german legal issues for indian technology companies
DESCRIPTION
German legal issues for Indian technology companies - Presentation made for NASSCOM EMERGE Friday's 2.0TRANSCRIPT
![Page 1: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/1.jpg)
German legal issues for Indian technology companies
Ulrich Bäumer
Delhi, 13. November 2009
![Page 2: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/2.jpg)
Agenda
1. Co-operation between Indian and German companies
2. Common Law and Civil Law
3. European Legal System
4. Law of Associations
5. IT outsourcing Contractual Issues / The Market in Europe
6. Employment Law
7. German Tax Law
8. German Court System
![Page 3: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/3.jpg)
… but first
a quick introduction to Osborne Clarke
![Page 4: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/4.jpg)
About Osborne Clarke Alliance
• 600 lawyers in Europe
• Offices in 16 European cities + in Palo Alto, USA + in Shanghai, China
• Specialists in assisting international businesses in Europe
• Awards/recognitionBanking Law Firm of the year 2009 (by Acquisition Finance)
Law Firm of the year at M&A Awards (2009)
Law Firm of the year in Germany (West)– JUVE AWARD
Voted European Technology Law Firm of the Year by The European Technology Forum) in 4 of the past 7 years
UK Law Firm of the Year 2006
Recognizedby both Chambers Europe and Legal 500 directories as a leading European law firm
![Page 5: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/5.jpg)
Where are we?
Country Cities
UK Bristol, London, Reading
Germany Cologne, Munich
USA Palo Alto
Osborne Clarke Alliance Offices
Belgium Brussels De Wolf & Partners
France Paris Stehlin & Associés
Italy Brescia, Milan, Padua, Rome
Studio Legale Associato
Luxembourg Luxembourg De Wolf & Partners
Netherlands Rotterdam Ploum Lodder Princen
Spain Barcelona, Madrid Osborne Clarke
Sweden Stockholm Hellström Law
![Page 6: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/6.jpg)
Our Key Pratice Areas:
• Corporate/M & A
• Financial services/Banking
• Technology & Telecommunications
• IT outsourcing
• Taxation
• Employment
• Visa, staff benefits &related services
• Commercial law
• Intellectual property
• Competition law
• Construction and real estate
• Life Sciences
• Litigation/Arbitration
![Page 7: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/7.jpg)
Examples of Advice Provided to Indian Companies• Infosys Technologies
• TCS
• Mahindra Satyam Services
• Wipro
• HCL
• Tata Motors
• Aricent
• MindTree
• Reliance Industries Ltd.
• Patni
• MPHASIS
• Hinduja Group
• ITC Infotech
• Larsen & Toubro
![Page 8: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/8.jpg)
Recent Quotes
Another extraordinary success is based on the Indian Group led by IT partner Ulrich Bäumer
JUVE, November 2009
Information Technology
Particular strengths: Strong India expertise.
Often recommended solicitors: Ulrich Bäumer,
JUVE, November 2009
![Page 9: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/9.jpg)
Osborne Clarke's Clients
![Page 10: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/10.jpg)
1. Co-operation between German and Indian companies
![Page 11: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/11.jpg)
Adapted Models for Co-operation
• Mergers
• Acquisitions
• Joint Venture
• Partnership
• Built- Operate- Transfer- IT Outsourcing
• Indo- German Strategic Alliance
![Page 12: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/12.jpg)
Adapted Models for Co-operation
• Mergers: The combining of two or more entities into one, through a purchase or a pooling of interests.
• Acquisitions: An act of obtaining ownership of an asset through purchase, trade, or gift.
• Joint Venture: Joining together of two or more business entities or persons in order to undertake a specific business venture.
• Partnership: Form of business organization created by an agreement between two or more persons who contribute capital and/or their services to the organization.
• Strategic Alliance: An agreement between two or more individuals or entities stating that the involved parties will act in a certain way in order to achieve a common goal.
![Page 13: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/13.jpg)
Strategic Alliance
• Meaning:
Strategic Alliance is the arrangement between firms to fulfill any number of corporate goals, including gaining scale, reducing costs, accessing new skirls, products, or markets, and sharing risk.
The term strategic alliance is term for describing some form of relationship but is not, in itself, a legal relationship.
![Page 14: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/14.jpg)
Strategic Alliance
• Strategic Alliances are:
Contractual arrangements (such as license agreements, marketing agreements, and development agreements)
Minority equity investments
Joint ventures (such as corporations, limited liability companies, or partnerships)
Parties to define the legalities of their relationship by contract as there is no defined law for strategic alliance.
Parties to define their respective rights and obligations of their strategic alliance agreement.
Other issues to consider are variety of accounting, tax, antitrust, and intellectual property issues when structuring a strategic alliance.
![Page 15: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/15.jpg)
Strategic Alliance
• Key Point:
The strategic alliance agreement must include a "Mutual Non-disclosure" provision that defines "Confidential Information" and expressly states the respective parties' rights and obligations.
![Page 16: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/16.jpg)
Strategic Alliance
Examples of Strategic Alliances:
1. Cognizant and T-Systems of Germany
2. Cisco and Wipro Ltd., to jointly develop and deliver information technology (IT) service solutions.
![Page 17: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/17.jpg)
Acquisition History
Dr. Reddy’s Laboratories- 10 Acquisitions
Timeline: 1 in 1998, 5 in 1998, 1 in 2000, 1 in 2002, 1 in 2004, 1 in 2006
Target Industries: Pharmaceuticals & Healthcare
Target Countries: Germany, India, UK, US
Average Size of Acquisitions: US$87.78 million
![Page 18: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/18.jpg)
Acquisition History
HCL Technologies- 14 Acquisitions
Timeline:1 in 1998, 4 in 2001, 2 in 2002, 2 in 2003, 2 in 2004, 1 in 2005, 1 in 2008
Target Industries: Capital Markets, Consumer Goods & Services, Insurance, IT Services, Telecommunications
Target Countries: India, Thailand, UK, US
Average Size of Acquisitions: US$43.73 million
![Page 19: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/19.jpg)
Acquisition History
Ranbaxy Laboratories- 16 Acquisitions
Timeline:1 in 1998, 1 in 1999, 1 in 2000, 1 in 2001, 2 in 2002, 1 in 2003, 1 in 2005, 5 in 2006, 3 in 2007
Target Industries: Pharmaceuticals & Healthcare
Target Countries: Belgium, France, Germany, India, Romania, South Africa, Spain, US
Average Size of Acquisitions: US$80.80 million
![Page 20: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/20.jpg)
Acquisition History
Tata Consultancy Services- 11 Acquisitions
Timeline:2 in 2002, 3 in 2004, 3 in 2005, 2 in 2006, 1 in 2007
Target Industries: Capital Markets, Consumer Goods & Services, IT Services
Target Countries: Australia, Brazil, Chile, India, Philippines, Switzerland
Average Size of Acquisitions: US$30.66 million
![Page 21: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/21.jpg)
Acquisition History
Wipro- 14 Acquisitions
Timeline:1 in 2000, 2 in 2001, 4 in 2002, 3 in 2003, 3 in 2006, 1 in 2007
Target Industries: Consumer Goods & Services, Energy, IT Services, Pharmaceuticals & Healthcare,Telecommunications
Target Countries: Finland, India, Singapore, US
Average Size of Acquisitions: US$47.85 million
![Page 22: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/22.jpg)
Acquisition History
• Tata Steel's $12.1 billion acquisition of the Anglo-Dutch firm Corus on January 2007, essaying the largest takeover by an Indian company.
• Vodafone's purchase of India's second biggest privately-owned mobile phone service provider Hutchinson-Essar.
• Daiichi Sankyo Co. of Japan acquiring 34.8 per cent stake in Ranbaxy Laboratories Ltd. for $2.40 billion in 2008.
![Page 23: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/23.jpg)
An Overview on Cross-Border Deals
![Page 24: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/24.jpg)
Hailing Cross Border Trade-Highlights in Indian Press• Indian companies becoming active globally- Low-cost
operating environments in India and strong balance sheets with potential for leveraging, make Indian firms ideal acquirers even in international markets.
“The Economic Times, Jun 13, 2008”
• Indian firms are mature to handle M&A’s now- Indian companies looking to tap opportunities offshore and seen as a lucrative asset by foreign companies.
“The Economic Times, Jun 29, 2008”
![Page 25: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/25.jpg)
Hailing Cross Border Trade-Highlights in Indian Press• India's acquisition appetite intact despite credit crunch-
Bullish Indian companies are continuing to lead the charge for acquisitions within developed economies despite the current turmoil in global financial markets.
“The Economic Times, Jul 9, 2008”
• Indian firm buys Jaguar and Land Rover- Creating history, Tata Motors buys luxury auto brands Jaguar and Land Rover for $2.3 billion from Ford Motor Company.
“Hindustan Times, March 26, 2008”
![Page 26: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/26.jpg)
2. Common Law and Civil Law
![Page 27: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/27.jpg)
Common Law and Civil Law
Common Law (inductive)Problem à Judgment à Ratio decidendi
Civil Law (deductive)Statute à Problem à Application
![Page 28: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/28.jpg)
3. European Legal System
![Page 29: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/29.jpg)
European Legal System
• 27 Member States
• European DirectivesHorizontal and direct effect
• National Law
• The European Courts and National Courts
• Dispute ResolutionCommonly used venues, choice of law
Arbitration - pros & cons
![Page 30: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/30.jpg)
4. Law of AssociationsBranch office or subsidiary
Types of associations
![Page 31: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/31.jpg)
Reasons for the Establishment of a Branch Office in Germany• Legal requirements: Registration with company register
• Presence treated as branch office, if"own" business activities
Some degree of independence
![Page 32: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/32.jpg)
Establishment of a Branch Office
• Notification of the trade office (Gewerbeamt)
• Registration with commercial register (Handelsregister)notarial form
local management
signing authorities
procedure, timing, costs
![Page 33: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/33.jpg)
Establishment of a Subsidiary –German Types of Associations
Capital Company Partnership
GmbH -> limited liability company(Gesellschaft mit beschränkter Haftung)
GbR -> BGB company(Gesellschaft bürgerlichen Rechts)
AG -> stock corporation(Aktiengesellschaft)
OHG -> general commercial
partnership(Ordentliche Handelsgesellschaft)
e.V. -> registered association(eingetragener Verein)
KG -> limited partnership(Kommanditgesellschaft)
![Page 34: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/34.jpg)
Differences in the Law of Associations
Capital Company Partnership
• Limited liability
• Not dependent on members
• One man association possible
• Legal capacity
• Mainly unlimited liability
• Depended on members
• No one-man association
• Partial legal capacity
![Page 35: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/35.jpg)
GmbH – Private Limited Liability Company• The GmbH is a trading partnership with a corporation structure and
its own legal personality
• Most commonly used in Germany for small and medium size firms
• The structure is straightforward and flexible
organisation with at least two independent bodies
the managing director(s)
the meeting of shareholders
the appointment of a supervisory board is admissible
• Reformation of the GmbHG by the implementation of the MoMiG in 1.11.2008
MoMiG: Law for the Modernization of the GmbH and to combat its Abuse
![Page 36: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/36.jpg)
GmbH - Formation
• Formation by the execution of the articles of association and its by-laws before a German notary
• Registration in commercial register
• Filing of documents
• Formation possible by one shareholderUnlimited number of shareholders possible
German and foreign natural persons and corporations may become shareholders
![Page 37: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/37.jpg)
GmbH - Formation
• Mandatory by-law provisions:
Purpose of the company
Name of the company
Registered domicile
Amount of nominal capital
Amount of original capital contributions
![Page 38: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/38.jpg)
GmbH – Share Capital
• Minimum share capital of EUR 25,000
• Possibility to form an entrepreneur company (limited liability) with a minimum share capital of EUR 1.00
• The formation requirements for an entrepreneur company are
Full share payment in cash before registration
No contributions in kind
Name must include entrepreneur company (limited liability)
Requirement to save 25% of its annual profits for accumulation
![Page 39: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/39.jpg)
GmbH – Board and Directors
• The management board consists of one or more managing directors (Geschäftsführer)
• The managing director has to be a natural person, not necessarily a shareholder or a German citizen/ resident
• The power of appointment lies with the shareholders
• By law the director's duties are:Not to disclose the GmbH's trade secrets
To file for bankruptcy if the company is over indebted
To call a shareholders' meeting if more than half of the GmbH's share capital is lost
To ensure that the GmbH keeps proper books
![Page 40: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/40.jpg)
AG - Formation
• The AG formation procedure is similar to the GmbH
• One shareholder can form an AG
• The founders of an AG can be individuals and legal entities, including foreign ones, and commercial partnerships
• The formation (simple formation) takes place in the following stages:Determination of Articles (Memorandum & Articles)
Contribution of share capital
Appointment of organs
Part-payment of capital
Provision of formation report
Formation scrutiny
Notification and entry in the commercial register
![Page 41: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/41.jpg)
AG – Share Capital
• The minimum share capital must be EUR 50,000
• Share certificates are issuedpar value shares (Nennbetragsaktie)
non par value shares (Stückaktie)
• The par value shares must be EUR 1.00
• The non par value shares have an equal share in the share capital, which must not fall below EUR 1.00
• Different classes of shares with different rights can be issued
![Page 42: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/42.jpg)
AG – Structure, Organs and Liability• The AG is organized on corporate lines
no dependency on any membership
has autonomous organs
• The law (AktG) prescribes three organs:
Supervisory board
Board of management
Shareholder meetings
• The liability of an AG is limited to the value of its assets
![Page 43: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/43.jpg)
AG – Supervisory Board
• The members are appointed by vote of the shareholders for not longer then 5 years
• The members themselves elect the chairman
• The main functions are:appointment/ dismissal of the board of management and their employment contracts
supervision of the board of management
representing the AG in litigation involving the validity of shareholders resolutions
consenting to the business decisions of the board of management if required by the articles or the supervisory board itself
taking part in the production of the annual statement
![Page 44: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/44.jpg)
AG – Board of Management
• AGs with more than EUR 3 million capital must have at least two people on the board of management
• Bears the sole responsibility for managing the AG
• A term cannot exceed five years
• An appointment can be revoked by resolution of the supervisory board and only if an important cause exists
• The representation manner must be specified e.g. singly, jointly, restricted
![Page 45: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/45.jpg)
GmbH in Comparison with an AG
• The main advantages of a GmbH over an AG are:
It is simpler to set up a GmbH
The articles of association of a GmbH can more flexibly reflect the requirements of the shareholders
A GmbH is not subject to as many legislative regulations as an AG
The rational for this is that the public can invest in AGs and should receive a greater protection
![Page 46: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/46.jpg)
Partnerships
• Several types are available
General commercial partnership (OHG)
Limited partnership (KG)
• By a partnership agreement, the partners mutually put themselves under a duty to promote the achievement of a common purpose
• Under a general commercial partnership there is no liability limitation
• Under a limited partnership the liability of at least one of the partners is unlimited
• The most common type is the GmbH & Co. KGThe GmbH & Co. KG is a limited partnership with a limited liability company as general partner
![Page 47: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/47.jpg)
5. IT Outsourcing Contractual Issues / The market in Europe
The market in Germany
German legal issues to beware
![Page 48: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/48.jpg)
IT Outsourcing:An Update from Germany
![Page 49: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/49.jpg)
Outsourcing in Germany
in billion Euro
10 11 1420
25
60
2002 2003 2004 2005 2006 2010
![Page 50: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/50.jpg)
Quo Vadis Indian IT Service Providers in Germany?• trend No. 1:
The Indian IT service provider have discovered Europe as an attractive market
The reasons are the strong Europe and a saturated US market:
US market for outsourcing in 2006: 148 transactions (2005: 163)
EU market for outsourcing in 2006: 157 transactions (2005: 142)
(Source: Technology Partners International, TPI Index 2007)
![Page 51: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/51.jpg)
Quo Vadis Indian IT Service Providers in Europe?• trend No. 2:
Indian IT service provider climb the value chain:
2000: Y2K problems
2004: larger outsourcing projects (IT-, Application Management-, Infrastructure-, Business Process Outsourcing)
2006: takeover of smaller companies in Europe (Wipro –NewLogic)/ Business Consulting
2007: Collaboration / takeover of business units
2009: takeover of larger companies in Europe
![Page 52: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/52.jpg)
India, China, Eastern Europa: What Is The Next Trend?India: Offshoring services are popular
• Almost 75 % of the companies interviewed are Offshoring or are planing to do so in the near future.
• Forrester Research: 67% of German companies are using Indian IT service providers for Offshore Outsouring
Source: Forrester Research, 2005
2
26
1710
18
27
Larger projects live
Smaller projects live
Started pilot projects
Activities planned in next 12 months
No activities planned in next 12 month
Do not know
in %
![Page 53: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/53.jpg)
India, China, Eastern Europa: What Is The Next Trend?China:
• According to the Global Delivery Index from IDC the Chinese cities Bejing, Shanghai and Dalian will overtake the Indian IT hubs (Bangalore, Neu Delhi, Mumbai) in 2010
![Page 54: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/54.jpg)
India, China, Eastern Europa: What Is The Next Trend?• Eastern Europe:
Bulgaria, Estonia, Latvia and Lithuania have already overtaken the old centers in the Czech Republic and Hungary
Eastern Europe is an outsourcing destination because of the European law (e.g. data protection) and because of the language skills of the staff (German, French, etc)
Nevertheless, Eastern Europe is trailing compared to the outsourcing hubs in India, China, Malaysia, Brazil and Mexico
(Quelle: Jahresbericht AT-Kearney 2006)
![Page 55: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/55.jpg)
Outsourcing Contracts –8 Key Issues
1. statute
2. EVB-IT (in Germany)
3. industry standards
governed by1. Warranty
2. Liability
3. Acceptance
4. Delay
5. Change requests
6. IP-rights
7. Contractual penalty
8. Data Protection
![Page 56: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/56.jpg)
1. Warranty
• Statutory period for warranty, Sec 634 a BGB
As of 1st January 2002: 24 months
It is possible for two enterprises to agreecontractually to less than 24 months of warranty
Industry standard in Germany: 12 to 18 months
![Page 57: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/57.jpg)
1. Warranty
… billable… free of charge
Warranty is … Maintenance is …
![Page 58: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/58.jpg)
1. Warranty
"Garantie"
Guaranty
"Gewährleistung"
Warranty is …
![Page 59: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/59.jpg)
2. Liability
Damages are given for
• Delay
• Non performance of a contract
• Bad performance
![Page 60: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/60.jpg)
2. Liability
Scales of liability
• Simple negligence:Breach of duty of care(running a red light in bad weather conditions)
• Gross negligence:
Significant breach of duty of care(knowingly driving in the Alps in Decemberwithout snow tires)
• Intent
![Page 61: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/61.jpg)
2. Liability
Different types of damages
• Direct damage:Loss suffered as the immediate result of defects
• Indirect damage:Other loss suffered as result of the defect(e.g. financial loss, loss of use)
• Consequential damage caused by a defect:Loss from a peril that is not the immediate cause of loss (provider is responsible for a system failure and customer cannot sell goods; the goods rot)
![Page 62: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/62.jpg)
2. Liability
Simple negligence Gross negligence IntentConsequential damage caused by a defect &
Indirect damage
Unlimited Liability
Limited Liability
ExcludedLiability
û û û ûû û
ûû
ûû
= Contract rsp. industry ? standard Limit: 1 to 3 times contract value
= Statutory ? predictable damage
![Page 63: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/63.jpg)
8. Data Protection
• An array of DP law implemented across the EU since 1984
But many local nuances (not least level of fines)
• "processing" of "personal data" regulated
ie info that directly or indirectly identifies living individuals
• Consequences of failure to comply – fines, criminal liability
• Relevance to Indian companies
Beware what you agree to
Data protection officer
Data transfers of HR and customer data
Have you executed model contracts re your HR data?
Binding Corporate Rules – worth considering?
![Page 64: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/64.jpg)
6. Employment Law
What is it?
Anti Discrimination Law
![Page 65: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/65.jpg)
Sending Indian Employees to GermanyWorking in Germany for more than 3 months:
• residence permit which also grants access to the labour market is needed
• Indians may apply for the necessary permit even after their arrival in Germany but before starting to work
![Page 66: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/66.jpg)
Payment of Social Contribution
• Agreement on social security (only pension insurance) ratified 8.11.2008
The agreement applies, when
employee is sent to Germany for not more than 48 months (with an option of another 12 months extension)
employee performs services for his/ her Indian employer within the context of his Indian employment
• According to the German law (§ 5 SGB IV – Einstrahlung) Indian social security legislation will apply when the employee
is sent to Germany by his/her Indian employer
performs services within the context of his/her Indian employment-contract
is sent to Germany for a (predictable) limited period of time
![Page 67: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/67.jpg)
Height of the social contributions, which have to be paid by the employer in addition to the salary
Insurance % total % paid by Employer
Social contribution assessment
ceiling
Employers' max. costs
Pension 19,9 % 9,95 %EUR 64,800 p.a.
(EUR 5,400 p.m.)
EUR 537,30 p.m.
Unemployment 2,8 % 1,4 % EUR 75,60 p.m.
Health Insurance 15,5 % 7,3 %EUR 44,100
p.a. (EUR 3,675
p.m.)
EUR 268,28 p.m.
Nursing Care 1,95 %(plus 0,25 %
for childless
employees)
0,975 % EUR 35,83 p.m.
![Page 68: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/68.jpg)
Flexible Variation of the Size of the Work Force• Contract of employment for a limited period
up to 4 years for entrepreneurs; any number of extensions
up to 2 years without a reason for the limitation; max. 2 extensions
• Use of temporary workers
![Page 69: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/69.jpg)
Application of the German Unfair Dismissal Act• In establishments in Germany with more than 10 employees
part-time employees are counted partially
• After 6 months of employment (waiting period)
Ø unfair dismissals are invalid, employee will be reinstated
Ø valid dismissals terminate employment without severance payment / compensation
![Page 70: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/70.jpg)
Protection against Dismissals
• Reasons for dismissal
conduct (usually warning notice first)
reasons relating to the employees person (e. g. illness)
redundancy
• Notice period
depending on the period of employment
starting with 2 weeks during the probation period
standard period is 4 weeks to the 15th or end of a calendar month
• No claim for compensation
![Page 71: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/71.jpg)
Employees Rights of Participating
• Works Constitution Act applies for establishments in Germany with at least 5 employees
• Works Council's (elected by all employees) rights:information and consultation, e. g. before giving a notice
codetermination in social matters (e. g. working hours, payroll principals)
collective in house agreements (but not on wages)
works council has no trade union rights (i.e. strikes)
establishments with more than 20 employees: consultation before any proposed alteration (e. g. transfer a of department), agreement to reconcile employees interests, social compensation plan
![Page 72: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/72.jpg)
Application of Collective Agreements (with Unions)• Collective agreements (with unions) only apply:
both parties of the employment contract are organized or
employee member of trade union
employer member of employers' federation
or
declaration of a collective agreement as generally applicable or
employment contract refers to the stipulations of the collective agreement
![Page 73: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/73.jpg)
Anti Discrimination Law (AGG)
• Employers are prohibited from discriminating against job applicants or employees
• on the basis of gender, race or ethnic origin
religion or belief
age, disability, or
sexual orientation
• Damage claims are possible within two months from becoming aware of such discrimination
• Direct and indirect discrimination can potentially be justified
![Page 74: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/74.jpg)
7. German Tax Law
![Page 75: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/75.jpg)
The most important Taxes when doing Business in Germany• Corporate Tax
corporations
tax rate 25 %
• Income Tax
individuals
tax rate up to 42 % (progressive system)
![Page 76: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/76.jpg)
The most important Taxes when doing Business in Germany• Trade Tax
tax rate fixed by local municipalities, based on the profit
• Solidarity Surcharge5.5 % of Corporate Tax or Income Tax
• Value Added Tax (VAT)
tax rate 19 % (7 % for some goods, in particular foods, books and newspapers)
![Page 77: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/77.jpg)
The Tax Regime of a German Subsidiary• Separate legal entity
• German entity, subject to taxation in Germanyunless otherwise provided in tax treaty
• Corporations
corporate tax
solidarity surcharge
trade tax
• Partnerships
tax transparent
taxation on shareholders' level
trade tax (if trading activity)
![Page 78: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/78.jpg)
The Tax Regime of a German Branch• Permanent establishment
• Profits attributable to the German branch will be taxed in Germany
![Page 79: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/79.jpg)
The VAT System
• Harmonized within EU
• Importation VAT when importing goods into EU
• Supply of goods and services by an entrepreneur
• Several exemptions
• Input VAT
reclaim of VAT paid to another entrepreneur
• Tax rate 19 % (reduced rate 7 %)
![Page 80: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/80.jpg)
Formal Requirements
• Bookkeeping
• Tax returnscorporate Tax, Income Tax, Trade Tax, VAT: yearly
• Preliminary returnsVAT: monthly
• Tax prepayments
• Wage Tax
• Social security contributions
• Tax advisor
![Page 81: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/81.jpg)
8. German Court System
![Page 82: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/82.jpg)
The Court System –Federal Constitutional CourtFederal Labour Court
Higher Labour Court
Labour Court
Labour Law
Patent/Trademark Law
Federal Patents Court
Federal Court of Justice
Higher Regional Court
Regional Court
Local Court
Civil Law
Criminal Law
Administrative Law
Administrative Court
Higher Administrative
Court
Federal Administrative
Court
Tax Law
Finance Court
Federal Finance Court
Social Security Law
Social Court
Higher Social Court
Federal Social Court
![Page 83: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/83.jpg)
Civil and Criminal Court
Local Courts: 663
Regional Courts: 116
Higher Regional Courts: 24
Total Number of Courts(not restricted to civil and criminal courts)
1131
![Page 84: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/84.jpg)
Duration of Civil Matters
• Local court: 4,6 month
• Regional court (1st instance): 6,7 month
• Regional court (2nd instance): 5,4 month
• Higher Regional Court (2nd instance): 8,5 month
![Page 85: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/85.jpg)
Questions?
![Page 86: German legal issues for Indian technology companies](https://reader033.vdocuments.us/reader033/viewer/2022051411/546cdbadaf795953298b506c/html5/thumbnails/86.jpg)
Contacts
Ulrich Bäumer
Partner
IT / Commercial - Germany
t +49 (221) 5108 4168
f +49 (221) 5108 4169