Serbia is soon to get a new Competition Act, and while it’s uncertain which parts of the current law will be reformed, it’s unlikely the current low filing thresholds will survive. Here is a proposal on how the new filing thresholds could be set.
The problem: the current thresholds catch everything
It is now common knowledge that the Serbian merger filing thresholds are extremely low, especially considering the manner in which the Serbian Competition Commission interprets them. Specifically, the Serbian thresholds can be triggered even if the target has no presence in Serbia whatsoever. Due to this, even transactions such as the acquisition of a building anywhere in the world or aircraft lease with no nexus with Serbia can trigger the filing obligation.
While foreign-to-foreign transactions with no connection with Serbia are the most evident example of unnecessary red tape in the form of merger filing, the Serbian merger filing thresholds are also triggered by evidently de minimis local transactions. For instance, even the lease of a single store can trigger the merger filing obligation in Serbia.
All this has led to the situation where during the past decade the Serbian Competition Commission has cleared more than 1,000 transactions, the predominant part of which had little or nothing to do with the protection of competition in Serbia.
And, to add to the lack of justification for low merger filing thresholds, the merger filing fee in Serbia is extremely high – EUR 25,000. Which makes the filing of transactions with no effect in Serbia not only time consuming but also quite costly.
The current merger filing thresholds: look only at the turnover (sort of)
Currently, the Serbian merger filing thresholds are set as follows:
(1) The aggregate combined turnover of all parties generated on the world market in the preceding financial year exceeded EUR 100 million, provided that at least one party generated more than EUR 10 million in Serbia during the same period; or
(2) The aggregate combined turnover of at least two parties generated on the Serbian market exceeded EUR 20 million in the preceding financial year, provided that at least two parties generated on the Serbian market more than EUR 1 million each during the same period.
In practice, the filing obligation is generally triggered by the first threshold, since the Serbian Competition Commission holds that this threshold is triggered even if the target is not in any way present in Serbia.
Additionally, the current Competition Act provides for a sort of non-mandatory threshold. Specifically, even if the turnover thresholds are not exceeded, the Commission may ex post investigate a transaction if it establishes that the combined market share of the parties on the relevant market in Serbia is at least 40%. The Commission is yet to use this power in practice.
The solution: increase the turnover thresholds and introduce a market share threshold for local transactions
Finding the right balance in setting the merger filing thresholds is not easy.
On one hand, the thresholds must be such not to catch foreign-to-foreign transactions with no effect in Serbia, as the filing of such transactions seems more like a transaction tax than something which has to do with the protection of competition. On the other, the thresholds should also adequately catch local transactions where, even if the turnovers involved are relatively low, anti-competitive effects may arise.
With this in mind, here is a proposal how the new thresholds could look like:
(1) The aggregate combined turnover of all parties generated on the world market in the preceding financial year exceeded EUR 100 million, provided that the combined Serbian turnover of the parties exceeded EUR 20 million during the same period and further provided that:
(i) the target generated at least EUR 1 million in Serbia in the previous year or
(ii) in the case of joint ventures, each of at least two parties to the joint venture generated at least EUR 1 million in Serbia in the previous year.
(2) The combined turnover of the parties on the Serbian market in the preceding year exceeded EUR 10 million, provided that:
(i) the Serbian turnover of the target, or, as the case may be, at least two parties, in the preceding year exceeded EUR 1 million and
(ii) the combined market share of the parties on the relevant market in Serbia post-transaction exceeds 40%.
With such thresholds, the filing obligation would no longer exist if the target was not present in Serbia prior to the transaction. And, while it’s not easy to determine what is the minimum turnover the target should have in Serbia, EUR 1 million seems like a good start – especially since the exact threshold can be later modified, once its effects in practice are examined.
The second threshold is aimed at catching local transactions where the general turnover thresholds may not be exceeded but which still may have anti-competitive effects in Serbia. Setting a purely turnover-based threshold applicable only to local transactions is extremely difficult and may lead to problems in practice, as it may not always be easy what is a local transaction. For that reason, combining a turnover threshold with a market share threshold could be the solution.
One may ask: ‘But how will I know whether the market share threshold has been exceeded? First of all, I do not know how the Commission would define the relevant market, and even if I knew, it’s not always easy to get market share data.’ And that person may be right.
However, the Serbian Competition Commission already has substantive practice which could be used as an indication of what the relevant market would be. Also, there is always EU practice, which should provide additional guidance. And, in case it’s really uncertain what the market shares are – the parties can always make a notification to the authority and ask that it be dismissed.