The Government of Vietnam recently issued Decree No. 71/2014 / ND -CP dated July 21, 2014 (“Decree 71”) to replace Decree No. 120/2005 / ND-CP dated September 30, 2005 (“Decree 120”).   Decree 71 revises the penalties for breaches of the Competition Law based on the Vietnam Competition Authority’s (“VCA”) experience to date in applying the Competition Law.  Decree 71 took effect on September 15, 2014.  This initiative to revise the penalties was noted in the VCA’s 2013 Annual Report; although there appears to be some differences in the approved legislation from the draft described in the Annual Report. 

In this update, we will provide a brief overview of some of some of the revisions contained in Decree 71 and then provide more details with respect to the specific fine ranges established under the revised regime.  However, to summarize, potential penalties for unfair competition offences have generally been increased under Decree 71.

With respect to breaches of the Competition Law in relation to practices in restraint of competition, Decree 71 establishes that penalties will still be determined as a percentage of the relevant enterprise’s turnover.    However, while under Decree 120 the percentage was applied to the total turnover of the relevant enterprise in the previous year; as a default position, Decree 71 revises this by applying the relevant percentage only to the turnover from the sale, or purchased input of the goods or services relevant to the impugned practice itself during the period when the conduct occurred.  Decree 71 only reverts to the previous system of applying the percentage to the total turnover of the enterprise for the previous year if the relevant turnover can not be determined on this narrower basis.  This is a much more focused remedy that is clearly more strongly linked to the relevant conduct; although it would appear to negatively impact on the potential deterrent effect of any applied penalty as it could reduce the total potential fine.

In terms of determining the relevant percentage to be applied to the calculated turnover, Decree 71 also changes the basis by which the relevant authority establishes the penalty percentage by adding the scope of the relevant practice to the list of factors to be considered and expanding “extenuating or aggravating factors” to the broader “other necessary factors” on that list.  In addition, the extenuating and aggravating circumstances which can be used to adjust the calculated penalty has been focused on the circumstances identified in Article 85 of Decree 116-2005- ND-CP and the relevant adjustment has been fixed as plus or minus 15%. 

With respect to penalties for a breach of the provisions of the Competition Law dealing with unfair competitive practices or a breach of other provisions of the Competition Law, Decree 71 states that the maximum fine for an individual shall be VND100 million (approximately US$4,700) and, for an organization, VND200 million (approximately US$9,400) .  Further, the fine for an individual is established at one half of that applicable to an organization as per the fine ranges set out below.  Finally with respect to unfair competition practices and other breaches, the specific amount of the fine is set as the average of the relevant fine range set out in Chapter 2 of Decree 71 for such breach subject to extenuating or aggravating circumstances.

Based on publicly available information, we are aware of relatively few penalties being imposed under the Competition Law to date apart from those imposed by the VCA in respect to infringements of the unfair competition provisions.  The Vietnam Competition Commission has also imposed financial penalties in decisions related to certain restrictive trade practices, but we are not aware of any fines imposed to date in relation to the economic concentration provisions of the Competition Law.  While the penalties with respect to participation in prohibited economic concentrations or agreements in restraint of trade prior to an exemption being granted have been increased as noted below, we note that they are still relatively minor in relation to the likely economic value to enterprises of participating in such activities.  

In order to address the legislative issues noted in the VCA’s 2013 Annual Report in relation to the VCA’s authority to issue fines for certain breaches of the Competition Law, Decree 71 specifies the VCA’s authority to issue fines up to VND100 million (approximately US$4,700) if the offender is an individual and VND200 million (approximately US$9,400) if the offender is an organization.  On the basis of the discussion in the 2013 Annual Report, this clarification should permit the VCA to once again enforce the unfair competition provisions of the Competition Law.

The last significant change which we will address before outlining the revised penalties for specific breaches is the change to the limitation period for lodging a complaint about a competition case or with respect to the issuance of a decision to investigate when the VCA discovers indications of a breach of the Competition Law.  Under Decree 120 the two year limitation period commenced when the breach was committed; however under Decree 71, the two year limitation period only starts on the date on which indications of the breach are discovered.

Specific Penalty Ranges

The penalty ranges are provided in Chapter 2 of Decree 71 and are summarized as follows:

  • Agreements in restraint of trade are penalized with a fine of up to 10% of total revenues and the potential confiscation of material evidence and facilities used to commit the breach provided for under Decree 120 has been replaced with the potential confiscation of only the profits of the impugned conduct;
  • Abuses of Dominant or Monopoly Positions will be penalized with a fine of up to 10% of total revenues;
  • Prohibited Economic Concentrations will be penalized with a fine of up to 10% of total revenues; other changes include:
    • Mergers – the potential split of the merged enterprise is no longer qualified as being “as prior to the merger”;
    • Joint Ventures – under Decree 71, the potential withdrawal of the business registration certificates of the parties to the joint venture has been removed and it is only the business registration certificate of the joint venture itself that can be withdrawn;
  • Failure to notify economic  concentration will now be penalized up to 10% of total revenues as compared to 1-3% under Decree 120; 
  • Participating in a prohibited economic concentration or agreement in restraint of trade prior to an exemption being granted is subject to a substantially increased potential fine of VND100-200 million  (approximately US$4,700 - US$9,400).  Under Decree 120, the potential fine for each participating enterprise was only VND30-50 million  (approximately US$1,400 – US$2,350) with a maximum penalty of 3% of total revenues;
  • Unfair Competition Practices – the fines for various specific practices vary considerably with Decree 120 providing for fines ranging from VND5 million to VND100 million (approximately US$235 to US$470) depending on the impugned practices and relevant circumstances.  Under Decree 71, the ranges have been increased from VND10 million to VND150 million (approximately US$470 – US$7,050) and significantly more detail provided to new multi-level sales related offenses including those relating to Article 5 of Decree 42-2014-ND-CP issued on 14 May 2014 regulating multi-level selling activities; and
  • Other breaches – including not supplying requested information –face significantly higher fines under Decree 71 with the basic fine increased from the previous VND500,000 – VND1,000,000 (approximately USD23-USD47) to VND2-5 million (approximately USD94 –USD235).  Where the requested information is considered to be of particular importance, the fine will increase to VND5-10 million (approximately USD235- USD470).