How is the Finnish market uniquely placed to support the development of new digital services and technologies?

Finland – as well as the other Nordic countries – is a country well known for its highly educated workforce and long-term investment into innovation and entrepreneurship. The Nordic region has provided a fruitful platform for many international success stories, especially in the field of technological solutions and digital services. The Nordic countries are amongst the best in the EU in which to start a business or find a target for investments.

In terms of innovation, Finland has been identified as one of the biggest contributors to global innovation and ranks among the world’s top 10 countries in terms of patented inventions per capita (Invest in Finland 2020). Finland is also among the top performers in the world in innovation collaboration (Global Innovation Index 2019). In terms of foreign direct investment, the regulatory threshold is low to enter the market and innovation aid is freely available.

All in all, I see that Bird & Bird’s focus on businesses and organisations being changed by technology and the digital world makes us a very good fit for clients looking to capitalize on what the Finnish tech ecosystem has to offer.

A number of international firms are present in Finland. What impact has this had on the Finnish legal market?

Finland has a long history of national law firms, and to this date, only a handful of international firms are active on the Finnish market. Out of these, only two are fully integrated firms like Bird & Bird.

Having an international presence obviously offers an advantage in attracting international clients used to interacting with global law firms. Being able to trust the quality and efficient cross-border teamwork that an international concept provides, is vital for many of our clients. We also like to think that we are able to provide our clients with additional added value through best practices in our core sectors that we gather from our international work.

In addition to international clients, many of our clients are Finnish-based international corporations or Finnish corporates looking to expand e.g. by cross-border acquisitions, which makes our integrated offering a very compelling one. I strongly believe that being able to offer the client a seamless service across country borders is the way of the future.

The firm and its broader M&A team has increased its market share over the last few years. How has this been achieved?

We have indeed worked hard on raising the firm’s profile in the Finnish as well as the broader Nordic market during the last few years. Our success is a product of many efforts, including targeted recruitment and business development efforts. The results can be seen from our rise e.g. in renowned Finnish financial magazine Talouselämä’s rankings.

In addition to the advantages our integrated international nature brings, we believe that Bird & Bird has much to offer both to clients and potential lawyer hires in light of our strong sector focus, which enables us to really “speak the same language” as our clients. By taking an active interest in our focus sectors, we can provide our clients with a smoother, more efficient process as well as regulatory insights across the markets in which we are active. An example of this is our Brussels office sending us information about upcoming European legislation in our focus sectors, as well as insights on differing interpretations, which we can then relay to our clients. Another example is being able to provide our clients with concrete examples of how regulators in different jurisdictions are implementing new European-level regulation.

I am also very proud of the firm’s increase of market share in M&A. This is the result of consistent efforts across many areas. The more complicated an assignment, the more important it is to be able to safely debate the best way forward. This requires the freedom to express opinions – also dissenting ones. In addition to the firm’s low hierarchy and inclusive culture, which have been core enablers of this approach, we have worked hard on recruiting the best lawyers, shaping our processes and listening to clients on what they need – and would like to see – from us in this field.

Have you implemented technological changes at your firm to assist with handling large transactions or large-scale litigation?

We are constantly researching and testing best-in-class solutions to assist in our work especially in the field of M&A but also large scale projects and litigation.

On the M&A side, we currently use machine learning technology to make due diligence processes more efficient, which makes a difference especially in larger transactions where the amount of documentation to review is considerable. We also use a key client platform to provide our clients with transparent access to everything from drafted documents, regulatory deadlines to billing transparency.

As to the future of project management, I believe there is still some way to go before we will see the big benefits of AI and transparent project solutions, but my belief is that there definitely will be more synergies to be had for clients when moving into integrated project management thinking. As a well-known pioneer of legal work in the innovation sector, we are looking closely at all developments in this area.

The firm is renowned as a leader in the tech sector, a key industry in Finland. How is the firm uniquely placed to assist clients in this space?

Our renowned expertise and market know-how in the technology sector gives us a unique position when interacting with clients active in this market. Many of our lawyers working in this field are ranked as leading individuals in their fields, and we continuously train our lawyers to understand the newest developments and trends in this sector in order to be able to provide our clients with tactical legal advice e.g. on the increasingly complex regulation in this sector.

The benefits to our concept are proven by our many key clients in this sector who trust us to provide them with market leading insight. We can also boast about having some of the market’s best [ ] indicator results, which means our clients are happy to recommend the

work that we do. Bird & Bird is known for providing knowledgeable advice in the sector globally, some of which has shaped the technology and communications landscape itself.

As to tech transactions and M&A more broadly (as we know, most deals that industrials do nowadays, can be considered “tech transactions”), our culture makes interacting with us easy, which is facilitated by our lawyers sharing our clients’ passion for the sector and understanding our clients’ business and goals.

What does the firm do to promote D&I?

Bird & Bird is well known for its unique law firm culture: We are proud of our low hierarchy and are consistently ranked highly on indicators such as diversity and work life balance. We believe in giving our employees the space and flexibility to work in whatever way is the most efficient for them, leading to better results for our clients. This ‘safe space’, which encourages collaboration and innovation, is a core tenet of Bird & Bird’s firm culture. In Finland and the Nordic countries, diversity and inclusion is a key hygiene factor for clients, and is treated accordingly, i.e. as a business priority.

Building on this culture, we are proud of being one of the first international law firms to take high level action to ensure that D&I is more than just pretty words in a compliance policy. Bird & Bird is renowned for being an equal opportunities employer, committed to promoting diversity, preventing discrimination and providing a supportive and inclusive working environment for everyone. D&I remains one of the foremost items on our global corporate social responsibility agenda, and we actively engage and train our staff on D&I, and take decisive action in this area where needed.

In its annual article in the ambit of business law, Finnish financial newspaper Talouselämä noted that 30% of Bird & Bird’s partners in Sweden and Finland combined are female, being the second-best percentage among all business law firms in the region. Results like this show that we are serious about creating an inclusive environment for our lawyers and staff. This work is important not only for ethical reasons, but due to the fact that independent research shows that diverse companies deliver better results.

What sets your firm apart from others in Finland?

In Finland, the firm uses the slogan ‘lawyers for a smarter world’, which reflects our underlying mission to help our clients harness the opportunities of the digital world.

We are passionate about making a difference. It is our privilege to bring our insight and experience to the table when clients are out to make an impact, regardless of the sector in which they operate. We take pride in standing next to them when important things are at stake, be it an individual strategic M&A project or a complete change of business direction.

What also sets us apart in the Finnish legal market is that we are a truly international firm, making it possible for us to form seamless cross-jurisdictional teams governed from one point of contact whenever useful for the client. The high quality of our legal services is based not only on the top-notch expertise of our lawyers in different sectors and practices, but also on the fact that our global presence offers our clients a unique market vantage position.

After all, what keeps us in business, is the client’s needs and perspective: We like to see ourselves as trusted partners to our clients in navigating an increasingly complex legal world.

 

There are significant changes in the area of tax law, including the amendments and the renegotiations of double tax treaties (DTTs) with particular countries (for example, Malta, Cyprus, the Netherlands, Luxembourg). How do these amendments affect your clients and what steps are they taking in light of those?

During last year a number of significant amendments to the Russian tax legislation,  

Some of tax developments in response to the economic crisis caused by COVID-19. 

• the personal income tax (13%) on interest income of individuals accured on capital exceeding 1 million RUB. These provisions apply from January 1 2021. 
• Starting from 1 January 2021 personal income tax rate will be increased from 13% up to 15% for income exceeding 5 million RUB. According to our estimates only 1-1,5 % of taxpayers will be subject to increased taxation.   
• tax deferral/ instalment for companies most affected by the crisis 
• New CFC provisions. New amendments to the Russian Tax Code for the purpose of introduction of a fixed amount annual tax of 5 million RUB on the income of all controlled foreign companies (CFC) controlled by the same beneficial owner. The taxpayers would be eligible to choose between paying fixed annual rate on all the companies or to pay income tax for each one.  
• DTT amendments 

On 25 March 2020 in an address to the nation, Russian President Vladimir Putin announced the increase of withholding tax rates on dividends and interest paid from Russia to «low-tax» jurisdictions. Mr. Putin specified that “this will require adjustments to be made to our double taxation agreements with certain countries. I ask the Government to arrange for that to be done».  

In April 2020, the Ministry of Finance of the Russian Federation sent official letters to Cyprus, Luxembourg and Malta with a proposal to review treaties and existing benefits for lower withholding tax rate on dividend and interest income and to increase such WHT rates to achieve minimum taxation of 15%. Later this year Russian Ministry of Finance has held negotiations with Ministry of Finance of Netherlands and proposed to amend double tax treaty offering similar amendments to those agreed with Cyprus, Malta and Luxembourg. In December 2020 Russian Ministry of Finance announced the beginning of a process of termination of a double tax treaty with Netherlands. Negotiations with Switzerland and Hong-Kong are in progress. 

The changes to Russia-Malta Tax treaty and Russia-Cyprus tax treaty shall become applicable from 1 January 2021 

These changes will seriously affect the cross-border tax structuring for both holding companies and individuals because the volume of financial transactions passing through companies registered in such countries, especially Cyprus, was significant. Holding companies registered in these jurisdictions were often used for optimization purposes to reduce tax on returns from Russian sources.  

During last year we were analyzing existing client’s structures and start adapting them to the new situation including restructuring of headquartering approaches.  

DTT amendments will certainly impact the attractiveness for investing in Russia through foreign holding mechanisms.  

We recommend to our clients to re-evaluate current strategies and to develop further approaches carefully based on a detailed analysis of a business situation taking into account not only new amendments but also potential developments of tax policies especially for businesses which have sales in one country, production – in another, IP and head office – in yet another. As a result of such analysis we offer an effective cross-border tax model and an optimal structure for investments. In some cases we can offer solutions related to relocation of holding companies to special administration regions in Russia (SARs). Foreign holding companies can be redomiciled from Cyprus, Malta, Luxembourg and Netherlands to the territory of Russky Island (Primorsky region) ord Oktyabrsky island (Kaliningradskiy region). 

Some of our clients are considering options of transformation into a publicly listed legal entity. 

It is very important to understand that behind all restructuring strategies shall be real economic background and not tax saving purposes. 

In any case, it is clear now that Russia is following the intention to choose the strictest possible policy by limitating all possible options to obtain tax benefits. Such approach will have a long-term effect on both Russian and foreign investors. 

For tax lawyers it is now time to think outside the box and to adopt their clients’ needs and requirements to the new tax strategies and global vision.   

The pressure from the international sanctions regime has been cooling off recently, since there was a reported uptick in M&A transactions during 2019. However, the Covid-19 pandemic brought a high level of uncertainty as well. Could you provide some insight into how the M&A market has been moving recently and what direction it is likely to take in the near future? 

The arrival of the COVID-19 pandemic has affected economy worldwide and dramatically influenced many industries.  The pandemic and the lock-down measures the states took globally have caused burst of investors’ interest not only in pharma and biotech (experiencing revolutionary outbreak), but in technology sectors that procure daily demands with social distancing  – education technologies , solutions for comfort online shopping and delivery, online communication tools.  

We have not seen more than just a temporary pause in the deal activity in the early 2020. Only a few deals that barely started in January-February 2020 were put on hold because their parties obviously tried to access the uncertainties of this new phenomenon. At the same time, active players in the Private Equity and Venture segments rushed to explore new COVID-related needs, seize most opportunistic targets and build their investment strategies around the new reality and its demands. EdTech, AI-based AgroTech, on-line platforms and ecosystems of various sorts, neo-banking, TMT generally, a few other sectors – anything that minimizes people’s exposures to social contacts – into which many invested actively in the last few years, in 2020 became even more attractive. Other investors rushed to acquire distressed companies at huge discounts in sectors that suffered heavy blows from COVID-19.  We see more and more entrepreneurs launching new start–ups offering new COVID-inspired products and services. And I think this trend will continue.  

As regards facilitation of legal support of M&A transactions, many companies managed to more of less quickly switch to a fully remote work starting from negotiation stage till transaction close. In this aspect the pandemic situation has stimulated creativity and accelerated organizational part of work. 

Yet another trend to define the legal environment of M&A landscape in Russia is a large number of corporate conflicts. Isolation-caused limitations of personal communication, the inconsistency of antivirus measures, economical problems, lack of investments — all of these have led to numerous tensions that businesses were not prepared to face. As a result of this, many companies started numerous inconsistent and sometimes contractionary initiatives and were stuck in deadlocks instead of making decisions to move forward. It was not a very pleasant but a very important experience and now we can explain to our clients using their own example and example of their partners how important for companies to understand that they need to get ready for such turbulent situations during the ‘calm’ periods by preparing their management and corporate structure and by negotiating effective shareholders agreements or similar mechanisms. 

What sort of impact has the Covid-19 pandemic had on the growth of work with a nexus to technology? Has this affected any practice areas in particular?

One of our leading practices is practice of M&A and cross-border transactions which is normally cover both private equity and endure capital markets. The total value of mergers and acquisitions on the Russian market dropped by approximately 30%, in the meantime the value of transactions in venure sector (technologies and innovations) rose by 13.5%. 

It is evident that the technological market became a real hotspot for law firms offering new and interesting work opportunities.  Since the beginning of 2020, we’ve closed about 25 deals, being busier than ever in the last 5 years. I suppose, it was our mostly thanks to our client’s portfolio with significant number of technological companies and venture capital funds that led to such results even with the backdrop of the pandemic and the related restrictions. This growth, however, can only be observed in certain technological spheres – e-commerce (online shops etc), EdTech, AgroTech, FoodTech, online entertainment etc. Lots of such businesses were not ready for such skyrocketing growth and were forced to undergo rapid legal and tax restructuring, and also to increase their capacities for investments. 

Fintech industry has also attracted significant investor interest and was growing intensively during last year, so the growth of legal work for our FinTech legal practice also rose by 35%. Russian legislation had a number of significant amendments related to digital assets and even digital currencies which stimulated innovation and competition in the financial sector and created new working possibilities for law firms.  

It is very important to note that during the pandemic period, technological companies were also among the most successful in terms of gaining foreign investments so all legal practices engaged in cross border transactions, international holding structuring were really busy.  

Which practice area/s do you think will be the driving force/s for work in Russia in the near future?

I am sure that significant part of technological sector will continue its growth in 2021. Such industries that have already increased their share in Russian market benefiting from social distancing and remote work will continue to develop, namely media, digital infrastructure, and telecom.  

and will be real driving force for M&A practice and other practices related to technologies like IP, TMT and FinTech practices. 

I think that another practice area that has a real potential is private wealth capital practice and private clients practice. It started its development this year which was unexpected on the Russian market, as these industries were practically in their infancy. 

Meanwhile it is important to take into consideration the fact that 83% of wealth in Russia is owned by 5% of families in first generation. About 70% of beneficial owners are older than 60 years. Quite soon many private businesses and cash and non-cash assets would have to change hands. It is now time to think about structuring of best ways to involve the new generations to management and ownership of family businesses, to negotiate strategies for investments balancing interests of current principals and new successors. These are new opportunities for law firms to create legal products and to develop their services in this area.  

Do you feel that either full-service or boutique firms offer particular advantages for clients?

I always had an opinion that full service law firm has significant advantage for the clients. It is very comfortable for a client to obtain services with «one-stop-shop» approach. Most of client’s cases need to be covered by several practice areas and standard project team includes corporate lawyers, tax specialists, IP advisors and commercial lawyers. Cooperation with specialists from different law firms creates lots of inconvenience and lack of effective communication between advisors. Also, the approaches and working processes of different law firms are not the same and it is very difficult to create effective project team.  

I know that most of the clients do not understand the additional value a boutique firm with narrow specialization may bring. It can be only effective for limited practices like family law or employment. 

Do you predict that some of the new working practices (eg, working from home) implemented due to the Covid-19 pandemic in the past year are likely do have a long-term impact on the way you handle local mandates? What about international ones?

Our firm’s partners live in different locations so quite a few of my colleagues were used to working on our clients’ deals (Russian and international) remotely in the pre-Covid-19 times. Now it became a new trend. After many firms shifted 100% to remote working fears that it may negatively affect performance are all gone. Among our clients, even big corporations shifted to remote working except for jobs where personal presence is technologically required. We noticed that remote working helped us to achieve more for our clients and at the same time spend more time with our families and less time in public commute. It looks like a win-win thing to me.  

Earlier this year Russian President Mr. Putin signed the new Law on Digital Financial Assets which will come into force in January 2021. In October 2020 the Central Bank of Russia has released a report on the prospects of introducing a “digital rouble” as an alternative to cryptocurrencies. What kind of impact such new developments would have on Russian regulatory and tax system? Can we conclude that the law legitimizes the operations of digital currencies?  

We can say that the Law on Digital Financial Assets (entering into force starting January 2021) has provided for merely a framework on operations of digital (virtual) currencies. The Russian lawmakers have experienced difficulties with their basic approach towards virtual currencies (ban or permission). Finally, they opted not to allow circulation of virtual currencies on Russian market – they cannot be used as consideration for goods or services. However, ownership of virtual currencies is not prohibited – it is allowed in limited cases whereas the title is legally protected only subject to prior declaration to the tax authorities. The amendments to the Tax code have been recently introduced for consideration at the State Parliament. According to them, the digital currency (like Bitcoin) are considered as an asset (property) for taxation purposes, the operations with them and VAT exempt. Besides, the tax authorities impose control over the operations of the Russian tax residents through all kind of digital wallets. 

At the same time the Bank of Russia has announced its plans to introduce “the Digital Ruble” being called on one hand as an alternative to cryptocurrencies, and on the other hand as  digital form of the Russian ruble in addition to national cash and cashless money. The regulator expects that the Digital Ruble will be supporting online transactions like cashless money but more fluently. The project is in its early stages, so the potential impact is not clear. 

Legal technology industry has been actively evolving in the last couple of years.  What do you think about innovative legal projects and Russian legal technology market? How active is the interest of law firms in adopting of legal tech products to their business?

 The LegalTech is on demand of every profound law firm in Russia. Though the integration of a particular technology varies depending on the firm, we can say that a lot of instruments have been successfully introduced and are now of daily use. Some services are being quickly automated and even go online, for example, legal databases, smart searches through legal abases, creation of simple legal documentation, online court documentation submission, digital notarial services etc.   

The legal advice stepwise goes online, e.g. onto various types of digital platforms, chat-bots. It is time for changes in the field of interaction with clients, especially with the hi-tech companies, which expect their lawyers to speak the same language and appreciate them being cutting-edge.  

The interest of law firms to adopting new legal tech instruments expands, because nowadays it is a matter of survival due to tough competition.