On October 2, 2013, the Korea Fair Trade Commission issued an advance notice announcing that it would enact the draft amendment to the 「Enforcement Decree of the Monopoly Regulation and Fair Trade Act」 (hereinafter “Draft Amendment”; the advance notice period runs from October 2, 2013 to November 11, 2013).

The purpose of the Draft Amendment is to promulgate the matters delegated by the 「Monopoly Regulation and Fair Trade Act」 (hereinafter “MRFTA”) that were officially announced on August 13, 2013 and planned to take effect on February 14, 2014.

<Regarding the Regulation Prohibiting Provision of Unfair Profits to Specially Related Persons (Article 23-2 of the MRFTA)>

  • Scope of Corporate Groups that are Subject to the Prohibition Regulation (Article 37-2, Paragraph 1 of the Draft Amendment)

The regulation prohibiting provision of unfair profits to specially related persons applies to corporate groups that have the ownership structure of a so-called “Chaebol” and subject to limitations on cross-shareholdings, i.e. 43 corporate groups consisting of 1,519 companies (based on the list of corporate groups subject to limitations on cross-shareholdings as of April 1, 2013).

  • Scope of Counterparties that are Subject to the Prohibition Regulation (Article 37-2, Paragraph 2 of the Draft Amendment)

[In regards to the regulated counterparties,] the regulation prohibiting provision of unfair profits to specially related persons applies to subsidiaries/ affiliates in which a specially related person owns, individually or together with his family members, no less than 30% of issued stocks (in case of unlisted subsidiaries/ affiliates, no less than 20% of issued stocks), i.e. 208 companies (30 listed companies and 178 unlisted companies).

  • Types and Standards of the Prohibited Acts of Providing Unfair Profits to Specially Related Persons (Attached Table 1-3 of the Draft Amendment)
  • Transaction Under Substantially Favorable Conditions

A transaction under substantially favorable conditions is stipulated as an act of providing or trading finance, assets, goods, services, and labors in exchange for substantially higher or lower consideration than it would have been under normal transactions (Article 23-2, Paragraph 1, Subparagraphs 1 to 3 of the MRFTA).

“Substantially favorable conditions” may not be applied when the price paid diverges from a standard price by less than 7% and the total annual value of transactions between the trading parties is smaller than KRW 5 billion (in case of a transaction of goods or services, KRW 20 billion).

  • Provision of a business opportunity

Provision of a business opportunity is stipulated as an act of providing a business opportunity that is closely related to the business which the company is already conducting or planning to conduct, and which could provide substantial profits to the company if it carries out such business opportunity on its own or through its controlled company (Article 23-2, Paragraph 1, Subparagraph 2 of the MRFTA).

This clause does not apply where the company has no capability of carrying out a business opportunity or where the company provides a business opportunity in exchange for fair consideration.

  • Transaction in Substantial Volume Lack of Reasonable Consideration or Comparison

A transaction in substantial volume lack of reasonable consideration or comparison is stipulated as an act of trading in substantial volume lack of a proper process of selecting counterparties, e.g. to collect and examine information necessary for engaging in a transaction, to objectively and reasonably review such information, and to compare and evaluate other enterprisers (Article 23-2, Paragraph 1, Subparagraph 4 of the MRFTA).

“Substantial volume” may not be applied where the total annual value of transactions of goods or services between the trading parties is less than 12% of the counterparty’s average sales revenues and also smaller than KRW 20 billion.

  • Grounds for Exceptions to the Transaction in Substantial Volume Lack of Reasonable Consideration or Comparison (Attached Table 1-4 of the Draft Amendment)

In clarifying the grounds for exclusion of the application as provided in the Article 23-2, Paragraph 2 of the MRFTA, i.e. “enhancing efficiency, security [complement], and urgency of a company,” details that fall under each of the grounds are specifically stipulated.

<Regarding the Regulation Prohibiting Toll Fees (Article 23, Paragraph 1, Subparagraph 7, Item B of the MRFTA)>

As one type of unfair support practices, so-called the practice of “toll fees” is newly established [as regulatory basis], which is defined as “an act of trading by using as a medium a specially related person or another company with no actual role.”  In providing the specific types and standards for the practice of toll fees, it is stipulated that, despite substantial advantage the company could gain if it trades directly with another enterpriser, it engages in (1) an act of trading by including in the transaction, or by going through, a specially related person or another company with no actual role, or (2) an act of trading by including in the transaction, or by going through, a specially related person or another company and providing an excessive amount of consideration relative to its role in transaction (Attached Table 1-2 of the Draft Amendment).