On 13 December 2005, the European Court of Justice (ECJ) published an important decision in relation to cross-border mergers. It has decided that a Member State cannot refuse to register a cross-border merger between a company governed by its own laws and another European company, even though its own laws do not recognise cross-border mergers. In the case before the ECJ, SEVIC Systems AG, a German company, appealed against the decision of the court to refuse to register (in the national commercial register) the merger between itself and Security Vision Concept SA, a Luxembourg company, on the grounds that German law only provides for domestic mergers between companies established in Germany. The ECJ decided that the refusal to register this crossborder merger was contrary to the right to freedom of establishment for companies under the EC Treaty. Such refusal to register could only be justified for "imperative public interest" reasons, such as the protection of the interests of creditors, minority shareholders and employees. However, a blanket refusal was not justified. This decision is consistent with the rationale behind the Cross-Border Mergers Directive. LAW UPDATE January 2006 3 Lideika, Petrauskas, Valiûnas ir partneriai LAWIN Pending implementation of the Directive, this is an important decision for companies wanting to carry out a cross-border merger today in EU Member States where such mergers are not currently permitted under national law such as Germany and the Netherlands). This decision, whilst not giving carte blanche to cross-border mergers, certainly tips the scales in their favour. The full text of the judgment can be found on the internet site of the Court of Justice: http://curia.eu.int/jurisp/cgi-bin/form.pl?lang=en

      On 14 December 2005, the Court of First Instance in Cases T-209/01 and T-210/01 Honeywell v Commission and General Electric v Commission upheld the European Commission's ban on General Electric purchasing Honeywell International, but said it made some errors in its decision declaring the concentration to be incompatible with the common market, in particular in its analysis of conglomerate effects resulting from the concentration, the fact that dominant positions would have been created or strengthened on several pecific product markets is sufficient to justify that decision. Nonetheless, the Court of First Instance said the Commission was right to prohibit the deal because a GE-oneywell combination would have created a dominant position in markets for jet engines for large regional aircraft, for corporate jet aircraft and for small marine gas turbines. The court upheld the Commission's argument that the merger would have created a monopoly on the worldwide market for jet engines for large regional aircraft. In this respect the Court upheld the Commission's finding that the creation of a monopoly in respect of the engines powering those aircraft would have harmful effects on competition, inasmuch as it would deprive customers of the benefits of price competition. However, the Court held that three distinct aspects of the Commission's decision were vitiated by illegalities: (i) Vertical overlap between Honeywell's engine and GE's engines as a result of the merger: The Court held that the pillar of the contested decision relating to the strengthening of GE's pre-merger dominance on the market for jet engines for large commercial aircraft, resulting from that vertical overlap, was unfounded. (ii) Conglomerate effects resulting from the merger owing to GE's financial strength and vertical integration: The Court held that the Commission did not establish to a sufficient degree of probability that the merged entity would have extended to Honeywell's markets avionics and non-avionics products) GE's practices on the market for large commercial jet aircraft engines, by which GE used the financial and commercial strength it derived from its subsidiaries. Consequently, the Commission made a manifest error of assessment. (iii) Conglomerate effects resulting from bundling: The Court held that the Commission did not sufficiently establish that the merged entity would have bundled sales of GE's engines with Honeywell's avionics and non-avionics products. In the absence of such bundled sales, the mere fact that the merged entity would have had a wider range of products than its competitors was not sufficient to establish that dominant positions would have been created or strengthened for it on the different markets concerned. The full text of the judgment may be found on the Court's internet site: http://curia.eu.int/jurisp/cgi-bin/form.pl?lang=en

      On 19 December 2005 , the European Commission published a Staff Discussion Paper on the application of EC Treaty competition rules on the abuse of a dominant market position(Article 82). The Discussion Paper is designed to promote a debate as to how EU markets are best protected from dominant companies' exclusionary conduct, i.e. conduct which risks weakening competition on a market. The paper suggests a framewo rk for the continued rigorous enforcement of Article 82, building on the economic analysis carried out in recent cases, and setting out one possible methodology for the assessment of some of the most common abusive practices, such as tying, and rebates and discounts. Other forms of abuse, such as discriminatory and exploitative conduct, will be the subject of further work by the Commission in 2006. Article 82 of the EC Treaty prohibits the abuse of a dominant position. Abuses are commonly divided into exclusionary abuses, those which exclude competitors from the market, and exploitative abuses, those where the dominant company exploits its market power by - for example - charging excessive prices. The discussion paper deals only with exclusionary abuses. The paper describes a general framework for analysing abusive exclusionary conduct by a dominant company. Where a dominant company is present on a market, competition on that market is already weak. The concern of the competition rules is therefore to prevent conduct by that dominant company which risks weakening competition still further, and harming consumers, whether that harm is likely to occur in the short, medium or long term. The Commission wants to concentrate its resources on those anti-competitive practices that are most likely to cause harm to consumers. As a result it has recently increased its enforcement ctivities against cartels. The proposals made in the Discussion Paper on Article 82 would in a similar way imply a strong focus on those abuses of dominant positions most likely to harm consumers. The Commission is consulting widely on the discussion paper. It has already discussed the paper with representatives of Member States and is now opening the consultation to the public. As part of this consultation process the Commission will hold a public hearing in Spring 2006 on abuse of dominance, and in particular the suggested framework set out in the discussion paper.

      The DG Competition Discussion Paper is available at: http://europa.eu.int/comm/competition/antitrust/others/article_82_review.html

      On 20 December 2005, the Commission published a Green Paper on how to facilitate actions for damages caused by violations of EC Treaty competition rules' ban on restrictive business practices and abuse of dominant market positions (Articles 81 and 82 respectively). Violations of these rules, in particular by price fixing cartels, can cause considerable damage to companies and consumers, but numerous obstacles can hinder actions for damages by injured parties in national courts. The Green Paper identifies certain of these obstacles, such as access to evidence and the quantification of damages, and presents various options for debate for their removal. The options set out in the Green Paper would seek to ensure that companies and consumers were compensated for their losses, while avoiding vexatious claims. Comments on the Green Paper can be submitted by 21 April 2006. Businesses and individuals who suffer losses because of illegal activities such as cartels have a right to compensation. Currently, this right is all too often theoretical because of the obstacles to exercising this right in practice. This Green Paper sets out options for making that right a reality, and so making companies that break the competition rules pay for the harm that they do. However, there have so far been very few damage claims before courts of the Member States for breach of the competition rules. A study carried out for the Commission in 2004 revealed the main reasons for the low number of damages actions, the reasons which are now addressed in the Green Paper. Following this study, the Commission discussed the issue with academics, experts from EU Member States' governments and a number of other interested third parties before preparing this Green Paper. Strengthening damage claims by companies and consumers has several advantages: ensures that businesses and consumers harmed by anti-competitive activity are compensated for their losses enhances the overall level of respect for the EC competition rules by discouraging companies from engaging in anti-competitive activity brings the benefits of Community law closer to the citizen. The Green Paper identifies the main obstacles to a more efficient system for bringing damage claims, such as access to evidence, the defence that companies claiming damages may have simply passed on any price increases to their own customers and the quantification of damages. For each of the obstacles, several options are put forward for debate. As the Green Paper also addresses the protection of consumer interests harmed by a violation of EC antitrust rules, the Commission will closely coordinate any follow-up with other initiatives on consumer redress.

      The texts of the Green Paper and an accompanying Staff Working Paper are available at: http://europa.eu.int/comm/competition/antitrust/others/actions_for_damages/index_en.html

      On 17 November 2005, the Parliament adopted Law No X-404 on Amending Article 2 and Annex of the Law on Construction and Supplementing the Law with Article 431. This Law establishes that minimal requirements for energy performance of buildings are compulsory to: (i) newly constructed buildings; (ii) reconstructed or capitally repaired buildings with a total useful internal area in excess of 1000 square metres, where the price of the works performed during such reconstruction or capital repairs aimed at improvement of the energy performance in the building accounts for more than 25 percent of the value of the building, excluding the value of the land plot on which the building is located. These requirements are applied to the extent they are feasible from technical, functional and economic perspective. Minimal compulsory requirements for energy performance of buildings are not imposed and the certification of energy performance is not compulsory to: (i) the buildings that are the structures of cultural heritage, if the compliance with the requirements would undesirably result in the change of their characteristic features or appearance; (ii) worship houses and other buildings wherein religious activities are taking place; (iii) temporary buildings intended to be used no longer than for 2 years; (iv) production and industrial buildings, also non-residential buildings of warehousing and agricultural purpose, that consume little energy; (v) detached buildings the total useful internal area of which does not exceed 50 square metres; (vi)buildings of recreational purpose and cottages that are used no more than four months per year; (vii) non-heated buildings. The law also sets forth the cases when the certification of the energy performance of buildings is compulsory. Buildings will be certified from 1 January 2009, except for newly constructed buildings that must be certified from 1 January 2007. The law implements Directive 2002/91/EC of the European Parliament and of the Council of 16 December 2002 on the energy performance of buildings.

      On 1 December 2005, the Commission

      proposed a Directive, known as the "New Legal Framework" that will bring down existing legal barriers to enable the creation of a single payments area in the EU that could save the EU economy €50-100 billion per year. The proposed Directive aims to establish a modern

      and harmonised legal framework for an

      integrated payments market in the EU.

      It shall reduce legal compliance costs and also foster competition between payment service providers, as there will be greater choice and no effective differences between national and

      cross-border payments systems. For example, when adopted, the Directive will allow for the use of direct debit services (a common and costefficient

      means of payments for gas, water or

      telephone bills) on a cross-border basis. This is not possible for the time being in the EU. In other words, the aim is to make cross-border payments - by credit card, debit card, electronic bank transfer, direct debit or any other means -

      as easy, cheap and secure as "national"

      payments within one Member State.

      Currently each Member State has its own rules on payments, and the annual cost of making payments between these fragmented systems is 2-3% of GDP. The proposed Directive will

      guarantee fair and open access to payments markets and will increase and standardise consumer protection. A more efficient and competitive payments market will also mean that individual Europeans pay less for basic

      banking services, the average yearly cost of which ranges from €34 to as much as €252 across the EU. There is today a huge diversity of prices for the same service from one Member State to the other: a credit transfer can be free of

      charge in one country and cost more than ten euros in another. The Directive applies to all Member States and all EU currencies, while providing the necessary legal platform for the

      Single Euro Payments Area (SEPA) proposed by the European Payments Council. The aim is to make the Single Payments Area a reality by

      2010 at the latest. The proposed Directive is available at:

      http://europa.eu.int/comm/internal_market/payments/framework/index_en.htm

      On 13 December 2005, the European Court of Justice (ECJ) adopted a judgment in case No. C-446/03 Marks & Spencer plc v David Halsey in which stated that a group relief scheme which does not allow a parent company to deduct the losses incurred by its

      subsidiaries established abroad from its taxable profits is, in principle, compatible with Community law. However, it is contrary to freedom of establishment to preclude the possibility for the resident parent company to deduct the losses incurred by non-resident subsidiaries from its taxable profits, if the parent

      company shows that those losses were not and could not be taken into account in the State of residence of those subsidiaries. Marks & Spencer, a company registered in England and Wales, has subsidiaries in the United Kingdom and in a number of Member

      States. Under the United Kingdom provisions (the Income and Corporation Taxes Act 1988 (ICTA), the resident companies in a group may set off their profits and losses among themselves

      but are not allowed do so where the losses are incurred by subsidiaries which have no establishment in the United Kingdom and do not trade there. ECJ found that these United Kingdom provisions constitute a restriction on

      freedom of establishment. In effect, the United Kingdom rules apply different treatment for tax purposes to losses incurred by a resident subsidiary and losses incurred by a non-resident

      subsidiary. They therefore discourage

      undertakings from setting up subsidiaries in other Member States. Such a restriction is permissible only where it pursues a legitimate

      objective compatible with the Treaty and is justified by overriding reasons in the public interest. The Court considers that the United Kingdom provisions do not observe the principle of proportionality, that is to say, that they go beyond what is necessary to attain the objectives pursued, where: - the non-resident subsidiary has exhausted the

      possibilities available in its State of residence of having the losses taken into account in its State of residence for the accounting period concerned by the claim for relief and also for previous accounting periods, and - there is no possibility for the foreign subsidiary's losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.

      Consequently, where in one Member State the resident parent company demonstrates to the tax authorities that those conditions are fulfilled,

      it is contrary to freedom of establishment to preclude the possibility for the parent company to deduct from its taxable profits in that Member State the losses incurred by its non-resident subsidiary.

      The full text of the judgment may be found on the Court's internet site:

      http://curia.eu.int/jurisp/cgibin/form.pl?lang=en

      On 13 December 2005, the Commission

      proposed to modernise rules for digital era TV and TV-like services, i.e. the Commission adopted a proposal to update the EU's 1989 "TV without Frontiers" Directive. The proposal

      aims to reduce the regulatory burden on

      Europe's providers of TV and TV-like services and to give more flexibility for financing audiovisual content by new forms of advertising. The proposal will also create a level playing field for all companies that offer TV-like services, irrespective of the technology used to

      deliver them (e.g. broadcast, high-speed

      broadband, third generation mobiles). The Commission therefore proposes replacing disparate national rules on protection of minors, against incitement to racial hatred and against

      surreptitious advertising with a basic, EU-wide minimum standard of protection for audiovisual on demand services. This new policy approach should accelerate the advent of a seamless single market for TV and TV-like services.

      Under the Commission proposal, the

      modernised TV without Frontiers Directive would govern TV and TV-like services. To open up the present EU rules to technological developments, the proposal distinguishes between "linear" services (e.g. scheduled broadcasting via traditional TV, the internet, or

      mobile phones, which "pushes" content to viewers), and "non-linear" ones, such as ondemand films or news, which the viewer "pulls" from a network. Today's TV broadcasting rules would apply to linear services in a modernised, more flexible form, whereas non-linear ones would be subject only to a basic set of minimum principles, e.g. to protect minors,

      prevent incitement to racial hatred and outlaw surreptitious advertising. Harmonising these rules EU-wide will ensure that audiovisual media service suppliers need only comply with

      the rules of the Member State in which they are established, and not with the disparate rules of all the Member States receiving their services. For scheduled broadcasting, the Commission

      proposes to remove red tape, make existing rules more flexible for new forms of advertising, and encourage self- and co-regulation. Instead of detailed prescriptions on how often and

      under which conditions programmes may be interrupted by advertising, the modernised Directive would simplify the existing EU rules. In the future, broadcasters would be able to

      choose the best moment to insert advertising in programmes, rather than being obliged, as they are now, to allow at least 20 minutes between

      advertising breaks. However, the quantity of advertising would not be allowed to increase as the Commission proposes to maintain the existing 12 minutes per hour ceiling. The new Directive would also support new forms of advertising, such as split-screen, virtual and interactive advertising. Product placement would, for the first time, be explicitly defined and provided with a clear legal framework. Except in news, current affairs and children's

      programmes, clearly identified product

      placement would be permitted in Europe, both in linear and non-linear audiovisual services. To prevent surreptitious advertising, consumers

      would be informed at the start of a programme that product placement is in use. These new rules should remove legal uncertainty, provide additional funding for European productions

      and thus enhance the competitiveness of

      Europe's audiovisual sector.

      In line with the Commission's better regulation policy, the proposed modernisation of the TV without Frontiers Directive does not affect private correspondence, electronic versions of

      newspapers or magazines, web sites not

      primarily intended to provide audiovisual media content, mere audio transmissions or radio. This

      takes account of input from an intensive EUwide consultation launched in July, in which representatives of the audiovisual sector, telecom operators, internet service providers, consumer organisations and other stakeholders

      had taken an active part. Further information:

      http://europa.eu.int/information_society/

      newsroom/cf/itemlongdetail.cfm?item_id=2343

      On 12 December 2005, the Commission

      published an evaluation of the protection EU law gives to databases. EU law protects databases by copyright if they are sufficiently creative. Other databases, especially those that are compilations of information or commonplace data, such as telephone directories, music charts or football match listings, may benefit from a new form of protection introduced by the 1996 Database Directive. This protection is known as the sui generis database right, i.e. a specific property right for databases that is unrelated to other forms of protection such as copyright. The evaluation focuses on whether the introduction of this right led to an increase in the European

      database industry's rate of growth and in

      database production. It also looks at whether the scope of the right targets those areas where Europe needs to encourage innovation. The evaluation was conducted on the basis of

      two information sources: first, an online survey addressed to the European database industry carried out by the Commission in August and September 2005; and second, the Gale Directory of Databases (the largest existing database directory) which contains statistics

      indicating the growth of the global database industry since the 1970s. Individual views expressed outside the stakeholder survey were also taken into account. On the basis of the

      information available, the evaluation finds that the economic impact of the sui generis right on database production is unproven. However, the European publishing industry, consulted in the

      online survey, argued that sui generis protection is crucial to the continued success of their activities. In addition, most respondents to the online survey believe that the sui generis right

      has brought about legal certainty, reduced the costs associated with the protection of databases, created more business opportunities and facilitated the marketing of databases. Therefore, further evidence on the usefulness of

      sui generis protection needs to be gathered. The staff working paper invites stakeholders to submit their views and comments and to provide further evidence on the economic impact of sui generis protection. The evaluation is available at: http://europa.eu.int/comm/internal_market/copyright/prot-databases/prot-databases_en.htm On 22 December 2005, the Commission presented two proposals to link the "Community Design" system, which protects

      designs within the EU, with the international design registration system of the World Intellectual Property Organisation (WIPO). The proposals would allow companies, with a single

      application, to obtain protection of a design not only throughout the EU with the Community Design, but also in the countries which are members of the Geneva Act of the Hague Agreement concerning the international registration of industrial designs. The first proposal relates to the accession of the

      European Community (EC) to the Geneva Act. The second proposal contains the necessary provisions to give effect to that accession, in particular through an amendment of Council

      Regulation No 6/2002 on Community Designs. These proposals will allow EU firms to safeguard valuable design rights with less bureaucracy while at the same time encouraging them to trade with third countries in the knowledge that their design rights are protected.

      This simplified procedure would also lead to a saving of costs: there would no longer be a need to provide translations of the documents, to keep watch on the different deadlines for renewal of a great number of national registrations and to pay a series of national fees and fees to agents in different countries. All this

      would have a positive impact on research, development and innovation activities. The simplified procedure would also facilitate access to protection in third countries, which would encourage EU companies to trade with

      these countries in the knowledge that their designs are protected.

      For more information see:

      http://europa.eu.int/comm/internal_market/en/indprop/design/index.htm

      http://www.wipo.int/hague/en/

      INTELLECTUAL

      On 17 November 2005, the Lithuanian Court of Appeals in civil case No 2-523/2005 D. Ð. v UAB Stramina examined the issue of investigation of a legal person's activities. The court has held that the participants of a legal

      person entrust the management of a legal person to the managing bodies of the latter who are obliged to pursue the goals indicated in the legal person's articles of association. While a legal person operates using the capital of the participants of a legal person, the participants therefore are entitled to know how their capital is used, managed and possessed. In cases when the participants of a legal person have doubts as to the proper management of a legal person, they should be given the possibility to verify the propriety of activities of the managing bodies of

      a legal person. The managing body of a legal person must ensure the fair and reasonable management of a legal person while organising the latter's

      activities. In organisation of the activities of a legal person and in the related decision-making the management body of a legal person acts on behalf of a legal person and not on its own

      behalf; thus, if a participant of a legal person considers that the management of a legal person is improper such participant must only specify how such undue activities appear but does not have an obligation to relate the

      indicators of undue management to a particular body of a legal person. Whatever the managing body whose actions result in the doubts as to

      the activities of a legal person, the law

      prescribes that the propriety or impropriety of the activities may be assessed only through investigation of the activities of a legal person

      itself and not the actions of its particular body. No doubt, the respondent in the proceedings pertaining to investigation of a legal person's activities in all cases should be the legal person

      whose activities are requested to be

      investigated. The applicant requesting the court to investigate the activities of a legal person may also indicate other persons as respondents: one-person managing body of a legal person

      (head of administration) or separate members of a collegiate managing body, if the activities the investigation of which is requested are related

      to particular actions of the managing bodies or members of the managing bodies. In any case, only the applicant (claimant) has the discretionary right to decide whom to indicate as co-respondents along with the legal person

      the investigation of the activities of which is requested.

      On 20 December 2005, the Parliament

      adopted Law No X-458 on Supplementing the Labour Code with Article 1621. This Law establishes that rest days (Saturdays and Sundays) falling on festive days which are not

      workdays under law will be transferred to the workdays immediately following such rest days. The law also prescribes that a collective agreement may set forth another procedure for transferring the rest days which fall on festive days.

      On 22 December 2005, the Commission

      launched much-awaited revision of the

      Medical Device Directives. The most

      significant proposals concern conformity

      assessment, including design documentation and design review, clarification of the clinical evaluation requirements, post market surveillance, compliance of custom-made device manufacturers and the alignment of the

      original medical device directive 90/385/EEC. It introduces the necessary regulatory clarification in order to continue the high level of protection of human health and support better implementation. It also foresees

      provisions necessary to regulate medical

      devices with an ancillary human tissue

      engineered product. This mirrors the proposed EU legislation on advanced therapies and fills a potential regulatory gap. The proposal enjoys widespread support and it is anticipated, by authorities and industry alike,

      that its eventual adoption will see resurgence in this sector, both in terms of competitiveness and safety. Moreover, the proposal fits neatly into the European Commission's policy to maintain

      the high competitiveness of this sector.

      Additional information, including the text of the study and the Commission proposal, can be found at:

      http://europa.eu.int/comm/enterprise/

      medical_devices/revision_mdd_en.htm

      

      On 23 November 2005, the Supreme Court of Lithuania in civil case No 3K-3-599/2005 UAB Edgira v UAB Norta and AB Stop-Servis stated its opinion with respect to assignment of a buyer's rights. Article 4.79 of the Civil Code regulates the pre-emptive right of a co-owner to

      purchase a part of a being sold thing which is held by the joint ownership right, at the price it is offered for sale and subject to the same other conditions. The seller of a part of joint ownership must notify other co-owners in

      writing of his/her intention to sell his/her part not to a co-owner, specifying the price and other conditions of sale. The sale of a part of an immovable thing should be notified through a notary public. When other co-owners refuse to

      exercise their pre-emptive right to purchase the part being sold, the seller is entitled to sell his part to any person. The purpose of this legal rule is to protect the interests of co-owners and

      reduce their number seeking to ensure the efficient possession and disposal of a certain property. If a part of a co-owned thing (object) is sold in violation of the pre-emptive right to purchase it, the other co-owner will be entitled to claim within three months in judicial procedure the assignment of the buyer's rights

      and obligations to him. For the assigning of the buyer's rights and obligations it is sufficient to establish that the right of the other co-owner to purchase this part has been infringed. This is a special legal rule aimed at protection of the property interests of other co-owners. While

      assigning the rights and obligations of a buyer, the fairness of the third person who has acquired the property held by the joint-partial ownership right will not be taken into account. On 5 December 2005, the Supreme Court of Lithuania in civil case No 3K-3-641/2005

      Nijolë Kavaliauskienë, Jonas Jurkonis and Juozas Jonas Jurkonis v Stasys Motiejus Jurkonis stated that the purpose of legal acts regulating

      the restitution of the ownership rights to existing real estate was to restore, at least in part, the citizens' ownership right to the existing real estate thus protecting the infringed ownership right of the citizens. These legal acts primarily

      serve to protect the rights and interests of the person whose ownership right has been infringed, i.e. the owner. The right to restore the existing real estate which is held by other persons referred to in legal acts governing the restitution of ownership rights is derived from

      the owner's rights. Such other persons may restore the ownership right only if the owner of the property is dead. No law, however, sets forth the restitution of the ownership rights per se. Laws only declare the continuity of the wnership rights that are unlawfully denied and

      ensure that the ownership rights to the persons who have stated their will to restore the ownership rights previously held or assigned will be restored subject to the procedure and conditions prescribed by laws. However, the will of the person eligible for restoring the

      ownership rights should be stated by filing an application concerning the restitution of the ownership rights with a respective institution authorised to restore ownership rights.

      On 6 December 2005, the Commission

      outlined its proposals for future initiatives to improve cross-border competition in defence procurement. In 2006, the Commission will adopt an 'Interpretative Communication' on the application of Article 296 EC Treaty clarifying

      when Member States can derogate from EU law requiring competitive procurement with regard to supplies, works and services intended for

      specifically military purposes and crucial to essential security interests. This will be a nonlegislative measure that reduces the risk of legal misinterpretation and thus ensures better application of existing law by Member States. It

      will recall the principles governing the use of the derogation in the light of European Court of Justice case law, and will clarify the criteria on the basis of which Member States have to prove

      when the conditions for the application of the derogation are met. In parallel, preliminary work will begin towards a possible Directive that would coordinate procedures for defence procurement in cases where the derogation under Article 296 EC is not applicable or a Member State chooses not to take advantage of

      it. These initiatives are based on the results of the consultation launched in September 2004 by the Green Paper on how to open defence public procurement to greater transparency and

      efficiency, compatible with the specific features of this sector.

      On 21 December 2005, the Commission

      adopted new regional aid guidelines for 2007-2013 under the EC Treaty state aid rules. These Guidelines will apply from 2007 to 2013, the same period as for the next programming period for EU structural funds. The Guidelines specify rules for the selection of regions which are eligible for regional aid, and

      define the maximum permitted levels of this aid. In line with EU cohesion policy and European Council requests for less and better targeted state aid, the new Guidelines re-focus regional aid on the most deprived regions of the enlarged Union, while allowing for the

      Lideika, Petrauskas, Valiūnas ir partneriai LAWIN need to improve competitiveness and to provide for a smooth transition. Under the current Guidelines, 52.2% of the

      EU-25 population live in regions eligible for regional state aid, with 34.2% of the EU-25 population living in regions considered to be disadvantaged compared to the overall EU-25

      average (and so eligible for aid under Article 87(3)(a) of the Treaty), eligible for the highest rates of aid (40% - 50%), and 18% living in regions which are relatively less disadvantaged (eligible for aid under Article 87(3)(c) of the Treaty) and so eligible for lower aid rates of

      10% - 20%. Under the new Guidelines, the overall population coverage for regional state aid is fixed at 43.1% of the EU-25 population. This includes a safety net to ensure that no Member State loses more than 50% of its current

      entitlement. Regions with less than 75% of the EU-25 average per capita GDP (i.e.

      disadvantaged) qualify for the highest rates of aid under Article 87(3)(a), as well as for operating aid (regional aid aimed at reducing a firm's current expenses). These regions constitute 27.7% of the EU-25 population. Given the huge disparity in wealth between

      these regions, ranging from 32.2% to 74.9% of the Community average, they are divided into three categories. This means that where regional aid is given to large companies in these regions, the maximum aid rates are as follows:

      Regional GDP % of EU-25 Maximum aid

      as % of EU-25 population rates for large

      GDP companies

      <75% 14.05% 30%

      <60% 6.30% 40%

      <45% 7.37% 50%

      So-called 'statistical effect regions' - which have less than 75% of EU-15 GDP but more than 75% of EU-25 GDP (3.6% of EU-25 population) - will benefit from transitional status as 'disadvantaged' and qualify for the lowest rates of aid under Article 87(3)(a) of the EC Treaty, with a 30% aid rate for large companies until 31.12.2010. The situation of

      these regions will be reviewed in 2010. If their situation has declined, they will continue to benefit from Article 87(3)(a). Otherwise, they will be eligible under Article 87(3)(c) with an aid rate of 20%, as from 1.1.2011. As regards regions with more than 75% of the EU-25 average per capita GDP, Member States

      will be able to allocate regional aid at lower rates (between 10% and 15%) under Article 87(3)(c) of the EC Treaty to areas which they can define themselves in line with a national regional development policy, subject to a

      maximum population coverage and some minimal conditions to prevent abuse. The new Guidelines are available at: http://europa.eu.int/comm/competition/

      state_aid/regional/

      The following laws came into effect as of 1 January 2006: Provisional Law on Social Tax. Social tax payers are legal entities who for the same tax period must pay a profit tax from the taxable

      profit. The tax base is the taxable profit

      calculated in the procedure prescribed by the Law on Profit Tax, subject to a 4-percent tax rate for the tax period commencing in the year 2006 and a 3-percent tax rate for the tax period

      commencing in the year 2007.

      Law on Real Estate Tax. A real estate tax, which until 1 January 2006 was applicable only to the legal persons, as of the said date applies to natural persons as well. The object of the tax

      includes: (i) real estate (or a part thereof) owned by natural persons which is located in the territory of the Republic of Lithuania, except for the structures (premises) of residential, horticultural, garage, farming, greenhouse,

      household, supporting household, research, religious, recreational purposes, also fishery structures and engineering structures, unless

      they constitute real estate used for economic or individual activities or are transferred, for an unlimited term or longer than 1-month term, for

      the legal persons' use; (ii) real estate owned by legal persons which is located in the Republic of Lithuania. The tax period of the real estate tax comprises a calendar year. The tax rate is 1

      percent of the tax value of the real estate.

      Article 19.3(5) of the Law on Value-Added

      Tax, which imposes a preferential 5-percent VAT rate on ecologically clean foodstuffs that comply with the requirements of legal acts valid in the Republic of Lithuania.