News

Who should implement the Whistleblower Protection Procedure
2024-10-07 09:46

Who should implement the Whistleblower Protection Procedure?

The Whistleblower Protection Act of June 14, 2024, introduces new rules for protecting individuals who report legal violations (so-called whistleblowers). These rules impose obligations on a wide range of entities, both in the public and private sectors.

Unfortunately, the legislator has not explicitly indicated the catalog of entities required to implement the procedures. Therefore, it is necessary to refer to the regulations mentioned in the various provisions of the Act, including, in particular, the Anti-Money Laundering and Terrorist Financing Act of March 1, 2018.

Below, we will discuss who is obligated to implement the procedures and outline the legal basis for the new regulations.

Legal Basis

The primary legal basis for the Whistleblower Protection Act is the Directive (EU) 2019/1937 of the European Parliament and Council of October 23, 2019, on the protection of persons who report breaches of Union law (the so-called Whistleblower Directive). The Directive aims to ensure protection for individuals reporting irregularities in various areas of EU law, such as public procurement, environmental protection, public health, consumer rights, data protection, and combating money laundering and terrorist financing.

In Poland, the implementation of this Directive occurred through the adoption of the national Whistleblower Protection Act, which came into force on September 25, 2024. Additionally, a significant complement to the provisions regarding whistleblower protection is the Anti-Money Laundering and Terrorist Financing Act of March 1, 2018. Both laws impose obligations on financial, legal, and other entities that may be witnesses or participants in reporting legal violations.

Who Does the Whistleblower Protection Act Apply To?

The Whistleblower Protection Act applies to a range of entities, including private companies, public sector units, and individuals performing regulated professions. Here’s a detailed review:

1. Private Companies

According to Article 23, paragraph 1 of the Whistleblower Protection Act, all companies employing at least 50 employees are required to implement internal procedures for receiving reports of irregularities. However, according to Article 23, paragraph 3 of the Act, the employment threshold does not apply to entities operating in particularly sensitive sectors, such as:

providing services, products, and financial markets;
counteracting money laundering and terrorist financing;
transport safety;
environmental protection;
covered by the scope of EU legal acts listed in parts I.B and II of the annex to Directive 2019/1937.

2. Public Sector Units

Article 23, paragraphs 4-5 of the Act imposes the obligation to implement procedures for reporting irregularities on all public sector units, including administrative offices, educational units, health protection units, and cultural institutions. Each public unit must designate a person responsible for receiving reports and ensure appropriate communication channels.

3. Entities Subject to AML Obligations

As previously mentioned, the list of entities that should implement whistleblower procedures is derived, among others, from the Anti-Money Laundering and Terrorist Financing Act (AML).

Certain professionals, such as notaries, lawyers, legal advisers, foreign lawyers, tax advisors, accountants (under the AML Act), as well as insurance intermediaries, currency exchange businesses, real estate brokers, postal operators, and pawnshop operators, are subject to these obligations.

Additionally, procedures should be in place for:

Foundations that receive or make cash payments equal to or exceeding the equivalent of 10,000 euros, whether the payment is a single transaction or several transactions that appear to be linked;
Legal entities that receive or make payments for goods in cash equal to or exceeding the equivalent of 10,000 euros, whether the payment is a single transaction or several transactions that appear to be linked;
Entrepreneurs who receive or make payments for goods in cash equal to or exceeding the equivalent of 10,000 euros, whether the payment is a single transaction or several transactions that appear to be linked.

The entities listed above are required to have appropriate procedures for reporting violations in their organizations, especially regarding financial or legal irregularities. The Anti-Money Laundering Act further strengthens the obligation to report violations related to financial crimes.

The catalog in the Act is much broader. If you know that you are subject to AML-related obligations, refer to the Anti-Money Laundering Act and ensure that you are not required to implement whistleblower protection procedures in your case.

4. Financial Institutions

Banks, insurance companies, and credit institutions are particularly obligated to comply with whistleblower protection regulations. The Anti-Money Laundering Act additionally imposes the obligation to report suspicions of financial crimes and protect individuals who report these violations.

Obligations Arising from the Whistleblower Protection Act

All entities subject to the Act must fulfill several obligations:

Implementation of reporting channels – legal entities must implement secure and confidential channels for reporting irregularities.
Designation of a person responsible for reports – persons responsible for receiving and considering reports must be appointed.
Protection against retaliation – whistleblowers must be protected against retaliation by the employer or entity with which there is a legal relationship for the provision of work, services, or legal functions in or on behalf of the legal entity;
Registration and reporting of reports – according to Article 17 of the Act, entities must maintain records of reports and report cases of violations.

Summary

The Whistleblower Protection Act of June 14, 2024, together with the Anti-Money Laundering Act, imposes obligations on businesses, public institutions, and professionals in so-called liberal professions or regulated professions.

If you are wondering whether you should implement procedures in your company, please contact us.

In our previous article on whistleblower protection, you will find answers to basic questions. You can find the link to the article here.

Contact

If you need legal assistance, contact our office at the phone number: +48 690 009 732

Write us an email: info@walawski.com

You can also write to us on Facebook: Our Facebook profile

Trade secret and non-compete agreement within B2B
2024-09-26 09:31

Trade Secret and Non-Compete Clauses in the B2B Model

For entrepreneurs operating in the B2B (business-to-business) model, protecting information that holds economic significance is a key element in ensuring competitive advantage and the security of their business operations. That’s why more and more companies are implementing safeguards, such as protecting trade secrets and instituting non-compete clauses. In this article, we explain what a trade secret is, the differences between it and a non-compete clause, and how a Non-Disclosure Agreement (NDA) works in practice. This article will be especially useful for B2B entrepreneurs who want to effectively protect their trade, technological, and other crucial data relevant to their market presence.

What is a Trade Secret?

Although trade secrets are not explicitly defined, according to Article 11 of the Unfair Competition Act, they include all technical, technological, organizational, or commercial information that holds economic value and is subject to protection measures by the entrepreneur. This means that a trade secret encompasses information not generally accessible to entities in a given industry and can bring significant financial or strategic benefits to the company.

Examples of trade secrets include:

know-how related to production processes,
customer and contractor data,
marketing and sales strategies,
technologies, patents, and formulas,
financial models and cost estimates,
internal organizational procedures.

For a piece of information to be considered a trade secret, the entrepreneur must take appropriate steps to protect it. This includes ensuring the information is not publicly available and is secured with appropriate measures, such as signing Non-Disclosure Agreements (NDAs), installing IT security systems, limiting access to data to selected employees, or labeling documents as “confidential” or “secret.” It’s also important to establish procedures for the return of media that contain protected information after the agreement ends.

What is a Non-Compete Clause?

A non-compete clause is a commitment that imposes restrictions on one party—usually an employee, collaborator, or contractor—not to engage in competitive activities against the entity with whom they signed the agreement. In most cases, although agreements occasionally bind both parties to such restrictions.

Examples of competitive activities include:

working for or collaborating with a direct competitor,
starting a competing business,
offering services similar to those provided during the collaboration.

A non-compete clause can apply not only during the collaboration but also for a period afterward—6, 12, or even 24 months. The duration of this restriction must be clearly defined in the agreement. Additionally, in B2B situations, implementing a non-compete clause often includes compensation for the person bound by the restriction.

Differences Between Trade Secrets and Non-Compete Clauses

Although both trade secrets and non-compete clauses aim to protect the company’s interests, they differ significantly in several key aspects:

Scope of Protection: Trade secrets protect confidential information that holds economic value for the company. Non-compete clauses restrict the ability of the bound party to engage in competitive activities.
Duration: Trade secrets are protected as long as the information remains undisclosed. Therefore, an NDA can be indefinite. Non-compete clauses have a clearly defined duration, established in the agreement.
Subject of Protection: Trade secrets involve protecting economically valuable information. Non-compete clauses pertain to restricting competitive activities by a collaborator.

What is a Non-Disclosure Agreement (NDA)?

An NDA (Non-Disclosure Agreement) is a tool that formalizes the obligation to keep specific information confidential. When working with contractors or employees, it’s wise to safeguard your interests by signing an NDA, which clearly defines what information is confidential and the consequences of disclosing it.

An NDA can be:

unilateral – where only one party commits to confidentiality,
mutual – where both parties exchange confidential information and commit to keeping it undisclosed.

Elements an NDA should include:

Definition of Confidential Information – clearly defining what data is protected.
Duration of the Agreement – during and after the collaboration.
Scope of Obligations – outlining prohibited actions, such as disclosing information to third parties.
Consequences of Breach – specifying penalties for violating the agreement.

Why Protect Trade Secrets and Use Non-Compete Clauses?

Protecting trade secrets and applying non-compete clauses are crucial in today’s rapidly evolving business world. Here are a few reasons why these mechanisms are important:

Preventing Loss of Competitive Advantage – trade secrets protect key information that provides a company with a market edge.
Protecting Against Unfair Competition – non-compete clauses prevent former collaborators or contractors from acting against the company.
Minimizing Financial Risks – a well-protected company can avoid financial losses from the disclosure of confidential information.

Summary

For B2B entrepreneurs, protecting trade secrets and using non-compete clauses are key safeguarding mechanisms. Trade secrets protect confidential information from being disclosed, while non-compete clauses prevent collaborators or contractors from engaging in competitive activities. Additionally, an NDA provides a practical tool to formalize confidentiality obligations.

Contact

If you need legal assistance, contact our law firm at:
+48 690 009 732

or email us at:
info@walawski.com

You can also reach us on Facebook:
Our Facebook Profile

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We invite you to read our article on non-compete clauses between businesses. You can find the link to the article here.

Fixed establishment
2024-09-20 13:23

When will you settle VAT in Poland?

A Fixed Establishment (FE) is a VAT mechanism that triggers the obligation to account for VAT in a country where a business operates, other than the country of its registered office. In other words, having an FE abroad necessitates compliance with the VAT regulations of that country.

What is an FE?

The definition of a fixed establishment is provided in Article 11 of Council Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax. This provision states that an FE means any fixed place of business, other than the place of the taxpayer’s registered office as referred to in Article 10 of this Regulation (i.e., the place where the top management functions of the undertaking are exercised), which is equipped with the necessary staff and technical means to carry out its activity.

Consequences of having an FE

Having an FE in another country means being treated as a local taxpayer. In such a situation, services purchased by the FE from local suppliers are not considered exports but domestic supplies and are taxed locally. Similarly, sales on the domestic market will require VAT to be accounted for in the same way as a taxpayer with a registered office in that country.

Characteristics of an FE

Based on the definition above, the following characteristics of an FE must be present:

Adequate staff
Adequate technical means
Permanence of staff and technical means
Ability to receive and use services or supply services

FE vs. PE

The characteristics of a fixed establishment are somewhat similar to a permanent establishment (PE) for income tax purposes (we wrote about PE here). However, they are two distinct concepts, and both do not always occur simultaneously. FE and PE have in common that they can arise without the intention of the taxpayer, independently of them. For example, cooperation with a contract manufacturer, a logistics center, or having a shared service center may result in the creation of a permanent establishment or a fixed establishment.

Staff and technical means of a permanent nature

In this context, it means that the taxpayer must have adequate human and technical resources to carry out its activities. Importantly, the taxpayer must have the staff and technical means at its disposal as if they were its own. This means that giving binding instructions, having other people’s employees and a place at one’s disposal may involve fulfilling the conditions of the regulation regarding FEs.

It is worth citing the judgment of the CJEU in case C-333/20 Berlin Chemie:

While having one’s own staff and technical means is not necessary to be able to consider that a taxpayer has an adequate structure which is characterized by sufficient permanence with regard to staff and technical means in another Member State, it is however necessary that that taxpayer is entitled to dispose of that staff and those technical means in the same way as if they were its own, for example, on the basis of service or leasing contracts under which that staff and those technical means would be placed at the disposal of the taxpayer and which contracts could not be terminated at short notice.

Thus, the Court ruled that the creation of an FE requires a broad range of powers to dispose of staff and technical means in another country. Furthermore, such entitlement must exist for a longer period of time.

Ability of the FE to receive and supply services

A fixed establishment must be an entity capable of receiving and using the services it purchases and of supplying them. The idea is that the entity can function as a separate, independent taxpayer. Therefore, a subsidiary that is only able to provide a part of the entire service should not be treated as a fixed establishment. However, it should always be verified whether a particular ancillary service does not have an independent economic purpose (as in the case of, for example, shared service centers).

A fixed establishment cannot simultaneously provide and receive the same services. This specifically concerns the situation of cooperation between a foreign taxpayer and a domestic entity (e.g., in the field of logistics services). The tax authorities considered the domestic service provider to be an FE of the foreign taxpayer. The tax authorities argued that the foreign taxpayer’s control over the purchased logistics services was as strict as in the case of an ownership relationship, which was supposed to mean the ability to provide services. At the same time, the fact of purchasing logistics services from a domestic entity indicated the FE’s ability to receive and use services.

Fortunately, the CJEU in the Berlin Chemie judgment rejected such reasoning, stating that the same resources cannot simultaneously serve to provide and receive the same services. Consequently, there can be no question of an FE. The above reasoning has also been reflected in Polish case law (e.g., the judgment of the NSA of 19 May 2022, file no. I FSK 968/20).

Consequences of having an FE in another country

Generally speaking, having a fixed establishment abroad means that the taxpayer is treated as a domestic entity and is subject to domestic VAT law. Services and goods purchased in a given country for use by the FE constitute domestic supplies. The principle of taxation in the country of the customer is excluded. An FE in Poland will mean the need to comply with the VAT Act, including, among other things, split payment, KSEF, and fiscal receipts.

Failure to identify the existence of a “fixed establishment” or the erroneous assumption that such a place exists in Poland may lead to the need to pay outstanding VAT, the challenge of the right to deduct VAT, and the imposition of criminal and fiscal penalties. Moreover, business relationships with counterparties may suffer, as transactions with them will have to be settled on different terms.

Therefore, we invite you to contact us to identify the risk of having or creating a fixed establishment in Poland or abroad. We will also help you minimize the risk of disputes with tax authorities in this area. Finally, we are able to support the operation of FEs in Poland.