STARTING A BUSINESS  |  INVESTMENTS  |  INCENTIVES  |  FOREX  |  TAX  |  CUSTOMS

EMPLOYMENT  |  IMMIGRATION  |  LEGISLATION  |  DISPUTE RESOLUTION  |  INSOLVENCY

COMPETITION LAW

 

The Philippine Competition Act (PCA), which took effect on 8 August 2015, provides for the following, among others:

  • the creation of the Philippine Competition Commission (PCC), as an independent quasi-judicial body classified as an attached agency to the Office of the President and as the primary Government agency tasked with the implementation of the PCA;

  • the regulation of certain commercial activities associated with free and fair competition in the Philippines, such as anti-competitive agreements, abuse of market dominance, and anti-competitive mergers and acquisitions (M&A); and

  • the establishment of a regulatory framework for the investigation, review and approval, adjudication, enforcement and sanctioning of commercial activities relating to free and fair competition in the Philippines.

The PCA represents the country’s long-awaited comprehensive legal framework on antitrust. Passed as part of a concerted effort to prepare the country for the ASEAN integration, the PCA brings the Philippines closer to the level of antitrust regulation in other countries. 

Back to Top

PROHIBITED AGREEMENTS AND CONDUCT

 

The PCA prohibits anti-competitive agreements, abuse of a dominant position in the market, and anti-competitive M&A.

Anti-Competitive Agreements

The PCA prohibits the following anti-competitive agreements:

  1. as illegal per se, agreements among competitors (i) restricting competition on price, its components or other terms of trade, and (ii) various forms of bid rigging;

  2. agreements among competitors, which have the object or effect of substantially preventing, restricting or limiting competition in the relevant market, in respect of (i) setting, limiting, or controlling production, markets, technical development, or investment, and (ii) dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers, or any other means; and

  3. agreements other than (1) and (2) above that have the object or effect of substantially preventing, restricting or lessening competition in the relevant market in the Philippines, provided that those agreements, which contribute to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits, may not necessarily be prohibited under the PCA. 

Abuse of Dominant Position 

 

The PCA also prohibits an entity from abusing its dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition. 

 

Under the PCA, such conduct would include the following actions of a dominant entity:

  1. selling goods or services below cost with the object of driving competition out of the relevant market;

    The PCC will consider whether the entity or entities did not have such object, and the price established was in good faith to meet or compete with the lower price of a competitor in the same market selling the same or comparable product or service of like quality.
     

  2. imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner, except those that develop in the market as a result of or arising from a superior product or process, business acumen, or legal rights or laws;
     

  3. tying, or making a transaction subject to acceptance by the other parties of other obligations which, by their nature or according to commercial usage, have no connection with the transaction;
     

  4. setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services, where the effect may be to lessen competition substantially;

    However, the following are considered permissible price differentials:

    - socialized pricing for the less fortunate sector of the economy;

    - price differential which reasonably or approximately reflect differences in the cost of manufacture, sale, or delivery resulting from differing methods, technical conditions, or quantities in which the goods or services are sold or delivered to the buyers or sellers;

    - price differential or terms of sale offered in response to the competitive price of payments, services or changes in the facilities furnished by a competitor; and

    - price changes in response to changing market conditions, marketability of goods or services, or volume.
     

  5. imposing restrictions on the lease or sale or trade of goods or services, such as where, to whom, or in what forms goods or services may be sold or traded, fixing prices, giving preferential discounts or rebate upon such price, or imposing conditions not to deal with competing entities, where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially;

    Nonetheless, the following are not prohibited under the PCA:

    - permissible franchising, licensing, exclusive merchandising or exclusive distributorship agreements such as those which give each party the right to unilaterally terminate the agreement; or

    - agreements protecting intellectual property rights, confidential information, or trade secrets.
     

  6. making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied;
     

  7. imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisher-folk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers;

  8. imposing unfair purchase or selling price on their competitors, customers, suppliers or consumers, provided that prices that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws shall not be considered unfair prices; and

  9. limiting production, markets or technical development to the prejudice of consumers.

    However, limitations that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws are not considered violative of the PCA.

    While the PCA prohibits the above actions that constitute abuse of dominance, it does not prohibit a person from having a dominant position in a relevant market or on acquiring, maintaining and increasing market share through legitimate means that do not substantially prevent, restrict or lessen competition. Further, any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical and economic progress while allowing consumers a fair share of the resulting benefit may not necessarily be considered an abuse of dominant position.

Under the PCA, there is a rebuttable presumption of dominance when an entity has a market share of at least 50% of the relevant market. An entity may also be considered dominant despite a lower market share, according to the following factors under the PCA:

  1. The share of the entity in the relevant market and whether it is able to fix prices unilaterally or to restrict supply in the relevant market;

  2. The existence of barriers to entry and the elements which could foreseeably alter both said barriers and the supply from competitors;

  3. The existence and power of its competitors;

  4. The possibility of access by its competitors or other entities to its sources of inputs;

  5. The power of its customers to switch to other goods or services;

  6. Its recent conducts; and

  7. Other criteria established by the regulations of the Competition Act.

Back to Top

MERGER CONTROL

 

The PCC has been given the power to review proposed M&A based on such guidelines as the Commission may set, and, where any such M&A will substantially prevent, restrict or lessen competition in the relevant market, to prohibit such M&A. 

An “acquisition” within the contemplation of the law refers to the purchase or transfer of securities or assets, through contract or other means, for the purpose of obtaining control by: (a) one entity of the whole or part of another; (b) two or more entities over another; or, (c) one or more entities over one or more entities. “Control”, on the other hand, is statutorily defined as the “ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise.”

In determining the existence of “control” by one entity over another, the PCC may consider the following:

  1. Control shall be presumed to exist when the parent owns directly or indirectly, through subsidiaries, more than one-half of the voting power of an entity, unless in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control.

  2. Control also exists even when an entity owns one-half or less of the voting power of another entity when:

  • there is power over more than one-half of the voting rights by virtue of an agreement with investors;

  • there is power to direct or govern the financial and operating policies of the entity under a statute or agreement;

  • there is power to appoint or remove the majority of the members of the board of directors or equivalent governing body;

  • there is power to cast the majority votes at meetings of the board of directors or equivalent governing body;

  • there exists ownership over or the right to use all or a significant part of the assets of the entity; or

  • there exist rights or contracts which confer decisive influence on the decisions of the entity.

 

Under the PCA, parties to a M&A are required to notify the PCC and obtain clearance of such transaction where:

1. the aggregate annual gross revenues in, into or from the Philippines, or the value of the assets in the Philippines of the ultimate parent entity of at least one of the acquiring or acquired entities, including that of all entities that the ultimate parent entity controls, directly or indirectly, exceeds PHP1.0 billion; and

 

2. the value of the transaction exceeds PHP1.0 billion, as may be determined below

 

  • with respect to a proposed acquisition of assets in the Philippines, if either:

    • the aggregate value of the assets in the Philippines being acquired in the proposed transaction exceeds PHP1.0 billion; or

    • the gross revenues generated in the Philippines by assets acquired in the Philippines exceed PHP1.0 billion;

  • with respect to an acquisition of assets outside the Philippines, if:

    • the aggregate value of the assets in the Philippines of the acquiring entity exceeds PHP1.0 billion; and

    • the gross revenues generated in or into the Philippines by those assets acquired outside the Philippines exceed PHP1.0 billion.

  • with respect to a proposed acquisition of assets inside and outside the Philippines, if:

    • the aggregate value of the assets in the Philippines of the acquiring entity exceeds PHP1.0 billion; and

    • the aggregate gross revenues generated in or into the Philippines by assets acquired in the Philippines and any assets acquired outside the Philippines collectively exceed PHP1.0 billion.

  • with respect to a proposed acquisition of (1) voting shares of a corporation or of (2) an interest in a non-corporate entity:

    • i. if the aggregate value of the assets in the Philippines that are owned by the corporation or non-corporate entity or by entities it controls, other than assets that are shares of any of those corporations, exceed PHP1.0 billion; or

    • ii. the gross revenues from sales in, into, or from the Philippines of the corporation or non-corporate entity or by entities it controls, other than assets that are shares of any of those corporations, exceed PHP1.0 billion; and

      If:
      (A) as a result of the proposed acquisition of the voting shares of a corporation, the entity or entities acquiring the shares, together with their affiliates, would own voting shares of the corporation that, in the aggregate, carry more than the following percentages of the votes attached to all the corporation’s outstanding voting shares:

      (a) 35%, oR

      (b) 50%, if the entity or entities already own more than 35% before the proposed acquisition; or

      (B) as a result of the proposed acquisition of an interest in a non-corporate entity, the entity or entities acquiring the interest, together with their affiliates, would hold an aggregate interest in the non-corporate entity that entitles the entity or entities to receive more than the following percentages of the profits of the non-corporate entity or assets of that non-corporate entity on its dissolution:

      (a) 35%, or

      (b) 50%, if the entity or entities already own more than 35% before the proposed acquisition; or

3. Where an entity has already exceeded the 35% threshold for an acquisition of voting shares, or the 35% threshold for an acquisition of an interest in a non-corporate entity, another notification will be required if the same entity will exceed the 50% threshold after making a further acquisition of either voting shares or an interest in a non-corporate entity.

 

4. An acquisition consisting of successive transactions, or acquisition of parts of one or more entities, which shall take place within a one-year period between the same parties, or any entity they control or are controlled by or are under common control with another entity or entities, shall be treated as one transaction. If a binding preliminary agreement provides for such successive transactions or acquisition of parts, the entities shall provide notification on the basis of such preliminary agreement. If there is no binding preliminary agreement, notification shall be made when the parties execute the agreement relating to the last transaction which, when taken together with the preceding transactions, satisfied the prescribed thresholds. 

 

For purposes of calculating notification thresholds, the implementing rules of the Competition Act provide as follows:

  1. The aggregate value of assets in the Philippines shall be as stated on the last regularly prepared balance sheet or the most recent audited financial statements in which those assets are accounted for.

  2. The gross revenues from sales of an entity shall be the amount stated on the last regularly prepared annual statement of income and expense of that entity.

Procedure for Pre-Notification Consultations, Notification, and Review

 

Based on the PCC Rules on Merger Procedure (Merger Procedure), which took effect on 8 December 2017, parties to a M&A that meets the threshold requirements are required to notify the PCC within 30 days from signing of definitive agreements relating to the proposed transaction. 

 

The PCC’s review covers various stages and periods, beginning with a review of the completeness and sufficiency of the notification and supporting documents, which shall be completed within 15 days from submission of the notification. Following a determination of the sufficiency of the notification and payment of the filing fees, the PCC will proceed to review the transaction within a period of 30 days (Phase I review), at which time it may inform the parties of the need for a more comprehensive and detailed analysis of the transaction (Phase II review). A Phase II review shall take an additional 60 days, subject to circumstances that may suspend the running of the 60-day period, as provided in the Merger Procedure. 

 

Within the review period, the PCC may approve the proposed transaction, absolutely prohibit the same, require certain changes to the agreement or for the parties to enter into agreements specified by the PCC, based on its assessment of whether the transaction will substantially prevent, restrict or lessen competition in the relevant market in the Philippines.

 

The parties must not consummate the proposed transaction, in whole or in part, unless they obtain the PCC’s approval, or in case the periods for review for Phase 1 or Phase II lapse without the PCC issuing any decision.

 

A merger or acquisition agreement consummated in violation of the notification requirement shall be considered void and subject the parties to an administrative fine of 1% to 5% of the value of the transaction, as determined under applicable regulations.

Back to Top

 
 

+632 845 1324

info@businessphilippines.eu

19F Philippine AXA Life Center,

Senator Gil Puyat Avenue corner Tindalo Street, Makati City, Philippines

  • White Facebook Icon
  • White Instagram Icon
  • White Twitter Icon
  • White YouTube Icon

Copyright © 2017 European Chamber of Commerce of the Philippines. All Rights Reserved.
ECCP is a Non-Profit Non-Stock Organization registered in the Philippines.

Ready to explore your opportunities?