Merger thresholds
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COSTA RICA

Andrey Dorado
Partner

Andrey.Dorado@ariaslaw.com

Tel: +(506) 4036-2830

Tracy Varela
Senior Counsel

Tracy.Varela@ariaslaw.com

Tel: +(506) 4036-2806

Alberto Carrillo
Associate

Alberto.Carrillo@ariaslaw.com

Tel: +(506) 4036-2818

New regulation proposed

Regulations to the Competition Authorities Strengthening Act are available in draft and are expected to be published in final version and enter into force in December 2020. Details on the introduction of filing fees for merger notifications are expected to be published in that connection.

(Content available free of charge at Mergerfilers.com - sponsored by Arias)

Relevant legislation and authorities

1) Is a merger control regulation in force?

Yes. Merger control regulation was introduced with the approval of the reform to the Competition Promotion Act in 2012 and amended by the Competition Authorities Strengthening Act of 2019 (in this guide jointly referred to as “the Competition Acts”).

2) Which authorities enforce the merger control regulation?

The Commission to Promote Competition (COPROCOM) is the authority in charge of the defense and promotion of free competition; however, the Superintendency of Telecommunications (SUTEL) is the authority in charge of the defense and promotion of free competition in the telecommunications and networks sector. 

3) Relevant regulations and guidelines with links:

Original Spanish version Unofficial English translation

Reforma Ley de Promoción de la Competencia y Defensa Efectiva del Consumidor

Promotion of Competition and Effective Consumer Defense Act Reform (Not available in English)

Fortalecimiento De Las Finanzas Públicas

Public Finances Enhancement Act (Not available in English)

Ley de Fortalecimiento de las Autoridades de Competencia de Costa Rica

Competition Authorities Strengthening Act (Not available in English)

Guía para el Análisis de Concentraciones Económicas 

(Issued in 2014 and not based on current regulation)

Guidelines for Merger Control Processes (Not available in English)

 

Original Spanish version Unofficial English translation

Reglamento a la Ley 9736 “Fortalecimiento de las Autoridades de Competencia de Costa Rica” 

Draft of Regulations to the Competition Authorities Strengthening Act

(Not available in English)

4) Does general competition regulation apply to mergers or ancillary restrictions?

Content pending.

5) May an authority order a split-up of a business irrespective of a merger?

No, a split-up can be ordered only via a merger control process. 

6) Other authorities that also require merger filing or may prohibit transaction
(Note that this may not be an exhaustive list and that industry-specific legislation should always be considered. Furthermore, a merger will often require change of registrations with – but not approval from – the companies register, land register and authorities that have issued permits for the activities of the merging parties.)

Telecommunication services

SUTEL is in charge of reviewing and deciding on transactions involving entities authorized to provide telecommunication services in Costa Rica. During the course of these merger control processes, COPROCOM only issues a non-binding criterion.

Financial sector

The National Council for the Supervision of the Financial System (CONASSIF) can order COPROCOM, via reasoned decision, to relinquish any merger control process involving entities of the Costa Rican financial sector (banking and finance, securities, insurance and pensions). In this case, CONASSIF will issue the final decision of the process. 

 

Foreign investment control

Costa Rica does not have a specific foreign investment law, but the Constitution allows foreigners to enjoy the same rights as Costa Ricans, with some exceptions and limitations. Public and private companies compete on equal terms, except when the Constitution and legislation expressly stipulate preferential conditions for state companies.

Furthermore, foreign-to-foreign transactions are subject to local merger control process when they are relevant for the Costa Rican market; namely, when the Parties have local presence and meet legal thresholds. 

7) Are any parts of the territory exempted or covered by particular regulation?

No.

Voluntary or mandatory filing

8) Is merger filing mandatory or voluntary?

Merger filing is mandatory in Costa Rica when the transaction meets the legal requirements (see topic 14). Furthermore, the filing parties must evidence compliance with said requirements in order to access the merger control review. Thus, transactions cannot be submitted to review voluntarily. 

Types of transactions to file – what constitutes a merger

9) Is there a general definition of transactions subject to merger control?

Yes. The transactions subject to merger control are those that involve a) change of control over entities, businesses or assets; or b) the incorporation of a new entity under the joint control of two or more independent economic agents. 

10) Is "change of control" of a business required?

Yes, generally a transaction will be subject to merger control when it results in a change of control over a business entity or assets. Furthermore, transactions that result in the establishment of a new business under the joint control of independent economic agents will also comply with the “change of control” requirement. 

11) How is “control” defined?

Control is defined as the possibility to exercise a decisive influence de facto or de jure, over an economic agent or its assets, understood as the power to take or block decisions that will determine the commercial strategic behavior. 

12) Acquisition of a minority interest

Acquisition of a minority interest that does not result in acquisitions or control (either positive or negative) is not subject to merger control.

13) Joint ventures/joint control – which transactions constitute mergers?

The following transactions may be subject to merger control:

  1. Establishment of a full-function joint venture;
  2. Establishment of a non-full-function joint venture, if the transaction qualifies as a merger (see topic 9);
  3. Change from joint to sole control;
  4. Dissolution – provided (part of) the business of the joint venture is transferred to one or more of the businesses controlling the joint venture or a third party;
  5. Change in or extension of the activities of a joint venture – provided that further assets, contracts, know-how, rights, etc. are transferred from parent companies to the joint venture (e.g. if one of the parent companies transfers a "substantial part of an undertaking" into the joint venture);
  6. Change in participants/owners – for instance if one of the controlling businesses sells its share in a joint venture to another business, or if one of the controlling businesses is acquired by another business.

A joint venture is considered "full-function" if it performs all the functions of an autonomous economic entity on a lasting basis. Whether a joint venture is considered "full function" or non-full-function depends on the level of the joint venture's dependence on its parents and to what extent the joint venture has an independent presence in the market.

Thresholds that decide whether a merger notification must be filed

14) Which thresholds decide whether a merger notification must be filed?
(Unless explicitly stated otherwise, the thresholds described under one threshold category are not cumulative with those described under another category. Thus for instance if there is a market share threshold and a turnover threshold, it is sufficient to meet one of these, unless stated otherwise.)

a) Turnover thresholds

Transactions must meet both the following combined and individual turnover thresholds: 

The combined threshold is met if either:

  1. the combined gross sales during the last fiscal year in Costa Rica of all parties (including seller)  involved in the transaction is equal or greater than USD 23,410,000; or
  2. the combined value of assets located in Costa Rica of all parties (including seller) involved in the transaction is equal or greater than USD 23,410,000.

The individual threshold is met when at least two parties to the transaction (including seller) have:

  1. individual gross sales during the last fiscal year in Costa Rica equal to or greater than USD 1,170,000; or
  2. individual value of assets located in Costa Rica equal to or greater than USD 1,170,000. 

These thresholds are adjusted on a yearly basis. The thresholds cannot be combined, i.e. you cannot account the gross sales of one party and the assets of the other one.

As stated in topic 14.e. below, in addition to the turnover thresholds, at least two parties must have had activities in Costa Rica at any time during the last two fiscal years.

b) Market share thresholds

N/A

c) Value of transaction thresholds

N/A

d) Assets requirements

See turnover threshold above.

e) Other

In addition to the turnover thresholds above, at least two parties to the transaction must have conducted activities in Costa Rica (either directly or indirectly) at any time during the last two fiscal years. 

15) Special thresholds for particular businesses

All transactions involving at least two parties authorized to provide telecommunications services in Costa Rica must comply with the merger control process applicable for SUTEL. 

16) Rules on calculation and geographical allocation of turnover

As general rule, the thresholds are calculated based on the gross sales generated in Costa Rica (the entire national territory) by the parties to the transaction. 

Is the seller/seller's group turnover relevant in a standard acquisition of sole control?: 

Yes.

17) Special rules on calculation of turnover for particular businesses

There are no special rules to calculate turnover for particular businesses. 

18) Series of transactions that must be treated as one transaction

If two or more transactions take place between the same persons or undertakings within a two-year period, these must be treated as one transaction. 

Exempted transactions and industries (no merger control even if thresholds ARE met)

19) Temporary change of control

Temporal acquisitions of assets or shares are excepted from the merger control process, as long as: 

  1. they are sold within one year; 
  2. the buyer does not participate in the decision making process of the target; and 
  3. the acquired assets/shares are not part of another transaction that must be notified to the corresponding Authority.

20) Special industries, owners or types of transactions

Merger control is exempted for acquisitions of goods and services within the ordinary course of business of the involved parties, as long as the acquisition does not combine independent businesses.

21) Transactions involving only foreign businesses (foreign-to-foreign)

Foreign-to-foreign transactions are not excepted from the merger control process per se.

22) No overlap of activities of the parties

There are no exemptions for transactions with no overlap of activities. The overlap is only relevant for the analysis during the merger control process. 

23) Other exemptions from notification duty even if thresholds ARE met?

No.

Merger control even if thresholds are NOT met

24) May a merging party file voluntarily even if the thresholds are not exceeded?

No. COPROCOM/SUTEL  will only analyze and rule over the transactions which meet the legal requirements, including the thresholds in topic 14.  

25) May the competition authority request a merger notification or oppose a transaction even if thresholds are not met?

No. However, this does not prevent COPROCOM/SUTEL from requesting information to confirm the transaction was not subject to the merger control process and/or open an investigation if the information provided to the relevant authority is determined to be false.  

Referral to and from other authorities

26) Referral within the jurisdiction

See topic 6. 

27) Referral from another jurisdiction

Merger control is not referred to the Costa Rican competition authorities from other jurisdictions. However, COPROCOM and SUTEL are legally authorized to enter into agreements and coordinate processes with other antitrust agencies. 

28) Referral to another jurisdiction

Merger control cannot be referred to competition authorities in other jurisdictions. However, COPROCOM and SUTEL are legally authorized to  enter into agreements and coordinate processes with other antitrust agencies.

29) May the merging parties request or oppose a referral decision?

No, since referrals are not applicable. The parties cannot oppose to actions coordinated by COPROCOM/SUTEL with other agencies. 

Filing requirements and fees

30) Stage of transaction when notification must be filed

The notification can be filed at any time prior to Closing or material implementation of the transaction in Costa Rica.  

31) Pre-notification consultations

The parties may consult COPROCOM/SUTEL on a non-binding basis before the formal filing.  

32) Special rules on timing of notification in case of public takeover bids and acquisitions on stock exchanges

No, there are no special rules of exemptions to the merger control process for these transactions. Also see topic 38 about permission to implement before approval.

33) Forms available for completing a notification

There are no forms available. The merger notification must be submitted to COPROCOM/SUTEL in writing and in Spanish, and must contain at least the following:

  1. Detailed description of the merger.
  2. Identification of the economic agents involved in the transaction.
  3. Capital stock structure of the parties. 
  4. Activities of the economic agents involved in the transaction.
  5. Relevant market
  6. Documentation that evidences compliance with notification thresholds.
  7. Effects of the transaction in the local market. 

34) Languages that may be applied in notifications and communication

The notifications and communications with COPROCOM/SUTEL must be in Spanish.

35) Documents that must be supplied with notification

The following documents must always be supplied with a merger notification:

  1. Good standing certificate of the party or parties signing the filing, and the corresponding certification of the power of attorney.
  2. Financial statements that evidence compliance with the legal thresholds in topic 14. 
  3. Any other documentation required to comply with the information indicated in topic 33.

36) Filing fees

Currently no filing fees apply. 

The Competition Acts establish a filing fee; however, it will only be charged by the COPROCOM/SUTEL when the Regulations to the Competition Authorities Strengthening Act are published. These Regulations are expected to be published no later than December, 2020.

Implementation of merger before approval – “gun jumping” and “carve out”

37) Is implementation of the merger before approval prohibited?

Yes. The merger may not be executed until it has been approved by COPROCOM/SUTEL. 

38) May the parties get permission to implement before approval?

Yes, the parties can request a waiver from COPROCOM/SUTEL. If granted, the transaction can close prior to antitrust clearance. When reviewing the waiver request, the relevant authority must take into consideration: a) the effects that the suspensory regime would cause to both the parties to transaction and to the transaction itself; and b) the effects that the waiver would cause to local competition.    

39) Due diligence and other preparatory steps

Due diligence and other preparatory steps may be carried out without any limitation other than the observance of principles of confidentiality and good faith. Implementing clean teams to conduct these processes are highly recommendable. 

40) Veto rights before closing and "Ordinary course of business" clauses

"Ordinary course of business" clauses are generally accepted.

Veto rights are generally not accepted prior to the antitrust clearance.

Both matters are analyzed by COPROCOM/SUTEL under the rule of reason.  

41) Implementation outside the jurisdiction before approval – "Carve out"

Yes, as long as the carve out does not impact or affect the local market.  

42) Consequences of implementing without approval/permission

The Competition Acts define as a “serious infraction” failure to notify the transaction to COPROCOM/SUTEL  prior to its execution in Costa Rica. The relevant authority can impose fines for this infraction from 0.1% to 5% of the economic agent’s turn over in Costa Rica during the last fiscal year. Since all parties to a transaction are legally bound to notify the transaction to the relevant Authority, the fine can be imposed on all parties. 

Furthermore, COPROCOM/SUTEL can also: a) impose fines on natural persons involved in transactions that do not comply with the merger control process and b) order the divestiture of local assets/business. 

The process – phases and deadlines

43) Phases and deadlines

Phase

Duration/deadline

(Please note that some deadlines are stated as business days whereas others are stated as calendar days)

Notification: The parties must submit the notification, complying with the established requirements. See topic 33. 

The notification must be filed at any time prior to Closing or material implementation in Costa Rica. 

Verification of compliance with formal requirements:

COPROCOM/SUTEL shall verify the notification is complete. In case additional information is required, COPROCOM/SUTEL must issue a Request for Information.

15 calendar days from the initial filing. 

Filing of additional information by the parties.

The parties must comply with a Request for Information within 10 business days.

If the additional information is not filed complete, COPROCOM/SUTEL can issue a second Request for Information and grant the parties an additional 15 calendar days to submit pending information.

10 business days and an additional 15 calendar days if a second Request for Information is issued. 

Phase I:

COPROCOM/SUTEL must issue a decision either: a) authorizing the transaction with no remedies, b) requesting a remedies proposal or c) ordering Phase II.

30 calendar days after all required information has been filed by the Parties. 

 

Phase II:

COPROCOM/SUTEL may order Phase II via a reasoned decision. This decision must also include the additional information required to conduct the analysis of Phase II.  

COPROCOM/SUTEL must issue a final decision either: a) authorizing the transaction, b) requesting a remedies proposal or c) prohibiting the transaction in Costa Rica. 

The additional information must be filed by the Parties within 10 business days. 

COPROCOM/SUTEL must issue the final decision within 90 calendar days after all requested information has been filed.

Reconsideration of Phase II decision:

The Parties may file a request for reconsideration of Phase II decision. 

15 business days from the date of the final decision (Request must be filed and reviewed within the 15 business-day term).

Assessment and remedies/decisions

44) Tests or criteria applied when a merger is assessed

The risks that the merger generates to the competition process are analyzed. Criteria related to determining the relevant market and the existence of substantial power in it are taken into consideration.

The relevant market is determined from: 

  1. The possibilities of substituting the good or service in question for another of national or foreign origin, considering the technological possibilities, the degree to which consumers have substitutes and the time required to effect such substitution; 
  2. The costs of distribution of the good itself, its relevant inputs, its complements and substitutes, from other places in the national territory and abroad; 
  3. The costs and possibilities of consumers to go to other markets; and 
  4. Regulatory restrictions, national or international, that limit consumers' access to alternative supply sources, or that of suppliers to alternative customers.

Substantial power in the market is determined based on: 

  1. Participation in that market and the possibility of setting prices unilaterally or substantially restricting supply in the relevant market, without the other economic agents being able, now or in the future, to counteract that power; 
  2. The existence of entry barriers and the elements that could affect these entry barriers or the services/products offered by other competitors; 
  3. The existence and power of competitors;
  4. The possibilities of access of the parties and their competitors to the sources of inputs; and 
  5. the parties´ recent behavior.

45) May any non-competition issues be considered?

No. COPROCOM/SUTEL may only consider effects to the local markets/competition and end consumers. 

46) Special tests or criteria applicable for joint ventures

There are no special criteria applicable for joint ventures. 

47) Decisions and remedies/commitments available

The transactions can be authorized subject to remedies, as indicated in topic 43. In any case, the parties can propose remedies together with the initial filing, if possible anticompetitive effects have been identified by them, or when COPROCOM/SUTEL requests it.

The remedies proposal usually involves review and negotiation sessions with COPROCOM/SUTEL. Once formally submitted, the Authority may: a) approve the proposal in full, b) partially approve the proposal, and/or c) request additional remedies. 

Possible remedies include both behavioral and structural remedies (i.e. different management/decision making bodies, sale of assets or business units, sale of IP, maintenance of commercial conditions, limitation to provided services or sold goods, amendment of ancillary restrictions, supply agreements, etc.). 

Publicity and access to the file

48) How and when will details about the merger be published?

Once the parties file all required information to conduct the merger control analysis, COPROCOM/SUTEL will publish a summary of the transaction. This summary will include a description of the transaction, the relevant markets and the involved parties. This information is published so third parties can file the information they consider relevant for the analysis within 10 business days.

49) Access to the file for the merging parties and third parties

The merging parties:

The merging parties can access the file, with the exception of the information declared confidential by other parties.  

Third parties:

Final decisions from COPROCOM/SUTEL are available to third parties immediately after issuance. COPROCOM/SUTEL redacts all information declared confidential by the parties.  

Judicial review

50) Who can appeal and what may be appealed?

The final decisions of COPROCOM/SUTEL can be appealed by filing an ordinary lawsuit in the Administrative Court. The term to file the appeal is 1 year after the issuance of the final decision.

The legal or natural persons affected by the final decision will have standing for the judicial process.


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