the treaty provides that dividends paid by a D.R.C. company are exempted from Belgian corporate tax under the conditions (that is, holding for at least one year and the D.R.C. company being subject to corporate taxation) and the limitations (the 95 per cent exemption) provided by Belgian law.

Those dividends are subject to a 10 per cent withholding tax rather than the usual 20 per cent D.R.C. withholding tax, or 15 per cent if the D.R.C. company benefits from a tax exemption under the D.R.C. Investment Code or a particular law regulating investment in specific sectors; and the Belgian parent company directly holds at least 25 per cent of the share capital of the distributing company.

Moreover, the treaty provides that dividends received by a Belgian company from a D.R.C. company that benefits from a tax exemption under the D.R.C. Investment Code or a particular law regulating investment in specific

sectors (such as the Mining Code) are tax-exempt for a period of 10 years from the entry into force of the treaty, with an automatic 10-year renewal unless informed otherwise by the Belgian competent authority.

Interest and Intellectual Property RoyaltiesThe treaty provides for a maximum 10 per cent withholding tax (instead of 20 per cent) by one contracting state on payments of interest and intellectual property royalties to a resident of the other contracting state. In this case, tax may be paid in both states, but it is limited to a maximum of 10 per cent in the state in which the interest or royalties arise.

The treaty provides for a series of total tax exemptions in the state in which the interest arises on commercial loans and bank loans or for interest paid to public entities of the other state.

Belgium-D.R.C. Treaty Offers New Opportunities for Investment in the D.R.C.By Hubert André-Dumont & Martin Donaghy

DEMOCRATIC REPUBLICOF THE CONGO

For more details on the contents of this issue, please contact the individual authors by e-mail or:

Hubert André-Dumont • McGuireWoods LLP • +32 (0)2 629 42 60 • handredumont@mcguirewoods.com Bengt Grundberg • McGuireWoods London LLP • +44 (0)20 7632 1634 • bgrundberg@mcguirewoods.com

European Business Law Update

The UK government is looking into ways of encouraging investment into the UK by making it a more attractive place to do business. New business investment relief will be introduced beginning 6 April 2012 to encourage

investment by investors not domiciled in the UK, allowing them to remit their foreign income and gains to the UK, tax-free, in order to fund enterprises.

Non-doms will be able to make unlimited investments in trading and commercial property companies via shares or loans. This should make the UK a favourable place for non-doms to start or to continue to build their business interests. Investments can be made by an individual or through investment vehicles, including offshore companies and trusts. It can be in the form of money or any other property.

Investment in UK CompaniesInvestments must be made for the purpose of making a commercial business investment in an unlisted company or a company listed on an exchange-regulated market. This means that companies quoted on AIM and PLUS can be eligible, as well as foreign companies (provided they are private limited companies and the conditions set out below on qualifying activities are met). Investments in fully listed companies and partnerships, including limited liability partnerships, are not eligible for the relief.

The investments that qualify for the relief are investments into “eligible trading companies” or into “eligible stakeholder companies”. An eligible trading company is a private limited company which carries one or more commercial trades (or is preparing to do so within two years), and carrying on commercial trades constitutes all or substantially all of its business activities (i.e. over 80 per cent of its total activities, which is usually measured by the company’s turnover). An eligible stakeholder company is a private limited company which exists wholly for the purpose of making investments in eligible trading companies. As holding companies, they are eligible if they hold one or more investments in eligible trading companies or are preparing to do so within two years of a qualifying investment being made. Where a company has not commenced trading at the time of the investment, such trading should reasonably be expected to constitute all or substantially all of its total activities once it does commence trading.

Investment in Shares or LoansInvestments for the purposes of this relief can be made in shares in a company (which includes any securities), but these shares must be issued, which means that shares purchased from existing shareholders cannot be qualifying investments. However, as there is no requirement that these shares must be ordinary shares, investors may invest in shares giving preferential rights (for example, to dividends or to capital).

Unsecured or secured loans to a company may also qualify for the relief. Where a loan can be drawn down in stages, the loan is treated as made when the first draw down occurs.

Investment in UK PropertyInvestment activity can include property. However, investment in UK property must be made through a company. The company’s eligible activity may be developing or letting commercial property. Investment in a company which combines trading activities with developing or letting commercial property will also be eligible for the relief.

In relation to residential property, any business involved in residential property will be eligible for the business investment relief if its trade is building or developing residential property, or its trade involves the use of residential property (e.g. private student halls of residence, nursing homes, private hospitals). A company that holds or lets residential property may be eligible only if these activities constitute up to 20 per cent of its total activities, which is usually measured by the company’s turnover. Companies undertaking furnished holiday lettings will not be qualifying businesses for the purpose of the relief.

Final NotesThere is no requirement for the target company to apply the invested funds for any particular purpose or within any particular timeframe. The company is not prevented from paying a salary to investors as employees, or a dividend/interest in respect of rights as a shareholder or a lender, provided that UK tax is paid on such payments.

To enjoy the full benefit of the relief, investors must reinvest proceeds from the disposal of all or part of a qualifying investment into another qualifying investment or they have to take the proceeds offshore within 45 days of the disposal.

It is interesting to note that a company in which the investment is being made does not have to be trading at the time of investment or have to start trading immediately. However, the company should commence qualifying activities within two years of the investment being made, or should make the investment in eligible trading companies within the same two-year period. This means that the company may be used as a “cash box” by investors for two years.

There is no annual or lifetime cap on the amount of an individual’s non-UK income and gains that may qualify for the relief. Also, there is no restriction on the size of investor’s shareholding in the company.

This relief is a great incentive for non-dom investors with substantial non-UK income interested in investing in UK property. UK property developers will also become more attractive to foreign investors.

By Petar Orlic and Josip Stajfer

New Incentives to Invest in UK Properties