Taking Counsel: Amendments to the Law on State and Local Government-Owned Capital Shares and Enterprises

  • 2009-08-13
  • By Dace Sirme [Kronbergs & Cukste]
State-owned companies are formally established by an order of the Cabinet of Ministers. The Cabinet of Ministers designates a public institution to be the holder of state capital shares. Recent amendments to the law stipulate that subsidiaries fully belonging to the state or local government are required to comply with the law on state and local government capital shares. Such amendments henceforth restrict the commercial activities of subsidiaries established by government owned enterprises.

For a number of years, laws which have been binding upon state-owned companies have not been binding upon their subsidiaries. A state-owned company operates based on the law 'On State and Local Government Owned Capital Shares and Enterprises,' but a subsidiary is performing its commercial activities mainly in accordance with the Commercial Law and, therefore, avoiding the application of the Public Procurement Law and other laws which are legally binding upon state-owned enterprises. The effect has been to make the supervision of state-owned assets somewhat unclear.

The amendments of July 1, 2009, were aimed at increasing the efficiency of  management of state capital so that the Latvian state earns the maximum profit and dividends available. Under the amendments, the supervisory councils at state-owned companies are to be liquidated. Further, the board of the council is required to obtain the approval of the Cabinet of Ministers in order to establish a company based on the Article 64, Paragraph 2¹. Important decisions of state companies now require the consent of the Cabinet of Ministers.

It may be that further related law amendments are around the corner. Although it is not yet clear whether or not the law will be passed, currently there is a draft law that has gone through a second reading that provides for the prohibition of marketing, sponsoring and donations within the system of subsidiaries of state-owned enterprises. One of the policy objectives for such a draft law is that donations and sponsoring allows for different tax treatment. Currently, a state-owned enterprise is entitled to receive tax rebates when it donates to a public benefit organization.

Dace Sirme is an associate at Kronbergs & Cukste, representing Latvia in the pan-Baltic full service legal network of Baltic Legal Solutions. Baltic Legal Solutions is represented in Lithuania by Jurevicius,Bartkus & Partners, and in Estonia by Glikman & Partnerid.