What Is a Grandfather Clause?

A grandfather clause, or legacy clause, is an exemption that allows persons or entities to continue with activities or operations that were approved before the implementation of new rules, regulations, or laws. Such allowances can be permanent, temporary, or instituted with limits.

KEY TAKEAWAYS

  • A legacy clause is a provision that allows people or entities to follow old rules that once governed their activity instead of newly implemented ones, often for a limited time.
  • The “grandfather clause” term originated during the U.S. Civil War era and referred to statutes enacted in the South to suppress African American voting.
    Legacy clauses can be permanent, temporary, or instituted with limits.
  • Legacy clauses often apply to zoning laws when the purpose of a development changes.

An Example of a Grandfather Clause in Armenia.

The Law of Armenia on Foreign Investments. Article 7. “In the event of amendments to the foreign investment legislation of the Republic of Armenia, the legislation that was effective at the moment of implementation of investments shall be applied, upon the request of a foreign investor, during a five years period from that moment.”

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Annulment of ICSID Award in Edmond Khudyan and Arin Capital & Investment Corp. v. Republic of Armenia Case

On April 13, 2022, the Secretary-General of ICSID registered an application for partial annulment of the award filed by Mr. Edmond Khudyan (Claimant) and notifies the parties of the provisional stay of enforcement of the award in ICSID Case.

According to the Claimant, there is no legal source that affirmatively supports the notion that Mr. Khudyan ever became a citizen of the Republic of Armenia. The Tribunal derived its sole support for that premise from its own inaccurate paraphrasing of Article 15 of Soviet Law on the Procedure of Exiting the USSR, the effect of which would be to make every person who had ever lived in the Armenian SSR and emigrated abroad automatically a citizen of the Republic of Armenia in contradiction to the express terms of Republic’s own Citizenship Law. The Tribunal’s decision that it does not have jurisdiction over Mr. Khudyan because he is a citizen of the Republic of Armenia is not tenable, its flaws are clear on the face of the Award, and it does not stand up to even minor scrutiny when compared with the relevant legal sources that were brought to the Tribunal’s attention. It therefore constitutes a manifest excess of powers under Article 52(1)(b) of the Convention.

Therefore, Mr. Khudyan respectfully requests pursuant to the ICSID Convention the Award rendered on 15 December 2021 in ICSID Case No. ARB/17/36 be annulled.

This case concerns a dispute filed with the International Centre for Settlement of Investment Disputes (“ICSID”) pursuant to Armenia – USA BIT.
The Claimants are Mr. Edmond Khudyan, a national of the United States of America (“US”), and Arin Capital & Investment Corp., a corporation established under the laws of the State of California in the US (collectively, the “Claimants”).
The Claimants are represented in these proceedings by Dr. Gevorg Tumanov of Redbridge and Mr. James H. Boykin, and Mr. Alexander Bedrosyan of Hughes Hubbard & Reed.

New Tax Incentives for Startups in Armenia

The Armenian government has introduced new incentives for IT companies. Legal entities and individual entrepreneurs that will employ more than 50 employees previously not employed in Armenia will receive 50% reimbursement of the income tax paid.

The initiative intends to develop IT, as well as the creation of a suitable competitive environment in Armenia.

It aims to encourage the recruitment of highly qualified employees. The idea was to draw a significant number of freelancers out of the shadows.

State support is provided to commercial organizations and individual entrepreneurs, which meet the following conditions:

  • 90 percent or more of income from activities (sales turnover) are from software development, IT consulting and other related activities;
  • In the absence of revenue (sales turnover), 90 percent or more of the entire number of employees should be IT professionals;
  • The number of employees should increase by at least 50;
  • Newly hired employees from September 2021 to March 2022 shall not be registered employees (including service provisions under the service contract) in Armenia;
  • Beneficiaries should not have tax obligations exceeding 100,000 AMD.
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