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The recently adopted Moldovan Competition Act no.°183, dated July 11, 2012 (the “Competition Act”) aims to transpose the provisions of  Council Regulation (EC) No.1/2003 of December 16, 2002 “on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty” and, partially, of  Council Regulation (EC) No.139/2004 of January 20, 2004 “on the control of concentration between undertakings”, regarding, inter alia, the rules of notification for operations of economic concentrations (the “Operations”). 

Notification Thresholds

The Competition Act provides for the mandatory notification to the Competition Council of Moldova of Operations where the combined turnover of the parties involved (excluding the seller) exceeds MDL 25 million (approximately EUR 1.5 million, or USD 1.9 million) world-wide; and each of at least two of the parties (excluding the seller) has revenues exceeding MDL 10 million (approximately EUR 600,000 or USD 750,000) in Moldova. The combined turnover is the sum of turnovers of the individual undertakings concerned in the Operation, in case of mergers, whereas in cases of acquisition of control, the turnover is the sum of the turnovers of the acquirer and the target undertakings.

Turnover Calculation

General

Under the general rule, the concept of total turnover refers to the amounts obtained by a concerned undertaking in the previous calendar year from the sale of goods as part of the undertaking’s normal activity, less applicable discounts, value-added tax, and other direct taxes. Any state aid granted by the public authorities to the undertaking is to be included within the total turnover, where the undertaking is the beneficiary of the state aid and the state aid is directly connected with the undertaking’s sale of goods.

Groups of Undertakings

The total turnover of the concerned group of undertakings does not include transactions concluded between the relevant undertaking and other undertakings in the same group. Only the amounts arising from concluded transactions between the group of undertakings, on one side, and third parties, on the other side, are to be taken into consideration for the purpose of the total turnover calculation. Consequently, where a concerned undertaking is part of a group, the mere calculation of the total turnover of the undertaking concerned in an Operation may be not sufficient for notification purposes. In such cases, the total turnover is computed as a sum of the total turnover:

• of the undertaking;
• of  any undertakings in which that undertaking, directly or indirectly:
  • holds more than half of the share capital; or
  • has the right to exercise more than half of the voting rights;
  • has the right to appoint more than half of the members of the council, executive board, or other bodies legally representing it; or
  • has the right to manage its activities
• of any undertakings which hold the rights or competences indicated in (ii) above in it;
• of any undertakings in which the undertaking(s) indicated at (iii) above hold the rights or competences indicated at (ii) above;
• of any undertakings in which two or more undertakings indicated at (i) – (iv) above hold together the rights or competences indicated at (ii) above.

Industry Specific Turnover Calculation Rules

Different and specific provisions on calculating turnover apply to mergers in the Banking, Financial (non-banking), and Insurance sectors.

The turnover of banks and other institutions granting loans consists of the amount of both earnings arising from interest and other earnings, less any state taxes paid on such earnings. When calculating the turnover of undertakings effecting financial leasing as the main domain of activity, all leasing rates (as applied) are to be taken into consideration for the purpose of calculation.

The total turnover of insurance companies consists of the total amount of gross insurance premiums provided by insurance agreements concluded by or on behalf of the companies, including the premiums paid to reinsurers, less state taxes related to those premiums. The premiums that are to be taken into consideration refer to both the insurance agreements concluded in the respective year and the premiums arising out of the insurance agreements concluded in the previous years and that continue to be executed in the reference period.

The rules on turnover calculation under the Competition Act, including its secondary legislation, appear to be more transparent than under previous competition legislation. At this stage, however, it is not clear whether the implementation of these rules will succeed. Time will tell. Until then, to avoid unnecessary risks, companies are advised to keep consultants close by their side. Inaccurate computation may incur fines up to 4% of turnover.     

By Vladimir Iurkovski, Managing Attorney, and Andrian Guzun, Associate, Schoenherr

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Belarus cannot be said to have an old Competition Law tradition. There is still no “landmark” Competition Law case in Belarus, and according to the statistics of the Competition Authority (the Pricing Policy Department of the Ministry of the Economy), the total amount of all Competition Law fines imposed in 2013 was just BYR 2.3 billion (approximately EUR 171,000). But there are a wide variety of norms of Competition Law that are contained in the Constitution of the Republic of Belarus; International Treaties that have been ratified by the Republic of Belarus; Presidential Edicts; the Belarus Civil Code; the Code of Administrative Offenses; the Criminal Code; and other antitrust laws and regulations for business and economic activities.

The new Competition Act is based on the provisions of the Treaty On Common Principles And Rules On Competition signed in the frameworks of CES on December 12, 2010, and defines the institutional and legal frames for the prevention, restriction, and suppression of monopolistic activity and unfair competition in order to ensure the necessary conditions for the establishment and effective functioning of commodity markets, the promotion and development of fair competition, and the protection of the rights and legitimate interests of consumers.

The most important development of the new Competition Act is the increased role of the Competition Authority and the extension of its powers. The full range of investigatory, enforcement, regulatory, and decision-making powers is granted to the Competition Authority and its officials. This should help them to react promptly and flexibly in any situation; the authority will have stronger investigative powers and will be able to set its own priorities in competition policy.

Another key new provision of the Competition Act is the imposition of new requirements and thresholds for merger control tests and the requirement of prior consent on concentration deals from the Competition Authority. At the moment only concentration deals involving more than 30% of market share, majority share deals of more more than 25%, or direct control are require the prior consent  of the Competition Authority. After July 1, 2014, however, additional factors, including balance sheet assets value (more than 100,000 base rates – approx. EUR 1 million) and annual revenue (more than 200,000 base rates – approx. EUR 2 million) will also be taken into  account.

Furthermore, the new Competition Act calls for a  more detailed determination of dominant position (commonly more than 35% market shares, but other more complex criteria can be applied) and actions treated as abuse of dominant position. At the same time, despite the application of other criteria, an entity cannot be treated as dominant if its market share does not exceed 15%, except for natural monopoly issues. Persons who according to the definition of the Competition Act are members of a group are exempted from obtaining prior consent on concentration deals, and need only notify the Competition Authority.

In order to harmonize the regulation of competition within the common market of the CES, new terminology was adopted by the Competition Act. Such terms as “vertical agreements”, “direct control”, “indirect control”, “economic concentration”, and “group of persons” are de jure in the new Competition Act. 

The Competition Act for the first time – in article 4 – directly proclaims its extraterritorial character, stating that its provisions apply also to all actions (or lack of action) of persons outside the territory of the Republic of Belarus, and that such activities can lead to prohibition, limitation, or elimination of competition in the  Belarusian market. This governs activity of all natural persons and legal entities, both residents and non-residents of Belarus. It is also applies to the residents of the Republic of Belarus, who participate in any deals outside Belarus which can influence competition, including actions with shares and other concentration activity.

The new Competition Act is a milestone in the history of Competition Law in Belarus. It should have a major impact on business in Belarus and, due to its extraterritorial provisions, also on foreigners doing business with Belarusian counterparts. Thus, it is crucial to make a full competition compliance review of current agreements and undertakings with Belarusian partners to avoid the risk of fines or other negative consequences. 

By Tatiana Ignatovskaya, Partner, and Maxim Nikolaev, Counsel, Stepanovski, Papakul & Partners

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.