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Germany: What happened in 2021 and significant events in 2022

The Year to Come and Year in Review summarise a selection of major developments you should be aware of from 2021, and a selection of key developments expected in 2022.

Key updates to

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major legal developments in 2021 and 2022

Watch this short video for an introduction to our German Law Year to Come 2022 and Year in Review 2021 publication from Sebastian Benz (Knowledge & Learning Partner, Germany).

German law highlights in 2022

Women in Management Positions

The German Second Act on Equal Participation of Women in Management Positions aims to strengthen the participation of women, especially in leadership positions in the private sector.

New Whistleblowing regime

The new Whistleblowing regime will bring significant changes in the areas of employment law, compliance and data protection throughout Europe.

Country by Country Reporting

The implementation of pCbCR will set new standards for multinational companies regarding the disclosure of paid taxes.

Reassessment of increased foreign investment hurdles: Following far-reaching amendments to German foreign investment control rules in 2021 we have seen a significant increase in the numbers of filings. The Federal Ministry of Economics and Technology will evaluate the new measures in 2022 with a view to reducing the administrative burdens for companies where appropriate.

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Competition Register for public procurement: As of December 2021, German authorities are obliged to report companies’ relevant economic offences to the Competition Register, which can lead to an exclusion from procurement proceedings. As of June 2022, it will also be compulsory for public entities to consult the register for tenders exceeding certain values.

Electronic Securities Act: In June 2021, the new Act came into force. The Act not only allows the dematerialisation of securities but also the use of distributed ledger technology. It is expected that in 2022 the electronic securities requirements ordinance which, amongst other things, sets out the requirements of the electronic securities register, will be finalised. Further, it remains to be seen if the Act will be expanded to shares.

Read more… here and here

Short Selling Regulation: The Short Selling Regulation will be subject to review on operational improvements and policy clarifications including the calculation of net short positions and the prohibition of uncovered short selling.

Read more… here and here

Women in management positions: The German Second Act on Equal Participation of Women in Management Positions (FüPoG II) introduces a minimum amount of women required on management boards of larger companies and extends existing rules on gender quotas for supervisory boards. Board members (of all genders) are afforded the right to request leave for personal reasons, such as childcare.

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Expiration of Covid-19 rules on virtual shareholder meetings: The emergency law of March 2020 that allowed for and facilitated virtual shareholder meetings and other corporate measures to account for the impact of Covid-19 is set to expire at the end of August 2022. Discussions regarding more permanent measures for virtual meetings are likely to pick up again under the new government.

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Implementation of the Collective Redress Directive: By the end of 2022, Germany must implement the EU Directive on representative actions for the protection of the collective interests of consumers, which goes far beyond existing collective redress mechanisms in Germany.

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More flexible working time: The new German Government plans to enable parties of collective bargaining agreements (CBA) and employees to make employees’ working time more flexible. Additionally, CBAs and work council agreements are planned that provide for restricted possibilities to extend daily working time beyond the ten-hour-limit provided for in the German Working Time Act.

Increase of minimum wage: The parties likely to form the new German Government have agreed to raise the general minimum wage in 2022 to 12 EUR (gross) per hour. Originally, the minimum wage was set to increase to 10.45 EUR (gross) in 2022.

Fit for 55: On an EU level, we will see discussions on a suite of legislative initiatives (fit for 55) across various sectors, including energy, transport and buildings, which is intended to fundamentally overhaul the EU’s climate policy framework and put the EU on track to deliver on its 2030 climate target of 55%. Likewise, the EU gas package proposing, amongst others, new rules for hydrogen will go through the legislative procedure.

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Disclosure obligations under the EU Taxonomy Regulation: In 2022, the disclosure obligations under the EU Taxonomy Regulation regarding pre-contractual information and annual reports will start to apply with regard to the first two environmental objectives. Market participants will also have to comply with the regulatory technical standards under the EU Disclosure Regulation which are expected to be finalised by the end of 2021.

Read more... here and here

Banking Package 2021: In October 2021, the EC published draft amendments to CRR and CRD. While the amendments primarily aim to ensure a stronger resilience of EU banks to future economic shocks by finalising the implementation of the Basel III rules (also known as Basel IV), they are also intended to contribute to the economic recovery from Covid-19 as well as the transition to climate neutrality by integrating ESG risks in[into?] the prudential framework. Furthermore, the amendments also strengthen supervision powers, amongst others by establishing new harmonised rules for third country branches.

Read more... here, here and here

Finalisation of the Digital Finance Package: The Digital Finance Package, consisting of draft rules on digital operational resilience (DORA), markets in crypto assets (MiCA) and a pilot regime for DLT, is expected to be finalised in 2022.

Read more... here, here and here. Hear more on DORA.

Investment Firms Regulation: The Federal Financial Supervisory Authority (BaFin) consulted four ordinances under the German Investment Firm Act (WpIG) covering topics like audit reports, remuneration, shareholder control and notifications. The final acts are expected to be published in 2022.

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Unified Patent Court (UPC): Amongst others, Germany has to ratify the Agreement on the Unified Patent Court and deposit the ratification instrument for the unified patent system to come into force. In 2021, Germany’s Federal Constitutional Court dismissed the request for interim measures against the ratification of the UPC Agreement. The dismissal enabled Germany to continue the ratification process and the ratification instrument is expected to be deposited soon. The UPC Preparatory Committee estimates that the UPC will commence its operations around mid-2022.

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Issuance of crypto fund units: With the draft ordinance on crypto fund units, the German legislator intends to allow investment funds to issue electronic securities in the form of crypto fund units listed in a crypto securities register. It stipulates that the basic provisions for electronic securities should also apply to crypto fund units. The adoption of the ordinance is expected in early 2022.

Company Law Package I – EU Directive on Cross-Border Reorganisations: Directive 2019/2121 on cross-border mergers, conversions and divisions/spin-offs is due to be implemented into German law by January 2023. Legislative proceedings are expected to begin under the new Government in 2022.

Company Law Package II – Digital Tools in Company Law: Most of the German law implementing Directive 2019/1151 will apply from 1 August 2022. The new law introduces an internet-based procedure for the formation of GmbHs (Limited Liability Companies), a new option for notarisation of a qualified electronic signature and new rules on corporate and accounting-related publications.

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Changes relating to deferred compensation: In 2022, the income threshold in the statutory pension insurance will decrease and so will the amount of the employees’ entitlement to deferred compensation as well as the respective social security and tax allowances. Employers should review their existing deferred compensation agreements and update if necessary. If the deferred amount is to exceed the statutory minimum, social security and tax implications must be accounted for. Also, employers will be legally obliged to contribute to the deferred compensation from January 2022.

Restructuring and Insolvency: Government support, as well as relaxations on directors’ duties, will taper off. There will also be a greater focus by auditors on “going concern” status and capital providers, and new money especially may be less amenable to “amend-and-extend”. We expect a rise in restructurings and insolvencies in 2022.

Whistleblowing: The implementation of the Whistleblowing Directive will provide rules for internal reporting procedures to be established by legal entities in the private sector with 50+ employees. Implementation into German law was discussed in 2021 but the actual scope will most likely be decided in the course of 2022

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Country by Country Reporting: The Directive on the implementation of pCbCR was published in the OJEU on 1 December 2021. This requires multinational undertakings and their branches with a total revenue of more than EUR 750m, which are subject to a Member State’s national law (irrespective of whether they are headquartered in the EU), to disclose publicly the amount of taxes paid in each Member State and in so-called “non-cooperative jurisdictions”. Germany will have 18 months from when the Directive comes into force on the 20th day following its publication to transpose it into national law.

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Digital Markets Act: Following recent reforms in Germany to address the market power of platform and digital ecosystems, the EU aims to reach agreement on the Digital Markets Act, which will reshape how digital businesses operate in the EU and regulate online “gatekeepers”.

Read more... here and here

Telecommunications Law: The new law sets the scene for a faster expansion of gigabit networks, in particular through investment-friendly incentive mechanisms. Public funding for fibre roll-out is expected this year.

Vertical Block Exemption Regulation and Guidelines: The revised Regulation and Guidelines will apply in June. The current draft versions show the European Commission’s (EC) hard line against online platforms, dual distribution and price parity clauses.

Read more...

German law highlights in 2021

Financial market integrity

The German legislator responds to the Wirecard crisis and strengthens the role of the national supervisory authority and implements stricter accounting rules and liabilities for corporate governance.

Supply Chain Due Diligence Act

Germany enacted a mandatory Supply Chain Due Diligence Act that has the potential to become one of the most significant statutes in that area worldwide.

Real Estate Transfer Tax Reform

The real estate transfer tax reform has had a massive impact on share deal transactions. Amongst others, participation thresholds are lowered and lock-up periods extended.

Germany taking the lead in GAFA “gatekeeper” proceedings: The Federal Cartel Office (FCO) has opened proceedings against all big tech companies to assess whether they have a paramount significance for competition across markets. If so, the FCO will investigate whether they have abused their position under Section 19a of the German Competition Act. The outcome is still pending but the FCO’s decision may impact the EU Digital Markets Act.

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Expansion of EU Merger Control Jurisdiction: The EC has expanded its jurisdiction based on new guidance on its referral mechanism under Art. 22 of the European Merger Control Regulation (EUMR). It can now explicitly review non-reportable deals after an upwards referral from a Member State none of which would otherwise have jurisdiction over the deal. The guidance is not limited to specific sectors, but clearly targets healthcare and tech companies.

Read more... here and here

Reform of the Money Laundering Law: A reform “to strengthen the fight against money laundering by means of criminal law” came into force in March

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Covered Bond Act: The Covered Bonds Directive primarily standardising the requirements for covered bonds has been implemented in Germany by amending the German Covered Bond Act accordingly.

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Benchmark Regulation: The Benchmark Regulation was subject to amendments, giving the EC the power to set up statutory replacement rates for tough legacy contracts. The EC has already made use of this new power by issuing implementing regulations in relation to a statutory replacement rate for EONIA and CHF LIBOR. It remains to be seen if the EC will make use of this power for other rates.

Judgment on deemed consent and standard business terms: In a judgment by the German Federal Court of Justice on 27 April 2021, the German court held certain clauses deeming the customer's consent in the event of an amendment to the Bank's standard business terms to be invalid.

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Act to strengthen financial market integrity: As a response to the Wirecard scandal, the new law tightens several requirements in the field of corporate governance and accounting. Larger companies must now have an audit committee and stricter requirements regarding annual audits. Further to this, the German regulator takes on a stronger role in supervising and enforcing compliance matters.

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Reform of the Partnership Law: A far-reaching modernisation of the law on partnerships was passed in June that will, for example, establish a new register for non-commercial partnerships (GbR), enhance cross-border mobility of partnerships and introduce modernised rules on decision-making. The new rules come into force on 1 January 2024.

Covid-19 - Remote working, occupational health and safety and employees’ vaccination: In 2021, German employment law has been heavily influenced by COVID-19. During lockdown, employees were obliged to work from home where possible. Employers have been obliged to constantly adapt their health and safety concepts to the state of the pandemic and to provide for social distancing and masks. Further, employers have been able to access and use employee data on their vaccination status.

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Facilitation of the bundling of claims: The Federal Court of Justice upheld a mass claims collection model that bundled the claims of several parties into one action by way of assignment to a legal services provider (Inkassozession). In parallel, the German legislator also addressed certain aspects of this business practice.

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Revision of Works Constitution Act: The German Works Constitution Act (BetrVG) now offers more protection for employees who organise the implementation of a works council and applies the simplified works council elections to more operations. Further, it now includes a co-determination right to mobile working and provides for the employer to be the controller within the meaning of the data protection regulations for data processing by the works council.

New energies: The Government increased the tender amounts for the promotion of electricity from renewable energies to meet its ambition of reaching a share of electricity generated from renewable sources of 65% by 2030. New rules for hydrogen-only grids and exempted electricity used to produce green hydrogen from the renewable energy surcharge, were introduced. The Fast Charging Act introduces tenders to establish fast charging points nationwide.

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Climate change litigation: The Federal Constitutional Court ruled that the provisions of the Climate Change Act are incompatible with fundamental rights. Subsequently, in addition to numerous copycat lawsuits to enforce stricter regulations at the level of the federal states, NGOs have also taken companies to German courts.

Read more...

Supply Chain Due Diligence: With the German Supply Chain Due Diligence Act, the German legislator has set binding requirements that in-scope companies will have to fulfil as of January 2023.

Read more and hear more

MiFID II quick-fixes: Amendments to MiFID II were adopted in February and aim to remove unnecessary burdens to participants in the financial markets sector and also introduce measures that mitigate the economic turmoil caused by the Covid-19 pandemic.

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Outsourcing- amendments to Minimum Requirements for Risk Management: EBA’s guidelines on NPL management, outsourcing arrangements and on ICT and security risk management were transposed to national administrative practice by amendments to MaRisk. In parallel, the Supervisory Requirements for IT in Financial Institutions (BAIT) were updated.

New regime for Crowdfunding Service Provider: Since 10 November 2021, the EU Crowdfunding Service Providers Regulation (ECSPR) is directly applicable in all Member States as a unified EU standard for lending and equity-based crowdfunding.

Reform of the Patent Act: Germany passed changes to the Patent Act in June 2021, especially with regard to the claim for an injunction.

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Fund Location Act: The Fund Location Act transposes the European Directive/2019/1160 on cross-border distribution of collective investment undertakings into national law and aims to strengthen Germany as a fund location and reduce bureaucracy hurdles. The Act brings several changes to the German Investment Code (KAGB) and introduces, amongst others, an Investment Development Fund. Furthermore, it sets out new rules for the cross-border marketing of undertakings for collective investment.

Read more... here and here

New Restructuring Law: A new restructuring law came into effect in January. Financially distressed companies now have access to pre-insolvency restructuring that offers preventive tools for a potential out-of-court process. Amongst others, it permits companies to reorganise their relations with creditors through majority decisions and to overrule dissenting creditors under certain conditions through cross-class-cram downs.

Read more or hear more...

Transparency Register and Financial Information Act: The Act expanded the obligation for companies to file information on their ultimate beneficial owners (UBO) with the transparency register from previously 0.4 to 2.3 million companies (as estimated by the Government). In particular, listed companies and group companies are affected.

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Act to Modernise the Corporate Income Tax Law: The core of this Act is the option model for partnerships enabling them to be taxed like a corporation upon application. The partnership itself will thus become the subject of taxation.

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Anti-Tax Avoidance Directive (ATAD) Implementation Act: The ATAD has finally been implemented into national law. The Act modifies existing regulations on disentanglement, entanglement and exit taxation, and tightens the regulations against hybrid mismatch arrangements.

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Real Estate Transfer Tax (RETT) Reform Act: With this long-awaited reform, real estate transfer tax rules on share deal transactions have significantly tightened as from 1 July 2021.

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Tax Haven Prevention Act: With this Act, amongst others, EU Council conclusions on the so-called EU blacklist were newly introduced to national law. The Act encourages jurisdictions to comply with recognised standards in the areas of transparency in tax matters and unfair tax competition and to implement the BEPS minimum standards.

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Withholding Tax Relief Modernisation Act: The Act provides, amongst others, for significant changes to regulations on the withholding tax relief procedure and contains relevant legal adjustments to prevent associated abuse.

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New EU Medical Device Regulation: The new Regulation increases the obligations for manufacturers, importers and distributors and requires a re-certification under the new rules. In particular, some software may now be subject to a higher risk classification which means a listed body may need to be involved in the certification process.

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