Applicable law allows for both financial and non-financial compensation for implementation of the Rail Baltic project
Public debate on the Rail Baltic project has mostly focused on compensation for damage to the owners and other users of immovable property. SORAINEN and CentAR Center for Applied Research have prepared a survey on the issue, available here (in Estonian).
Under applicable law, a person may claim compensation for lawful damages in three distinct situations: if the law sets an obligation to compensate for damage; in the case of expropriation; and in the case of extreme restriction of a person’s rights.
The law is sufficiently clear for cases where the route passes over a person’s land or part of it. In this case, a person may claim compensation for damage or negotiate some other form of compensation. However, compensation is not automatic and each case will be reviewed individually, having regard to the location, value, condition and other characteristics of the property. Compensation may also be non-financial. Indeed, administrative bodies are legally permitted to conclude almost any agreement within the boundaries of applicable law. Thus, they may negotiate a purchase price for which the owner is willing to sell the land, or agree or decide upon other compensation schemes. These may include, for example, agreements for land exchange or for planting of vegetation. However, the analysis showed that even if applicable law allows for solutions such as re-allotment, this will be highly unlikely in practice as the relevant provisions are inflexible.
The public debate on Rail Baltic has also addressed additional damage to be compensated. For example, the state should compensate for damage relating to a landowner’s new and longer routes of transportation or other changes in living or business arrangements. Currently, though, applicable provisions do not usually set compensation in these cases. Although the law does refer to fair compensation, existing real estate valuation methods do not always cover setting a level of compensation accepted as “fair” by all concerned. In any case, a right to claim cannot be ruled out completely. In legal terms, applicable law also provides a right of claim in cases of extreme restriction of a person’s rights.
The conclusions of the survey also pointed to other gaps in the legal framework for acquisition of and compensation for immovable property. Relevant proposals will be further analysed in ministerial working groups. The rules and regulations applicable to some compensation measures could thus be simplified in the future.
State aid for use of biomethane in public transport
The Ministry of Economic Affairs and Communications has prepared a draft act aimed at supporting the use of biomethane in Estonia’s public transport sector. Purified biogas, or biomethane, can be used as motor fuel in vehicles. The support measure should contribute to the goal of increasing renewable energy use in the transport sector to 10 per cent by 2020.
The support measure does not entail investment aid for the production of biomethane. Instead, it should help create demand for biomethane, which in turn should provide a market incentive to establish biomethane production facilities. To create demand for biomethane, support is offered for:
- establishing biomethane filling stations;
- commissioning biomethane buses for public regular transport services.
The budget for supporting filling station infrastructure is EUR 3 million. The maximum level of support is 35% of eligible costs and up to EUR 300,000 for each project. Thus, support is available for establishing around 20 filling stations. Only legal persons may apply.
The budget for supporting regular public services is EUR 6 million. The maximum level of support is 30% of eligible costs and up to EUR 4 million for each project, with a minimum threshold of EUR 600,000. Persons organising regular public services (eg local municipalities) may apply for support.
Note: Support constitutes state aid and is governed by Article 56 of the European Commission’s block exemption regulation (EU) No. 651/2014. This means, for example, that support would not be given to projects in which eligible activities have been launched or completed before the date of applying for support.
The support measure is currently at the draft stage and conditions may change before adoption.
Swine fever and the possibility to challenge Veterinary and Food Board precepts
Swine fever has caused heavy economic losses in the pork sector this year. According to recent data by the Veterinary and Food Board (VFB), 350 precepts relating to the fever have been issued so far. Around 66,147 pigs were kept in affected farms. In some cases, pork sector operators have questioned the justification for precepts and looked for ways to appeal them.
Infectious animal disease control is governed by the Infectious Animal Disease Control Act (ADCA), which prescribes relevant measures, regulates the application of those measures and payment of compensation for damage caused by infectious animal diseases. According to the ADCA, the VFB may issue precepts with regard to slaughtering or killing diseased or suspect animals or handling products of animal origin originating from those animals (§ 171 (6)) and handling animal by-products and derived products (§ 181 (6)).
The ADCA does not set an appeal procedure for these precepts, where the main option is to claim compensation for damage relating to infectious animal disease control. However, the Veterinary Activities Organisation Act (VAOA) does allow an appeal against precepts. Under § 36 (1) of the VAOA, a person to whom a precept or other measure is addressed and who does not agree with it may file a written challenge with the director general of the VFB within 30 calendar days from becoming aware of the precept. The law does not provide for exceptions regarding an appeal against infectious animal disease control precepts. Under § 36 (3), the director general of the VFB must decide whether or not to satisfy a challenge within 10 working days after receiving it. Besides challenging a precept in the administrative agency, § 36 (3) of the VAOA alternatively allows an appeal to the court. Given the specifics of these precepts, it would be reasonable to mount a court challenge to the VFB’s decision in the first place and seek provisional legal protection to postpone implementation of the precept until an appropriate judgment has entered into force. Preliminary legal protection may also be sought for the duration of challenge proceedings before the administrative agency (Code of Administrative Court Procedure – CACP § 249 (5)).
A court appeal is also important for a subsequent claim for damages. Under the State Liability Act (SLA), compensation should place the injured party in a financial situation where they would be if their rights had not been violated. As a result, a loss of income claim could be added to direct damages. However, it is unclear whether compensation could exceed the support paid under the ADCA for damage relating to disease control. In the latter case, compensation would cover the accounting value of the animal or, in the case of feed and equipment, the actual value. In order to claim damages under the SLA, a court must first establish that the administrative agency has acted unlawfully. Without this, damages cannot be claimed. If a person does not wish to have the administrative act repealed, in which case an appeal should be submitted within 30 days, the unlawfulness of an administrative act can be established within three years. Any claim for damages against the state must be exercised during this period (CACP § 46 (4) and (5)).
Provision of services vs employment relationship
Significant recent judgments have created a serious tax risk for certain relationships where “one-man companies” are used to provide services to another company (also known as LLC-ism). In the past few months, the Estonian Supreme Court has found that service fees paid to a company can, in principle, be requalified as salary.
The Tax and Customs Board (TCB) has already announced its intention to actively pursue the opportunity of taxing service fees as salary and has published its views on the issue. It also promised to begin contacting companies apparently involved in LLC-ism in the near future. It is therefore reasonable to proactively review the characteristics of these relationships and assess the tax risks in order to avoid surprises from a possible future conversation with a revenue officer.
According to the judgments and TCB guidelines, a significant tax risk can arise in situations where:
- services are invoiced monthly, usually in the same amount;
- all or most of the services are provided to a single customer;
- the same person belongs to the management board of both the service provider and the service recipient;
- a service agreement has the characteristics of an employment contract (eg fixed working hours, subordination, supervision by employer, etc)
However, the TCB’s requalification opportunities are not unlimited – each relationship must be assessed on a case-by-case basis and the fact of providing services does not automatically lead to taxation. The burden of proof is on the tax authority to show that the service agreement was ostensible and the parties were in fact acting as if under an employment contract.
Providing services through a one-man company may legitimately be a regular business which cannot be subject to payroll taxes. In particular, intervention by the tax authority would be unjustified if the company providing services had other operations as well or provided services to many companies or if the relationship did not have the characteristics of an employment contract.