From 1 October 2012 merger control fees in the UK will increase very significantly, and under the Italian competition regime the current merger control filing fee will be replaced with a mandatory "competition tax" payable by all companies registered in Italy having a turnover in excess of €50 million, regardless of whether they notify mergers or not. These measures will increase financial burdens on companies, and appear part of a wider trend to ease budgetary constraints on competition authorities by increasing regulatory costs.
Rise in UK merger control fees
As we reported in our recent update on the UK Government's reforms to the UK competition regime (see our e-bulletin here), the fees payable to the Office of Fair Trading ("OFT") in respect of UK mergers are being significantly increased. The higher fees are designed to increase cost recovery in the context of Government concerns that "the current funding arrangements for the competition regime impose significant costs on taxpayers". The Government was not persuaded by concerns raised by business that the changes would have a chilling effect on merger activity.
Subject to exemptions for certain small and medium sized enterprises, merger fees are payable in respect of any transaction investigated by the OFT and found to constitute a merger under the UK merger control rules, whether the transaction was voluntarily notified by the parties to the OFT or investigated by the OFT on its own initiative.
From 1 October 2012 the fees will increase as follows:
Click here to view table.
In circumstances where notification of a merger to the OFT is not mandatory the new merger fees, which are significantly higher than those in many other jurisdictions, may cause companies to consider very carefully before making a merger filing to the OFT, and it remains to be seen whether the changes will lead to a reduction in the number of voluntary notifications to the OFT.
Introduction of Italian "competition tax"
In March 2012, the Italian Parliament passed a law changing the way in which the Italian competition authority ("ICA") is funded. From January 2013 merger control filing fees will be abolished. Filing fees are being replaced by a mandatory "competition tax" to be paid by all companies established in Italy having an annual turnover in excess of €50 million.
The new fee is payable irrespective of whether companies undertake or notify mergers, and will amount to 0.008% of the annual turnover of the relevant Italian company between a minimum of €4,000 and a maximum of €400,000.
Last week the ICA provided additional practical guidance on the new fee, clarifying that the fee:
- Will apply to all subsidiaries of foreign groups registered in Italy with turnover in excess of €50 million. The revenues to be taken into account are the aggregate worldwide revenues in the last financial year.
- Is payable by each and every Italian company within a group of companies if its individual aggregate revenue is €50 million or above.
- Is payable annually. For 2013, the tax must be paid between 1 and 30 October 2012, and for subsequent years must be paid by 31 July.
The new competition fee introduces material financial burdens on multi-national groups having multiple Italian subsidiaries each of which individually achieves turnover in excess of €50 million. Unsurprisingly, it has been roundly criticised as yet another disguised trade tax on companies doing business in Italy. It is a further factor which will need to be considered by companies deciding whether to acquire undertakings active in Italy.
While many jurisdictions have merger control filing fees in place (Germany and the USA being just two examples in addition to the UK), and in some jurisdictions fees are levied on companies active or licensed to operate in a particular market sector to fund an industry-specific regulator (for example the Financial Services Authority ("FSA") in the UK), a "competition tax" imposed simply for carrying on business in a country like that imposed under the new Italian regime is relatively unusual. The rationale for its introduction appears ultimately to be the need to ensure that private market operators adequately contribute to governmental agencies' budgets in times of austerity.
Similar developments to the moves in the UK and Italy to increase the contribution by businesses to the funding of competition regulators can also be seen within a number of other jurisdictions, where merger control fees are being increased or the circumstances in which they are payable are being widened. For example, merger control filing fees in Spain have essentially doubled over the last few years. Many commentators have highlighted that the increase in merger control fees was coincidental with a shortfall in the Spanish State budget caused by a drop in tax revenues following the credit crunch.
For companies, such charges must be taken into account when assessing the legal and regulatory costs of a potential acquisition.