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Risks of Information-Sharing at a Single Meeting
On 6 October 2017, the UK Competition Appeal Tribunal (CAT) provided a reminder that competing companies risk infringing competition law if they exchange commercially sensitive information even at one meeting. Competition law compliance programmes must reflect this.
The case was an appeal from a December 2016 finding by the UK Competition and Markets Authority (CMA). The CMA found that Balmoral, a supplier of galvanised steel water tanks, along with three other businesses, had breached competition law by taking part in an exchange of competitively sensitive information on prices and pricing intentions.
Balmoral was fined £130,000 for taking part in this unlawful information exchange. The exchange took place at a single meeting in July 2012 at which Balmoral was invited to join a long-running price-fixing cartel. Balmoral refused to take part in the price-fixing cartel, but exchanged competitively sensitive information with its competitors. The CMA secretly recorded this meeting.
The CAT agreed with the CMA that this was not an innocuous discussion but an infringement of competition law. The CMA welcomed this decision, reminding companies in a press release that they must decline to take part in any discussions that involve the sharing of confidential and competitively sensitive pricing information.
Any business that is approached to join a cartel, or become involved in anti-competitive arrangements, must immediately reject the approach, and must do so clearly and unequivocally. It is not enough to refrain from price-fixing or market-sharing. The business (and its representatives) must leave the meeting, and make clear and explicit its refusal to take part.
UK Proposes CFIUS-Style Investment Rules
The UK government announced on 17 October 2017 proposals that would allow it to intervene in mergers that raise national security concerns, even when the mergers involve small businesses. These changes target key areas, specifically, companies that design or manufacture military and dual-use products, and parts of the advanced technology sector (computer chips and quantum technology).
In these areas, the government can intervene only in mergers involving companies with a UK turnover of more than £70 million or where the share of UK supply increases to 25 percent or more. The proposal would lower the threshold whereby ministers can scrutinise investment to businesses with a UK turnover of over £1 million, and remove the requirement for a merger to increase a business’s share of supply to 25 percent or more. (There will be no need for an overlap.)
The government is also consulting on longer-term proposals to allow increased scrutiny of transactions that may raise national security concerns — which could include increasing risks of espionage, sabotage or the ability to exert inappropriate leverage.
Comments are invited from interested parties. Any company active in this area should give serious consideration to making its views known, since this will be a dramatic change to the UK rules on foreign investment.
Even Dismantling Track Can Be an Abuse of Dominance
On 2 October 2017, the European Commission (EC) announced that it had fined Lithuanian railway incumbent AB Lietuvos geležinkeliai (Lithuanian Railways) €27.9 million for limiting competition on the rail markets in Lithuania and Latvia.
In 2008, AB Orlen Lietuva, a major commercial customer of Lithuanian Railways and a subsidiary of Polish oil company PKN Orlen, considered redirecting its freight from Lithuania to Latvia by using the services of another rail operator. In October 2008, Lithuanian Railways dismantled a 19-kilometer section of track connecting Lithuania and Latvia, close to Orlen's refinery.
The EC found that these actions hindered competition on the rail freight market by preventing Orlen from using the services of the other operator. Lithuanian Railways failed to show any objective justification for removing the track.
The actions of Lithuanian Railways provide perhaps the clearest demonstration imaginable of an activity likely to be found an abuse of dominance. The case also shows once again that the scope of illegal abuses of a dominant position can be very wide. Companies struggling against the actions of a dominant or potentially dominant competitor, supplier or customer should take notice.
EU State Aid and Tax: Luxembourg, Amazon in Line of Fire
Since June 2013, the EC has been investigating the tax ruling practices of EU member states for compliance with EU state aid law. It extended this information inquiry to all member states in December 2014.
Several decisions have required repayments of tax. In the latest, decided on 4 October 2017, the EC found that Luxembourg granted undue tax benefits to Amazon of around €250 million. This is illegal under EU state aid rules because it allowed Amazon to pay substantially less tax than other businesses. Luxembourg must now recover the illegal aid.
The tax benefits arose out of a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, which according to the EC enabled Amazon to shift the vast majority of its profits from an Amazon group company subject to tax in Luxembourg (Amazon EU) to a company that is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU's taxable profits.
The EC took the view that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the EC concluded that the tax ruling granted a selective economic advantage to Amazon by allowing the group to pay less tax than other companies subject to the same national tax rules. In fact, the ruling enabled Amazon to avoid taxation on three-quarters of the profits it made from all Amazon sales in the EU.
The EC continues to investigate tax ruling practices in the EU, and all companies that use or have used this mechanism need to consider whether the ruling is compliant with the EU state aid rules.
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