To enhance the efficiency of pre-merger reviews, the Taiwan Fair Trade Commission of Taiwan (hereinafter, the “TFTC”) continuously reviewed and improved the relevant laws, regulations, and directives for pre-merger filings and proposed draft amendments to solicit public comments from 2022 to 2023. This article summarizes the amended provisions related to pre-merger filings and offers recommendations for areas that need further consideration in the future.
I. Review of amended provisions
I. Expanded application of simplified operating procedures
The TFTC announced the Amendments to the Principles of the Fair Trade Commission for Handling Pre-merger Filing Cases[1] (hereinafter, the “Principles”) on June 30, 2023, and concurrently announced the abolishment of the Principles of the Fair Trade Commission for Handling Extraterritorial Merger Cases on the same day.
In addition to the existing five types, the Principles added the following types eligible for simplified procedures:
A. Enterprises participating in a merger outside the territories of Taiwan and the transaction amount does not reach NT$2.5 billion. (Point 7, Paragraph 6)
B. One of the enterprises participating in the merger files a notification for being subject to the circumstances under Article 11, Paragraph 1, Subparagraph 1 or Subparagraph 2 of the Fair Trade Act (i.e., reaching the market share threshold), and the merger case falls into one of the following circumstances:
(1) The total domestic sales amount of the enterprises participating in the merger for horizontal merger-related goods or services in the previous fiscal year does not exceed NT$200 million(Point 7, Paragraph 7, Subparagraph 1).
(2) The domestic sales amount of vertical merger-related goods or services achieved by any of the enterprises participating in the merger in individual markets in the previous fiscal year does not reach NT$200 million(Point 7, Paragraph 7, Subparagraph 12).
(3) The domestic sales amount of any of the enterprises participating in the merger in the previous fiscal year is zero (Point 7, Paragraph 7, Subparagraph 3).
II. Expansion of types requiring no pre-merger filing
On June 28, 2023, the TFTC announced the Amendments to the Types of Mergers Not Subject to Article 11, Paragraph 1 of the Fair Trade Act[2] by adding the following provision: For foreign enterprises jointly establishing or operating joint ventures outside the territories of Taiwan, if such joint ventures do not engage in economic activities within the territories of Taiwan, there is no need to file a pre-merger notification pursuant to Article 11, Paragraph 1 of the Fair Trade Act. According to the TFTC’s explanation concerning the legal amendment reasons, since this type of merger is less relevant to the Taiwanese market and lacks regulatory benefits, there is no longer any need to file a merger notification with the TFTC.
III. Flexibility in the merger filing for possessing or acquiring shares of affiliates
On April 7, 2022, the TFTC announced the Partial Amendments to the Enforcement Rules of the Fair Trade Act,[3] including providing flexibility in filing requirements for holding or acquiring shares or capital contributions between enterprises with control or subsidiary relationships or under common control by the same enterprise. It is no longer mandatory for the “ultimate controlling enterprise” to file the pre-merger notification, and enterprises may also flexibly choose the “holding or acquiring enterprise” to be the entity that files the notification.
II. Future amendment trends
On June 6, 2023, the TFTC announced the draft Partial Amendments to the Fair Trade Act.[4] One notable change is the removal of a requirement that currently exists under Article 11 of the current law that in the case of enterprise margers, market share shall be the threshold for a pre-merger filing. To wit, under the proposed amendments, the only remaining criterion for determining whether a pre-merger notification must be filed is the “sales revenue of the enterprises participating in a merger in the last fiscal year.” [5]
III. Noteworthy trends and practical recommendations – tentative conclusions
1. Issues required to be taken into consideration after the removal of the market share filing threshold
The TFTC proactively proposed the aforementioned Amendments to remove the requirement in Article 11 of the current law for enterprise combinations to use market share as the threshold for pre-merger notifications. This approach aligns with the regulatory trends of competition authorities in various countries, promoting convenience in the review process, and streamlining the collection of notification data by enterprises. However, with the rise of the digital economy, many start-ups or emerging technology platforms may not have high sales amounts. Even if a start-up possesses potential competitive capability, it may be impossible to assess the impact on competition when the sales amount review threshold is not reached. Therefore, the TFTC may consider setting different sales thresholds by industry. When dealing with start-ups in the digital economy, especially in the face of killer acquisitions, perhaps the TFTC may explore mechanisms such as acquisition transaction pricing to design pre-merger filing thresholds.
In addition, if the draft Amendments to Article 11 of the Fair Trade Act are adopted in the future, market share will no longer be relevant to pre-merger filing thresholds. Consequently, it appears that the related market share threshold for the application of simplified procedures under Point 7, Paragraphs 1 through 3 of the current Principles should also be removed to completely revert to a unified approach based on sales revenues.
2. The rule for simplified procedures required further clarification
The TFTC’s amending the Principles to expand the types of cases eligible for simplified procedures is an approach that brings convenience to the people. However, in the current Fair Trade Act and its enforcement rules, there are no explicit provisions regarding simplified procedures. Instead, the TFTC stipulates this approach through administrative orders.[6] For cases eligible for simplified procedures, the unit handling such cases should issue a shortened notice within 14 working days from the date of receiving complete filing materials with no need to solicit external opinions.
However, determining what constitutes “receiving complete filing materials” may vary in practice due to different opinions among handling personnel and individual Commissioners of the TFTC. Furthermore, the specific number of days for issuing a shortened notice (note: meaning that the waiting period in which a merger may not directly proceed is shortened) is not clearly defined, which is of limited use in estimating the timeline for pre-merger filings by enterprises. As the types of cases eligible for simplified procedures have expanded in the future, the TFTC will surely receive more feedback from enterprises in the course of pre-merger filing, and should be able to reconsider and strive for further procedural improvements.