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15 November 2021
Schoenherr publication

to the point: technology & digitalisation | November 2021

Welcome to the November edition of Schoenherr's to the point: technology & digitalisation newsletter!

We are excited to present a selection of legal developments in the area of technology & digitalisation in the wider CEE region.

Insights waiting for you in this edition: 

In October, Mark Zuckerberg not only rebranded Facebook as Meta, but also unveiled his mammoth new project, the "Metaverse". The vision behind it is the creation of the "new mobile internet", as a fusion of physical and virtual reality.

With the help of augmented reality (AR) and virtual reality (VR) technology, it should be possible to create a new internet that can be experienced and virtually accessed.

The name comes from Snow Crash, a 1992 science fiction novel by American author Neal Stephensen, which posited a world of virtual spaces in which people met as avatars and escaped from the real world.

Like the internet, the Metaverse should not belong to anyone. It should be accessible and open to everyone to further develop, design and discover. Even if Facebook (now Meta) is not the only company working on the Metaverse, it is certainly already a big player in this market due to its enormous monetary resources alone and will make a significant contribution to shaping the "new internet".

Within the Metaverse, there will now be a variety of virtual spaces that people can create, design, use or explore for themselves. There should be no limits to the imagination and almost everything should be open to visitors within this virtual space.

It is conceivable that there will one day be a world parallel to and independent of the real, physical world, with its own currency and its own economic system, in which people can communicate and interact with each other simultaneously and in real time. It should become a place to hang out with friends, work, play, learn and create, but of course also spend money.

The Metaverse therefore not only offers its visitors new dimensions in the future, but also opens enormous opportunities for established companies and start-ups to extend their business models to the cyberworld or to establish completely new ones in it.

There are no limits to the Metaverse when it comes to business. Not only can real objects be scanned and imported into the Metaverse and used or exhibited there, but virtually almost anything can be represented and integrated into this virtual world. This is especially interesting for the entertainment and gaming industry, but also for the entire advertising and e-commerce sector.

Thus, for example, you can play a round of chess with Darth Vader on Mount Everest, dance as a Super Mario avatar at the next virtual Pink concert, or take part in a yoga lesson in a Tibetan monastery. In virtual shopping malls, you can try on the latest styles from the hottest avatar fashion designer in real time, and then continue working on your thesis on your virtual walk-in desktop at Hogwarts. 

While it's exciting to think about how the Metaverse will develop over the next few years, it is already clear that billions are currently being invested in the development of its sister technologies augmented and virtual reality, and many companies are waiting to jump on the bandwagon of the new "next big thing".

According to CBS Insights, blockchain and crypto startups have raised USD 15bln in 2021 (YTD), propelled by a blockbuster Q3/21. Crypto exchanges captured the most funding of any other blockchain/crypto category in Q3/21, raising nearly USD 2bln, which corresponds to a 2,240 % increase compared to Q3/20. Funding of NFT companies has also increased significantly, exceeding USD 1bln in Q3/21 for the first time. Find the full report at cbinsights.com.

Austria’s government has recently outlined drafts of significant amendments to the Austrian taxation regime of crypto assets held as business assets or held privately. It is envisaged that from 1 March 2022 onwards earnings resulting from the sale or interest-bearing investment of privately or business held crypto assets, will be qualified as capital gains with a flat tax rate of 27,5 % (in case of an individual) or 25 % (in case of a corporation), irrespective of any disposal period. Nevertheless, the swap of cryptocurrencies into other cryptocurrencies will not constitute a taxable transaction. Crypto gains deriving from transactions which occur up until 31 December 2022 have to be declared in an income tax statement, while from 1 January 2023 onwards the taxation of crypto gains will be con-ducted via withholding tax, if the crypto trading provider has a sufficient Austrian nexus (e.g. through a registered office).

With regard to crypto assets which were acquired before 28 February 2021, the current tax regime will still apply: currently, crypto gains are only deemed taxable at a progressive tax rate, if the period between acquisition and disposal does not exceed one year for private investors.

Besides, the tax reform draft contains a tax- and social security exemption for bonus payments of up to EUR 3,000 which may be granted as participation in the employer's success. This bonus provision falls below the expectations of many start-ups and thus can solely be seen as a (small) first step towards substantial tax relief for (start-up) employees.

Following the highly popular South Korean Netflix series Squid Game a new crypto token ("SQUID") emerged. Its website and social media accounts announced that a new online video game about the show will be going live soon and that the token can be used in the game. At launch SQUID was trading at 1 cent but in less than a week its price jumped to over USD 2,800.

From the beginning, critics pointed out that the website contained spelling mistakes and that there was no way to sell the token. Their suspicions turned out to be valid: the website and social media accounts vanished, and SQUID owners were left with tokens they couldn't sell. SQUID's developers made an estimated USD 3.38m (EUR 2.9m) through the kind of scam commonly called a "rug pull".

Signal is a widely used encrypted instant messaging app developed by Signal Messenger LLC, a subsidiary of the non-profit Signal Technology Foundation. The foundation was co-founded by one of WhatsApp's co-founders, who has also heavily invested in the project. Signal uses extremely sophisticated cryptographic mechanisms to provide its users with end-to-end encryption of texts, photos and calls as well as to implement the app's "zero-knowledge-principle". This means that anything being sent from the Signal app is being encrypted and can only be decrypted by the receiver's installation of the app. Nobody, not even Signal Messenger LLC, can therefore determine the sender, receiver and contents of a message or call. The only data that can be linked to a user's phone number stored on Signal's servers are the date they first signed up and the date they were last connected to Signal.

However, it appears law enforcement agencies do not understand this technology, as they continue trying to force Signal to give them more information about users. Signal publishes all these subpoenas and court orders (at least the ones they are allowed to) on their website here, where the documents can be read. The messenger's lawyers seem to be able to recycle past replies to previous court orders since the circumstances always stay the same: Signal can only provide the date the phone number first signed up and the date it was last connected.

Last year, Vienna's new red-pink city government announced in its program a "start-up scholarship" to be run by the Vienna Business Agency. The goal of the scholarship is to support individuals or teams with a convincing business idea. Now the time has come: starting in November, founders can receive start-up assistance worth up to EUR 25,000. According to the Vienna Business Agency, this should make it possible to realize strong and sustainable company concepts. The aim is to create new jobs as a result.

With the long-awaited amendment of the Online Identification Regulation, the FMA enables financial service providers subject to the KYC obligations to use purely biometrical processes for the remote identification of new customers. This means that the entire or parts of the online identification can now be carried out by an automated electronic procedure without the involvement of natural persons/employees – there is no need for personal contact in the whole remote identification process anymore. This is expected to make the customer identification process easier and faster as well as to significantly lower the costs compared to the current video identification process which so far required employees (instead of an algorithm) to carry out the identification. During a transitional period until 31 December 2022, the requirement to only use photo IDs with electronic signature of the issuing authority and with an NFC chip, will be suspended. After that only IDs with NFC chips will be eligible for the biometrical remote customer identification.

For more details read our legal insight on our website here.

For more than a year now the Austrian legislator has striven to implement a new type of corporation. The plan was to implement an Austrian Limited as an additional corporation type which is tailored to the demands of start-ups. Various models have been discussed over the past year. According to recent developments, it seems that the preferred model will be the so-called "flexible Kapitalgesellschaft" or "Flex-Kap" instead of the Austrian Limited.

Presumably, the Flex-Kap will provide for the possibility to issue two different share classes. One share class tailored to traditional shareholders (like founders and investors), and one share class tailored to employees. The former of which is expected to be similar to the currently known share class available to Austrian limited liability companies (GmbH); thus, such shares and their shareholders, will be publicly announced in the Austrian commercial register, and the transfer of such shares will require a notarial deed. And now for the good news: the latter share class is expected to provide for non-voting shares, a simplified transfer possibility (no notarial deed required) and no required registration process with the Austrian commercial register. Such share class (tailored to employee incentive programmes) will mainly confer the right to participate in the growth of the company's enterprise value.

Draft legislation for the new corporation type is not yet available, but is expected to be released by the competent ministry within the upcoming weeks. We are eagerly awaiting the draft. And of course, we will keep you updated once the draft is released.

 


editor: Thomas Kulnigg

coordinator: Dominik Tyrybon