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Cloud contracts: should you agree to sign for several years ?

Posted on : September 8, 2023

A fact that we can all agree, it’s that technology is developing rapidly. Technology broke in the fields of law and has affected all the legal procedures. The omnipresence of technology law brought innovations. The rise of IT contracts is now a well-established legal procedure.
However, there are different types of IT contracts. With the rise of Cloud services, a lot has changed in the world of IT contracts. Cloud contracts can be seen as a form of IT contracts but are different from traditional IT contracts.

A mere and simple definition of both:

Traditional IT contracts

IT Contracts means all material agreements or arrangements under which any third party provides or will provide any element of, or services relating to, the IT Systems, including leasing, hire purchase, licensing, maintenance, website hosting, outsourcing, security, back-up, disaster recovery, insurance, cloud computing and other types of services agreements.

 

Cloud contracts
However, the introduction of Cloud services has changed a lot. Through the Cloud, data is no longer stored on the hardware of the receiving party, but on the Internet. The provider of the Cloud service offers space in a data center, which the receiving party can use, for a fee or not.
In general, Cloud services can be assigned some specific characteristics. Cloud contracts are often non-negotiable, as there is a fixed “package” that the recipients of the service use. The large number of users is related to this: it is not possible to draw up a different contract for each user.
The standard character of the Cloud services also ties in with this. In contrast to traditional IT projects, Cloud often only offers a service. A final feature of Cloud contracts is the fact that no data processing and storage takes place at the customer, but at the provider of the Cloud service.
Although cloud service agreements have superficial similarities to software license agreements, there is a fundamental difference in the legal rights being granted to the customer.

Key terms in a cloud service contract may include:
• Rights to use the service;
• Payement obligations;
• Acceptable use policies;
• Maintenance, availability, support and service credits;
• Service upgrades;
• Right of termination;
• Customer access to data, including upon termination;
• Customisations ;
• Application licensing.

One area of law that has a significant effect upon cloud service agreements is data protection.
In the typical case, the cloud service provider will be a “data processor” in respect of customer data stored in and processed by the service, while the customer will be “data controller”.
However, with increasing competition, providers of platforms or online services offer significant rebate on certain conditions: committing for at least two, three or five years. This commitment can present an issue.
The price of Cloud services rose sharply in 2022, and the trend is not reversing this year. Nevertheless, to qualify for discounts, customers must agree to a multi-year commitment.
Legally, these are multi-year contracts, in which the customer can feel locked in.
As with cybersecurity-antivirus, anti-malware, etc.-Cloud providers offer discounts if you commit to a minimum of 2 or 3 years.

So, after all it is a complex service or not?

For less complex services, such as data storage, a security backup on a drive or an online application, the decision is easy. If you wish to change supplier, you have to retrieve all of your personal data.
On the other hand, when it comes to more complex applications such as sales management or IT platform compatibility such us Python, Java, Ruby etc. or even on big sites such as Amazon, Google, Microsoft etc. better prepare to negotiate the exit conditions!
Thus, the complexity lies to the volume of the platform and the type of the agreement.

The expertise “FinOps”

If the contract is financially onerous and if the volume of data processed and placed on the Cloud is significant, it is necessary to resort to “FinOps” expertise. But it’s better to call on a specialized service provider, an integrator who knows the ins and outs of contracts.
In general, cloud operators are more flexible, and their commercial offers can be very complex. To juggle all these negotiable clauses, it’s best to have a minimum of expertise. It’s all about understanding invoicing methods and controlling discrepancies a posteriori.
After six months or one year of scalability. The bill can swell, or even explode, without even seeing it coming. This could be an opportunity to take a closer look at the number of licenses actually in use, and the number of active virtual machines.

The art of negotiations

A multi-year Cloud contract allows you to budget without the risk of financial derives with the lump-sum payment per month or per 3 months et now for a whole year.
In principle, higher service levels can be achieved, with guaranteed performance and greater responsiveness in the event of an incident. In return, you have to accept a certain “lock-in” by the supplier.
Thus, it is always advisable to opt for the exit clause before signing a Cloud service contract.

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The Digital Services Act 

The Digital Services Act 

Posted on : August 29, 2023

A new European Regulation 2022/2065 of the European Parliament and the Council concerning digital services, known as the Digital Service Act (hereafter DSA), came into force on Friday, August 25, 2023.

This regulation can be characterized as revolutionary in the world of digital services.

In fact, the first DSA regulation of October 19, 2022, together with the Digital Market Regulation (DMA), are both considered to be major digital projects for the European Union.

The obligations set out in these texts are due to come into force on February 17, 2024.

The very large online platforms and search engines are affected earlier, from August 25, 2023.

The aim is to protect EU citizens against counterfeiting, manipulation, hate, harassment, scams and other online nonsense.

Furthermore, Thierry Breton, European Commissioner for the Internal Market, commented that:
“Europe is now the first jurisdiction in the world where online platforms no longer enjoy a ‘free pass’ and set their own rules”.

The “Digital Services Act” provides for numerous measures, graduated according to the nature of online players’ services and their size.

Very large platforms and search engines are subject to stricter requirements.

All online players will have to designate a single point of contact or, if established outside the EU, a legal representative, and cooperate with national authorities in the event of an injunction.

Similarly, online platforms will have to offer users a tool enabling them to easily report illegal content.

Once reported, they must promptly remove or block access to illegal content.

This status is awarded in each country to entities or organizations on the basis of their expertise and skills.

Platforms must also make their content moderation decisions more transparent.

They must provide for an internal complaints handling system enabling users whose accounts have been suspended or terminated to contest this decision.

To settle disputes, users can also turn to independent, certified bodies in European countries, or appeal to their national judges.

Platforms must also explain the algorithms they use to recommend certain advertising content based on user profiles.

Very large platforms and search engines must offer a content recommendation system that is not based on profiling and provide the public with a register of advertisements containing various types of information.

Targeted advertising to minors will be banned on all platforms, as will advertising based on sensitive data such as political opinions, religion, or sexual orientation (unless explicit consent is given).

Deceptive interfaces known as “user traps” and practices designed to mislead users are prohibited.

Services concerned

The services concerned are the very large platforms designated by the European Commission on April 25, 2023, on the basis of the user data they were required to publish.

In addition, they include Internet service providers, cloud computing services, online platforms such as marketplaces, app stores, social networks, content sharing platforms, travel and accommodation platforms and very large online platforms and search engines, used by over 45 million Europeans per month, designated by the European Commission.

The nineteen biggest social networks, marketplaces and other Internet search engines (AliExpress, Amazon Store, AppStore, Booking.com, Facebook, Google Play, Google Maps, Google Search, Google Shopping, Instagram, LinkedIn, Microsoft Bing, Pinterest, Snapchat, TikTok, Wikipedia, X – formerly Twitter -, YouTube, Zalando) must comply with this European legislation on digital services, forcing them to better regulate their content.

Objectives of the DSA

The overall intention of the DSA is to make digital platforms more accountable and combat the distribution of illegal or harmful content, better protect European Internet users and their fundamental rights, help small businesses to develop, strengthen democratic control and oversight of very large platforms, and mitigate their systemic risks.

The legislation on digital services aims to put into practice the principle that what is illegal offline is illegal online.

The regulation lays down a set of rules to make digital platforms more accountable and combat the dissemination of illicit or harmful content or illegal products: racist attacks, child pornography images, disinformation, the sale of drugs or counterfeit goods.

DSA measures

Online platforms must offer Internet users a tool that makes it easy to report illegal content.

Platforms must set up an internal complaint handling system, explain how their algorithms work and prohibit targeted advertising to minors.

They must also analyze every year the systemic risks they generate (on online hate and violence, fundamental rights, civic discourse, electoral processes, public health, etc.) and take the necessary measures to mitigate them.

These platforms will also be required to carry out independent risk reduction audits every year, under the supervision of the European Commission.

Sanctions

The 27 coordinators (from the member states: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden) will be responsible for monitoring compliance with the DSA regulation in their countries, and for receiving complaints against online intermediaries.

They will cooperate within a “European Digital Services Committee”, which will provide analyses, conduct joint investigations in several countries and issue recommendations on the application of the new regulation.

In particular, the committee will recommend that the Commission activate the crisis response mechanism.

The very large online platforms and search engines will be monitored by the European Commission.

To finance this monitoring, they will be charged a “supervision fee” of up to 0.05% of their annual worldwide sales.

Failure to comply with the DSA may result in penalty payments and sanctions.

For very large platforms and search engines, the Commission may impose fines of up to 6% of their worldwide sales.

In the event of serious and repeated breaches of the regulation, platforms could be banned from operating on the European market.

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European legislation on digital services enters into force :

Posted on : April 28, 2023

The European legislation on digital services, which aims to create a safe and responsible online environment, came into force on 16 November 2022.

It applies to all digital services that connect consumers to goods, services or content.

It creates new obligations for online platforms to reduce damages and tackle online risks, introduces strong protections for online users’ rights and places digital platforms in a new single framework for transparency and responsibility.

Designed as a single, uniform set of rules for the EU, they will provide new protections for users and legal certainty for businesses throughout the single market.

The digital services legislation is a pioneering regulatory toolkit on a global scale and sets an international benchmark for a regulatory approach to online intermediaries.

The Digital Services legislation introduces a comprehensive new set of rules for online intermediary services on how they should design their services and procedures.

The new rules include new responsibilities to limit the distribution of illegal content and products online, to strengthen the protection of minors, to give users more choice and to improve information.

The obligations of the different online actors correspond to their role, size and impact in the online ecosystem.

All online intermediaries will have to comply with extensive new transparency obligations to increase accountability and control, for example a new reporting mechanism for illegal content.

A special regime is foreseen for platforms with more than 45 million users.

For these very large online platforms or search engines, additional obligations apply, including thorough annual assessments of the risks of online harm to their services, for example in relation to exposure to illegal goods or content or the spread of misinformation.

As part of the legislation on digital services, appropriate risk mitigation measures will need to be put in place and subject to independent audit of their services and mitigation measures.

Smaller platforms and start-ups will benefit from a reduced set of obligations, special derogations from certain rules and greater clarity and legal certainty, which is essential for the whole EU single market.

The new rules also protect the fundamental rights of users in the EU online environment.

New freedom of expression protections will limit arbitrary content moderation decisions by platforms and provide users with new means to take informed action against the platform when their content is moderated : for example, users of online platforms will now have multiple ways to challenge content moderation decisions, including when these decisions are based on the platforms’ terms and conditions.

Users can lodge a complaint directly with the platform, choose an alternative dispute resolution body, or seek reparation in court.

The new rules also require that platforms’ terms and conditions are presented in a clear and concise manner and respect users’ fundamental rights.

Very large online platforms and search engines will also have to carry out a full risk assessment of fundamental rights, including freedom of expression, protection of personal data, freedom and pluralism of online media and the rights of the child.

The digital services legislation creates an unprecedented level of public control of online platforms across the Union, both at national and EU level.

The Commission has the power to directly monitor very large online platforms and search engines, which individually affect more than 10% of the EU’s population, or around 45 million people.

In addition, each Member State will have to appoint a Digital Services Coordinator, who will oversee other entities falling within the scope of the digital services legislation as well as very large online platforms and search engines on non-systemic issues.

The national coordinators and the European Commission will cooperate through a European Digital Services Committee.

This EU-wide cooperation mechanism will be set up between the Commission’s national regulators.

The Commission is setting up a European Centre for Algorithm Transparency (ECAT) to support its supervisory rôle with internal and external multidisciplinary expertise.

Following the entry into force of the digital services legislation, online platforms will have 3 months to report the number of active end-users (17 February 2023) on their websites.

The Commission also invites all online platforms to notify it of the published numbers.

On the basis of these user numbers, the Commission will assess whether a platform should be designated as a very large online platform or a very large search engine.

EU Member States will have to empower their digital services coordinators by 17 February 2024, the general date of application of the digital services legislation, which will then be fully applicable to all entities falling within its scope.

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Real estate: buyers negotiate discounts

Posted on : April 25, 2023

Rising interest rates are squeezing buyers’ budgets as they try to bring prices down.

The party is over.

The post-Covid boom, which saw house prices soar from record to record, is behind us. The rise in the cost of property loans from an average of 1% over twenty years in January to 2.2% today) and the climate of anxiety (war in Ukraine, inflation, fears of recession, etc.) have brought down the euphoria that has reigned for the past two years.

And if the need for housing remains a powerful spring, sales are no longer made in a snap of the fingers. Agencies have stock, sales times are getting longer and negotiations are once again difficult between buyers and sellers. We are no longer in a situation where buyers have to hurry. Today, negotiations are taking place everywhere.

Of course, the figures do not yet reflect this phenomenon. In September, over one year, the value of flats rose by 4% (+8.2% for houses), according to the French notaries .

The preliminary sales agreements signed in the autumn point to almost identical increases in January (4% for flats, 7% for houses). 1,133,000 homes changed from January to the end of September, not far from the record of 1,20. 000 in 2021.

However, since the autumn, the tone has changed. In Paris and Lyon, negotiations in relation to the posted price are frequently of the order of 3 to 5%. This phenomenon can also be seen in medium-sized cities that had benefited fully from the French people’s desire for space during the Covid.

Negotiations were rare.

They are coming back. The euphoria also seems to have subsided for second homes inland, a few dozen kilometres from the coast.

We are no longer in the situation where people were buying houses in villages they knew nothing about six months earlier. Prices have to adjust. The rise in interest rates has a direct impact on the amount of money households  can afford to pay.

With a constant monthly payment, the current increase in the cost of credit is almost equivalent to 10% less purchasing capacity. Banks are lending less, but buyers have the same project. In order not to lose space, they are negotiating more.

After years of increases, the average property purchasing power calculated according to market prices and the borrowing capacity of buyers – has fallen from 84m2 to 80m2 between 2021 and 2022, according to the “Notaires de FRANCE”.

The difficulties of access linked to the usury rate (the maximum rate at which banks can lend) are also forcing buyers who have little money to borrow less.  But the cost of credit or access to it are not the only factors responsible for the return of negotiations. The constraints that weigh on the most energy-intensive housing, rated f or g on the energy label, are now well taken into account in the price.

This is understandable. From 2023 onwards, the worst thermal flats will be banned from being rented. In 2025, it will be the turn of all G properties, and then, in 2028, F properties.

 

These discussions are particularly strong for houses, where, unlike flats, all expenses are borne by one owner.

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Real Estate Capital Gain Tax

Posted on : February 13, 2023

Since 1 January 2023, if the amount of the property gain taxable for income tax (« impôt sur le revenu ») purposes exceeds 50,000 EUR, the seller must pay a surcharge ranging from 2% to 6% depending on the amount of the property gain

Below is a fee schedule contained under the French Tax Code (« Code Général des Impôts ») :

 

Amount of property gain (EUR)

(« Montant de la plus-value imposable »)

Amount of tax (EUR)

(« Montant de la taxe »)

From 50.001 EUR to 60,000 EUR 2% PG – [(60,000 EUR – TG) X 1/20]
From 60.001 EUR to 100,000 EUR 2% PG
From 100.001 EUR to 110,000 EUR 3% PG – [(110,000 EUR – TG) X 1/10]
From 110.001 EUR to 150. 000 EUR 3% PG
From 150.001 EUR to 160,000 EUR 4% PG – [(160,000 EUR – TG) X 15/100]
From 160.001 EUR to 200,000 EUR 4% PG
From 200.001 EUR to 210,000 EUR 5% PG – [(210,000 EUR – TG) X 20/100]
From 210.001 EUR to 250,000 EUR 5% PG
From 250.001 EUR to 260,000 EUR 6% PG – [(260,000 EUR – TG) X 25/100]
Above 260,000 EUR 6% PG

 

The tax on certain real estate property is due when the net taxable gain (« plus-value nette imposable ») exceeds 50,000 EUR. 

In this case, if the amount of the property gain exceeds 50,000 EUR, the amount of the tax is applied according to the formula set out in the table above. 

The acronym «PG » refers to the amount of the property gain (« le montant de la plus-value imposable »).

For example, if the amount of your property gain exceeds 50,000 EUR and you want to calculate the amount of tax that you will have to pay in accordance with the amount of the property gain : 

2% of 50,000 EUR – [(60,000 EUR – 50,000 EUR) X 1/20] 

= 1.000 EUR – ([10,000 EUR ) X 0.05]

= 1.000 EUR – 500 EUR

= 500 EUR

 

Then, if the amount of your property gain exceeds 50,000 EUR, the amount of the tax will be 500 EUR. 

However, the capital gain realized on the sale of the main residence is not taxable.

It must be your usual and effective principal residence (« résidence principale »).

For example, the one you occupy for most of the year. 

Thus, the temporary use of a property, particularly just before its sale, will not allow you to benefit from the exemption.

It must also be your principal residence (« résidence principale ») on the day of the sale. 

However, if you have already left the property on the day of the sale, you can still benefit from the exemption provided that you have occupied it until the day it is put up for sale and that the sale takes place within a normal period of time (in principle one year).

In addition, there are grounds for exemption. Capital gains on real estate are exempt if : 

— The property has been owned for more than 22 years ; 

— The property sold is the seller’s principal residence on the day of the sale ; 

— The seller is a non-resident ; 

— The sale price is reused by the seller to buy or build a home used as a principal residence (« résidence principale ») within 24 months. The seller must not have been the owner of his or her main residence during the four years preceding the sale ;

— The property sold is a right of elevation. The capital gain is exempt provided that the buyer has finished the premises intended for habitation before 31 December 2022. 

The property gain realized on the sale of a second home is subject to income tax (« impôt sur le revenu ») at a rate of 19% and social security contributions (« charges sociales ») at a rate of 17.2%.

The tax rate on property gains from the sale of second homes is therefore 36.2%.

 

Example : 

Mr. Jean is going to sell his rental property.

It is not his main residence. He bought it for 150,000 EUR and is selling it for 300,000 EUR. 

He has owned it for 11 years and 9 months. 

The notary fees were 4,000 EUR and all the work done was deductible from the rent. 

He has done of 3,000 EUR for various diagnostics.

What will he pay on the capital gain ?

 

1: Calculation of the gross property gain (« capital immobilier brut » : 

Mr. Jean can increase his purchase price by 7.5% or by the notary fees paid. 

The 7.5% option is better because Mr. Jean can also include the works. 

As he is not allowed to include those deducted from taxes, he will use the 15% lump sum (« montant forfaitaire ») which is possible as he has owned the property for more than 5 years. 

He can also deduct the expenses incurred by selling the property.

 

2- Calculation of the taxable capital gain : Allowance for length of ownership : 

The tax authorities take into account 11 years of ownership.

The deduction for holding time is 6% per year from the sixth year for income tax purposes. 

This gives 6% X 6 years = 36% allowance.

The taxable property gain for income tax is : 

113.250 EUR – (113.250 EUR * 36%) 

= 113.250 EUR – (113.250 EUR X 0,36) 

= 113.250 EUR – 40.770 EUR

= 72.480 EUR.

 

The deduction for the length of ownership is not the same for social security contributions (« cotisations sociales »).

It is 1.65% per year for 6 years (for example, 9.9%).

The capital gain taxable for social security contributions (« cotisations sociales ») is : 

113.250 EUR – (11.250 EUR X 9.9%) 

= 113.250 EUR – (11.250 EUR X 0.099)

= 113.250 EUR – 11.137,5 EUR

= 102.112,5 EUR.

 

3- Calculation of tax and social security contributions (« cotisations sociales ») : 

Income tax is 19% and is applied to the taxable property gain of 72.480 EUR. 

You have to pay : 72.480 EUR X 19%

= 72.480 EUR X 0.19

 = 13.771,2 EUR.

 

Social security contributions (« cotisations sociales ») are 17.2% to be paid on the other taxable base of 102.112,5 EUR. 

You must also pay : 17.2% X 102.112,5 EUR

= 0.172 × 102.112,5 EUR

= 17,563.35 EUR.

 

4- Additional tax for real estate property gains : 

Here, the property gain taxable for income tax is 72.480 EUR.

This is above the 5,000 EUR threshold (« abattement »).

According to the fee schedule, if the capital gain is between 60,000 EUR and 100,000 EUR : 2% X the amount of property gain must be paid. 

This gives 72.480 X 2%

= 72.480 × 0.02

 = 1.449,6 EUR

 

Mr Jean will pay a total of 13.771,2 EUR + 17,563.35 EUR + 1.449,6 EUR 

= 32,784.15 EUR.

 

It should be noted, however, that the property gain realized on the sale of a secondary residence (« résidence secondaire ») is exempt provided that the seller :

— Has not owned his or her main residence during the 4 years preceding the sale ; 

— Has used the proceeds of the sale to acquire or build his or her principal residence (« résidence principale ») within 4 years of the sale.

If the seller has only reused part of the sale price of his property, the exemption is proportional to the fraction that he has reinvested.

When calculating the property gain, an allowance for the length of time the property has been held is applied.

Its calculation methods differ according to the property gain taxable under income tax (« impôt sur le revenu ») (19%) or social security contributions (« cotisations sociales ») (17.2% as of 1 January 2018).

 

For income tax (« impôt sur le revenu ») purposes, the allowance is :

— 6% for each year of ownership after the 5th and up to the 21st years ;

— 4% for the 22 year of ownership ;

 

The total exemption of property gains on real estate for income tax (« impôt sur le revenu ») purposes is thus acquired at the end of a twenty-two-year holding period.

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CONTROL OF THE DETERMINATION OF THE ENFORCEABILITY OF A FOREIGN DECISION

Posted on : October 12, 2022

Review of the finding of enforceability of a foreign decision

The Regulation determines jurisdiction, recognition and enforcement of judgments in civil and commercial matters within the Member States of the European Union (EU).
The regulations determine the jurisdiction of the courts in civil and commercial matters. It stipulates that decisions rendered in a Member State of the European Union (EU) are recognized in the other Member States, without the need to resort to any procedure except in the event of a dispute. A declaration relating to the enforceability of a decision must be issued after a simple formal check of the documents provided, without the court being able to automatically raise one of the grounds for non-execution provided for by the regulation.

The regulations do not cover tax, customs or administrative matters or the following matters:

– the status and capacity of natural persons, matrimonial regimes, wills, successions;
– bankruptcies;
– social Security;
– arbitration.

Summary :

I – COUNCIL REGULATION (EC) N°44/2001 OF 22 DECEMBER 2000 ON JURISDICTION, RECOGNITION AND ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS

II – THE JUDGMENT OF APRIL 12, 2012 OF THE FIRST CIVIL CHAMBER OF THE COURT OF CASSATION

III – DIFFICULTIES IN ENFORCING FOREIGN DECISIONS CONCERNING COLLECTIVE PROCEEDINGS

file to download:

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