After the amendments to the Taiwan Fair Trade Act ("TFTA") came into effect earlier this year, the Taiwan Fair Trade Commission ("TFTC") subsequently announced the amendments to the Enforcement Rules of the Taiwan Fair Trade Act ("Enforcement Rules") on July 2, 2015. Below are the key features of the amendments:
- The definition of "control/subordinate" relation was newly added.
The "control/subordinate" relation under Article 10 Paragraph 2 and Article 11 Paragraph 2 of the merger control rules of the TFTA is newly included in Article 6 of the Enforcement Rules. To be specific, when enterprise A holds more than half of the shares in enterprise B, or if enterprise A directly/indirectly controls the business operation or the appointment or discharge of the personnel of enterprise B, enterprise A can be viewed as having control over enterprise B. Furthermore, in the event that the whole or the major part of the business or assets of enterprise B is assigned or leased to enterprise A, or where enterprise A operates jointly with enterprise B on a regular basis, or is entrusted by enterprise B to operate enterprise B's business which results in enterprise A having controlling power over enterprise B, this situation can also be seen as a type of "control/subordinate" relation.
Additionally, Paragraphs 3 and 4 of Article 11 of the TFTA provide that a person or an organization that has controlling interest in an enterprise is deemed as an enterprise in terms of a merger filing case under the TFTA. To be in line with the above provisions, the Enforcement Rules stipulate that if a person or an organization and/or its related persons hold a majority of the total number of outstanding voting shares or the total capital of another enterprise, it should be concluded that the "control/subordinate" relation exists among the aforementioned entities.
Moreover, the "control/subordinate" relation is presumed to exist if a majority of the executive shareholders or directors in a company are simultaneously acting as the executive shareholders or directors in another company, or if a majority of the total number of outstanding voting shares or the total amount of the capital interest of a company and another company are held by the same shareholders.
- The provisions regarding the party responsible for a merger filing and the required documents therefor have been amended.
In relation to the filing party, the newly added provision stipulates that in a combination type of acquisition of shares or capital contributions of another enterprise, if a control/subordinate relation exists between the acquirers or the acquirers are under control of one or more entities, the filing party should be the ultimate parent company of the acquirers.
As to the required documentation, to be in line with the amendment to Paragraph 2, Article 11 of the TFTA, the Enforcement Rules stipulate that apart from the participating parties' sales revenue of the previous fiscal year, such sales information of an enterprise that is controlling, controlled by, or affiliated with the enterprise in the combination, and of an enterprise where both it and the enterprise in the merger are controlled by the same enterprise(s) should also be included in the newly added Annex 2 of the merger filing form. Moreover, in the event that a controlling interest exists, as defined by Paragraph 3, Article 11 of the TFTA, the person or the group and their related persons' shareholding status in other enterprises' shares/capital contributions should be provided in the newly added Annex 1-2 of the merger filing.
In the past, many filing parties were unable to collect the information from all related parties due to the party being an international conglomerate, a hostile takeover, or estate disputes among family enterprises, so that the filing of documents could not be completed. Besides, since the new TFTA expanded the scope of merger control to include affiliated enterprises and persons/groups having controlling interests, it is even more likely that the filing parties may face difficulty in collecting the complete information. Thus, as a compromise with the filing practice, the new additions to the Enforcement Rules stipulate that in case there is a justification for the failure of providing required documents, such justification should be explained in the merger filing.
- The justification for resale price maintenance was newly added.
According to Article 19 of the TFTA, an enterprise may restrict the resale price of its counterparty if such measure can be justified. As to the "justification," the TFTC, after referring to international trends, introduced/included certain factors in the Enforcement Rules, which include encouraging the downstream enterprises to escalate the efficiency and quality of pre-sale service, preventing free-rider, boosting the entrance of new enterprises or brands, promoting inter-brand competition or other economically reasonable matters related to competition concerns.
- The standard test for "inducement with low price" and "likelihood of restraining competition" was newly added.
Article 20 Paragraph 3 of the TFTA stipulates that an enterprise shall not prevent competitors from participating or engaging in competition by inducement with low prices, or other improper means in a way that is likely to restrain competition. The Enforcement Rules provide that "inducement with low price" means offering a price far below cost or extremely disproportionate so as to prevent a competitor from competing. In general, the benchmark for determining inducement with low price is the average variable cost, but on certain exceptional occasions, market structure, product characteristic, average avoidable cost, average incremental cost, or purchase cost can also be considered.
Additionally, Paragraph 2, Article 20 of the TFTA stipulates that an enterprise shall not unreasonably discriminate against another enterprise in a way that is likely to restrain competition. With respect to the determination of the likelihood of restraining competition, the Enforcement Rules provide that the totality of such factors as the intent, purposes, and market position of the parties, the structure of the market to which they belong, the characteristics of the goods, and the impact that carrying out such restrictions would have on market competition shall be considered. Meanwhile, the above-mentioned factors in determining the likelihood of restraining competition can also be applied in an "inducement with low price" case under Paragraph 3 of Article 20 and in an improper restriction case under Paragraph 5 of Article 20.