Law and Practice
1. Legislation and Enforcing Authorities
1.1 Merger Control Legislation
The Control of Concentrations between Undertakings Law 83(1)2014 (the "Merger Control Law") regulates mergers in the Republic of Cyprus. This law was recently replaced and is in line with Council Regulation EC 139/2004.
The Merger Control Law introduces a new definition of a concentration so that one of the criteria for establishing whether there is a concentration of "major importance" is that at least two of the participating undertakings achieve a turnover within the Republic of Cyprus. No additional guidance from the authorities exists.
1.2 Legislation Relating to Particular Sectors
There is no other relevant legislation for foreign transactions or investment, or relating to particular sectors.
1.3 Enforcement Authorities
The body directly responsible for merger control and competition issues in Cyprus is the Cyprus Commission for the Protection of Competition (CPC). The CPC is supported by the Service of the CPC, which is responsible for receiving notifications of concentrations of "major importance" and providing written assessments of such concentrations to the CPC. No other authorities are involved in the review process.
Notification is compulsory. There are no exceptions to compulsory notification, nor is there any voluntary notification.
2.2 Failure to Notify
There are no penalties for failing to notify the CPC of a transaction which meets the jurisdictional thresholds. The Merger Control Law replaces these penalties with administrative fines for implementation of a transaction (whether partial or complete) prior to receiving clearance.
There are no penalties for failure to notify the CPC of a transaction. There are no reported cases of the imposition of penalties for partial or complete implementation of a transaction prior to clearance.
2.3 Types of Transactions
Change of Control
The Merger Control Law applies to transactions which fall under the heading of a concentration of "major importance". Three types of transaction qualify as concentrations of "major importance", these being where a change of control on a lasting basis results from:
- the merger of two or more previously independent undertakings or parts of undertakings; or
- the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by other means, of direct or indirect control of the whole or parts of one or more other undertakings.
The creation of a joint venture performing, on a lasting basis, all the functions of an autonomous economic entity.
Joint ventures fall under the heading of a concentration, and require notification to be made to the CPC if the participating undertakings in such a concentration meet the thresholds which would render the concentration one of "major importance" under the Merger Control Law.
It should be noted that control is derived not only from the acquisition of the whole or part of the assets of an undertaking but also from any rights acquired that give rise to the possibility of a decisive influence on the composition, voting or decisions of the organs of an undertaking.
The Merger Control Law introduced new provisions regarding the factors which the Service of the CPC is required to consider in order to decide whether a concentration constitutes a joint venture, namely:
- whether two or more parent companies retain, to a significant extent, activities in the same market as the joint venture or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to this market; and
- whether the co-ordination which is the direct consequence of the creation of the joint venture affords the participating undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.
Transactions concerning internal restructurings or reorganisations are not within the purview of the Merger Control Law.
The CPC ordinarily examines operations involving transfers of shares or assets; in any other case, the CPC is likely to examine if these operations cover cases described under the heading "means of control" provided in the Jurisdictional Notice Council Regulation EC 139/2004.
2.4 Definition of "Control"
"Control" shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by virtue of:
- ownership or the usufruct of all or part of the assets of an undertaking; and/or
- rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.
There is no specific provision under the Merger Control Law stipulating that acquisitions of minority or other interests are less than capturing of control. The CPC will, in practice, seek guidance from the decisions of the European Commission in relation to the criteria which determine the issues of "control" and "decisive influence" in relation to the acquisition of minority or other interests in an undertaking.
2.5 Jurisdictional Thresholds
The Merger Control Law provides that for an act of concentration of undertakings to be of "major importance" it must meet all three of the following requirements:
- the aggregate turnover achieved by each of at least two of the participating undertakings is more than EUR3.5 million;
- at least two of the participating undertakings achieve a turnover within the Republic of Cyprus; and
- at least EUR3.5 million of the aggregate turnover of all the participating undertakings is achieved within the Republic of Cyprus.
A proposed concentration may also be declared a concentration of "major importance" by an Order of the Minister of Energy, Commerce and Industry regardless of whether the thresholds are met, for reasons of its potential effect on public security, the pluralism of the media and the principles of sound administration.
In determining the turnover to be considered with regard to the thresholds above, it should be borne in mind that the turnover of the participating undertaking includes the turnover of the parent companies and subsidiary companies (a subsidiary is defined as any company in which the undertaking has more than half of the capital or voting rights, or the power to appoint more than half of the members of the administrative board, or the right to manage the affairs of the undertaking). The aggregate turnover is the amount arising from the sale of products or provision of services by the undertakings concerned for the preceding financial year, net of discounts, value added tax and other taxes directly related to turnover.
The only sector-specific thresholds relate to banking and credit institutions and insurance companies. For the former, one tenth of the balance sheet total of the last preceding financial year is used in place of turnover. For insurance companies, the relevant figure is the value of the gross premiums during the last financial year minus any VAT or turnover-related taxes.
With regard to credit institutions, financial institutions or insurance companies there is also a further differentiation, in that a concentration is not considered to have taken place if these entities only hold securities on a temporary basis for resale, either on their own account or that of a third party, provided that:
- the holder does not exercise a voting right in respect of the securities concerned with a view to determining the competitive behaviour of that undertaking; or
- they exercise such voting rights only with a view to disposing of the securities or assets (as long as the securities are disposed of within one year of the date of acquisition).
The Merger Control Law gives the CPC power to extend the one-year deadline on request if the holder can show that disposal was not reasonably feasible within one year.
2.6 Calculations of Jurisdictional Thresholds
The aggregate turnover shall comprise the amounts derived from the sale of products and the provision of services by the undertakings concerned during the preceding financial year and corresponding to the ordinary activities of the undertakings, after deduction of sales rebates, of value added tax and other taxes directly related to turnover.
The aggregate turnover of a participating undertaking shall not include internal transactions carried out between any of the undertakings.
Where the concentration consists of the acquisition of parts of one or more undertakings, whether or not constituted as legal entities, only the turnover relating to the parts which are the subject of the transaction shall be taken into account with regard to the seller or sellers.
Sales or assets booked in foreign currency should be converted into euros at the exchange rate applicable on the date of preparation and issue of the financial statements of the participating undertaking in the concentration.
The thresholds can be asset based where they generate an income resulting from economic activity, the thresholds shall be based on the revenue reflected in the audited financial statements of the last financial year of the participating undertaking.
2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds
In determining the jurisdictional turnover to be considered with regard to the thresholds mentioned above, it should be borne in mind that the turnover of the participating undertaking includes the turnover of the parent companies and subsidiary companies (a subsidiary is defined as any company in which the undertaking has more than half of the capital or voting rights, or the power to appoint more than half of the members of the administrative board, or the right to manage the affairs of the undertaking). The aggregate turnover is the amount arising from the sale of products or provision of services by the undertakings concerned for the preceding financial year, net of discounts, value added tax and other taxes directly related to turnover.
Ordinarily, only the target's turnover needs to be calculated.
Thresholds are calculated on a group-wide basis (in the case of the acquirer, when calculating turnover the CPC will take into account the turnover of the parent company as well as its subsidiaries which are members of the group of companies) and as these turnovers are reflected in the audited financial statements of the group undertaking of the last financial year. In the case of other acquisitions, divestments or business closures and such changes are not incorporated in the financial statements of the last financial year or submitted in the supporting documents with the notification these may be referred to in the notification as at the date of the filing of the notification.
2.8 Foreign-to-Foreign Transactions
Foreign-to-foreign transactions come under the purview of the Merger Control Law if the thresholds are met. Notification is obligatory despite the parties having no physical presence in Cyprus or any actual connection to Cyprus other than by generating a turnover in Cyprus that meets the thresholds.
There is no local effects test and there is no local presence required.
A filing is not required when a target does not achieve a turnover deriving from the sale of goods or the provision of services, or generates a turnover from assets within the Republic of Cyprus.
2.9 Market Share Jurisdictional Threshold
There is no notion of market share jurisdictional threshold. Under the Merger Control Law, the jurisdictional thresholds which are applicable are financial and are those which are reflected in the financial statements of the participating undertakings.
2.10 Joint Ventures
Joint ventures are subject to merger control if they permanently carry out, on a lasting basis, all the functions of an autonomous economic entity. In the event that this independent entity is intended to co-ordinate the competitive behaviour of the participating undertakings, which remain independent, such co-ordination is also examined under the scope of the Protection of Competition Laws 2008 and 2014 and their provisions on concerted practices, with a view to ascertaining whether or not the operation is compatible with the functioning of the competition in the market.
The Merger Control Law introduces provisions regarding the factors which are taken into account by the service of the CPC, particularly in its assessment of whether a concentration constitutes a joint venture, namely:
- whether two or more parent companies retain to a significant extent activities in the same market as the joint venture, or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to this market; and
- whether the co-ordination which is the direct consequence of the creation of the joint venture affords the participating undertakings concerned the possibility of eliminating competition in a substantial part of the products or services in question.
There are no special rules for determining whether joint ventures meet the jurisdictional thresholds. Where undertakings participating in the concentration jointly have the rights or powers in calculating the turnover of the participating undertakings, account shall be taken of the turnover from the sale of products or the provision of services between the joint undertaking and any third undertaking. The said turnover shall be apportioned equally amongst the undertakings concerned.
2.11 Power of Authorities to Investigate a Transaction
There is no specific provision under the Merger Control Law which gives power to the CPC to investigate a transaction that does not meet the jurisdictional thresholds. However, the Minister of Energy, Commerce and Industry has the power to issue an order declaring a notified concentration as one of "major importance" even if the three thresholds have not been satisfied. The Minister may make such a declaration for reasons of the transaction's potential effect on public security, the pluralism of the media and the principles of sound administration.
There is no statute of limitation on the ability of the CPC to investigate a transaction where a concentration meets the jurisdictional thresholds and, therefore, notification of the CPC concerning the concentration of "major importance" must be made.
2.12 Requirement for Clearance Before Implementation
A transaction must be cleared before it is partially or completely implemented. There is, therefore, a suspension requirement and the transaction cannot be implemented until the CPC has given its clearance.
2.13 Penalties for the Implementation of a Transaction Before Clearance
In the event of a transaction being implemented, whether partially or completely, prior to receiving clearance, the CPC may impose an administrative fine of up to 10% of the total turnover of the participating undertaking which has the obligation to notify in the financial year immediately preceding the concentration, and an administrative fine of up to EUR8,000 for each day during which the infringement continues.
There are no reported cases to date concerning the imposition of administrative fines. This is understandable, given that the Merger Control Law was introduced relatively recently and abolished the administrative fine for failure to notify the CPC of a concentration.
Reasoned decisions of the CPC concerning the imposition of administrative fines on participating undertakings are announced on the website of the CPC and in the annual reports of the CPC, as well as being published in the Official Gazette of the Republic of Cyprus.
There are no reported cases to date concerning the imposition of administrative fines in relation to foreign-to-foreign transactions given the fact that the Merger Control Law was introduced relatively recently.
2.14 Exceptions to Suspensive Effect
There are no exceptions to the suspensive effect for public bids and there is no possibility of a derogation to the suspension requirement in Phase I of the review process of the notification.
Derogation of the suspension effect is only possible with regard to a Phase II full investigation, where the participating undertakings can obtain temporary permission from the CPC to implement the concentration either partially or fully, with or without conditions set by the CPC, prior to final approval. In order to obtain a derogation, the participating undertakings must satisfy the CPC that further delay in the implementation of the concentration is likely to cause them serious harm. The CPC shall take into account the effects of the suspension on one or more undertakings concerned by the concentration or on a third party, and the threat to competition posed by the concentration.
2.15 Circumstances Where Implementation Before Clearance is Permitted
There are no other circumstances that allow parties to close or implement the transaction prior to clearance, other than those explained under 2.14 Exceptions to Suspensive Effect.
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Previously published in Chambers and Partners
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