B-Solutions FINAL REPORT by the EXPERT
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Managed by the Association of European Border Regions by an Action Grant (CCI2017CE160AT082) agreed with the Directorate General of Regional and Urban Policy, European Commission. Financed by the European Union. b-solutions FINAL REPORT BY THE EXPERT Advice Case: Juridical obstacles in establishment and financing of trans-national business incubator Advised Entity: Lazdijai District Municipality, LT Expert: Marcin Krzymuski Table of Content: I. Description of the Obstacle II. Indication of the Legal/Administrative Dispositions causing the Obstacle III. Description of a Possible Solution IV. Pre-assessment of whether the Case could be solved with the ECBM V. Other Relevant Aspects to this Case VI. References and Appendix/Appendices if any 1 Managed by the Association of European Border Regions by an Action Grant (CCI2017CE160AT082) agreed with the Directorate General of Regional and Urban Policy, European Commission. Financed by the European Union. I. Description of the Obstacle Lazdiju rajono savivaldybe (Lazdijai Region Self-Government) wants together with Lithuanian and Polish local governments to establish international business incubator in Polish-Lithuanian borderland area. Many local business development agencies, governments and other public institutions have used incubators as a tool to reduce the likelihood of failure and speed up the process of starting a business.1 The main objective of public business incubators is to reduce the costs of doing business by offering a set of services ranging from the provision of space, infrastructures and facilities, to more elaborate services, as well as by offering access to technical and managerial expertise, assistance in business plan development, etc. In the course of talks with actors of cross-border cooperation conducted on 19.9.2019 in Lazdiaji and on 20.9.2019 in Suwałki, the tasks of the incubator are to be substantive support in the form of provision of advisory services (legal, accounting, tax and later financial) for entities planning to start business activity on the Polish-Lithuanian border. At present, the nearest business support centres operate in Suwałki and Kaunas, i.e. far from the border area itself and are not available to entities on the other side of the border. This hampers the creation of joint business projects by natural persons from the border area. However, support for economic development falls within the competence of local authorities in Poland (see Art. 6 of Polish Act on Municipal Self-Government2 - ['all public matters of local importance not reserved by statutes for other entities']) and in Lithuania (Act on Local Self-Government3 - Art. 6 No 38 [“creation of conditions for the development of business and tourism, and promotion of such activities”]). The municipalities are therefore looking for possibilities for a joint and thus cost-efficient provision of these services to the population from the border region. The Polish and Lithuanian law on public finances and cooperation of public entities does not allow for direct financing of activities in foreign self-governments. Financial supervision is based on the assumption that the transfer of public funds abroad is not acceptable. Therefore, from the applicant's point of view, there are no possibilities of establishing of common entities and finance such entities by Lithuanian or Polish municipalities. II. Indication of the Legal/Administrative Dispositions causing the Obstacle Legal obstacles result from both Lithuanian and Polish law regulations. 1 Grimaldi R., Grandi A., 2005, p. 112. 2 Polish Official Journal of 1990 No 16 item 95 with amendments. 3 Lithuanian Law on Local Self-Government, 7 July 1994 No I-533 (Last amended on 15 May 2014 XII-883). 2 Managed by the Association of European Border Regions by an Action Grant (CCI2017CE160AT082) agreed with the Directorate General of Regional and Urban Policy, European Commission. Financed by the European Union. 1. Lithuanian Law Lithuanian Law on Local Governments in Art. 16 (2) point 42 of the Act theoretically allows municipal council to deicide to join inter-national association of local governments with intention to sign cooperation agreements, but there is not written, that it can decide to join and create common company or organizational structure with itself budget. 2. The exclusive competence of the municipal council shall be as follows: (…) 42) taking of decisions on joining municipality unions, co-operation with municipalities of foreign states or joining international self-government organisations; In Art. 22 (4) of the Law on the Management, Use and Disposal of State and Municipal Assets is written that the municipality may invest the assets by acquiring shares of a public limited company or private limited company that is to be founded or increases its share capital by giving more than 50 per cent of the votes to the state or municipality (municipalities) at the general meeting of shareholders. It is not clear what will happen and how should be counted number of votes if entity will be created by more than one local-government and if self-governments will be from two different countries. 4. The State or a municipality may invest the assets by acquiring the shares of a public limited liability company or a private limited liability company being incorporated or increasing its authorised capital, which grant over 50 per cent of votes to the State or the municipality (municipalities), or to them collectively, at a general meeting of shareholders. Additionally, in Point 6, Paragraph 1 of Art. 22 of the Law on the Management, Use and Disposal of State and Municipal Assets4 is written that Local governments may create international entities if it foreseen in other laws. Problem is that till now, there are no such laws or implementing rules. 1. Investment of state and municipal assets shall mean the transfer, as a contribution, of assets belonging to the State or a municipality by the right of ownership: (…) 6) in the course of acquiring units offered by an investment fund established in the Republic of Lithuania or another EU Member State or a state of the European Economic Area and investing the accumulated funds in the Republic of Lithuania, which is a private capital collective investment undertaking. This point shall not apply to the investment of municipal assets. 4 Law on the Management, Use and Disposal of State and Municipal Assets of 12.5.1998, No VIII-729 (last amended on 17 November 2015 No XII-2023) 3 Managed by the Association of European Border Regions by an Action Grant (CCI2017CE160AT082) agreed with the Directorate General of Regional and Urban Policy, European Commission. Financed by the European Union. 2. Polish Law Polish law also generates some obstacles to effective cooperation in this area. a. Creation Of Joint Units By Local Governments Also according to Polish law, it is not possible to establish joint municipal units with foreign self- governments. The Act on Municipal Self-Government in Art. 64 allows for the creation of the so-called inter-communal association and Art. 84 of private-law associations. However, these entities may be established only with Polish local government units. Art. 64 1. In order to perform public tasks jointly, municipalities may form intercommunal associations. Art. 84 1. In order to support the idea of local self-government and to defend common interests, municipalities may form associations, including with poviats and voivodships. International associations of local and regional communities are an exception. Polish municipalities may accede to such associations on the basis of Art. 172 (2) of the Polish Constitution5, Art. 84a of the Act on Municipal Self-Government and the Act of 15.9.2000 on the principles of accession of local government units to international associations of local and regional communities6. However, as follows from the provisions of the Act, Accession to the association may not be associated with the transfer to it or to any of the members associated in it of the performance of public tasks of the joining local government unit (Art. 3 of the Act). Art. 3 Accession to the association may not be associated with the transfer to it or to any of the members associated in it of the performance of public tasks of the joining local government unit, or real estate or property rights to intangible assets vested in that unit. These powers as well as the constitutionally guaranteed right to cooperate with local and regional communities of other countries stem from the commitments made by Poland following the ratification of the European Framework Convention on Transfrontier Co-operation between Territorial Communities and Authorities, signed in Madrid on 21.5.1980.7 b. Transfer Of Public Funds Abroad Similarly, local government entities, as units of the public finance sector, do not have the right to make transfers of public funds abroad. The interpretation made by the supervisory authorities with regard to Art. 220 and Art. 221 of the Act on Public Finance8 therefore excludes, for example, the granting of targeted subsidies by the Polish self-government to foreign entities. Thus, subsidies for activities 5 Polish Official Journal of 1997 No 78 item 483 with amendment. 6 Polish Official Journal of 2000 No 91 item 1009 with amendment. 7 Polish Official Journal of 1993 No 61 item 287. 8 Polish Official Journal of 2009 No 157 item 1240 with amendments. 4 Managed by the Association of European Border Regions by an Action Grant (CCI2017CE160AT082) agreed with the Directorate General of Regional and Urban Policy, European Commission. Financed by the European Union. conducted by an entity located abroad, even if it acts for the benefit of Polish entities, are generally excluded. The so-called subsidies within the framework of the so-called European projects are an exception. III. Description of a Possible Solution The following solutions are possible: starting with an interpretation of the previously presented national regulations open to cross-border cooperation (e.g.