Internal restructuring and merger filing in Vietnam

The Competition Law 2018 does not exempt internal restructuring within the same group of companies from merger filing requirements. That said, arguably, internal restructuring between companies which are under the control of the same ultimate parent company is not subject to merger filing in Vietnam. This is because:

Under the competition law, the market share of a company is calculated by reference to the market share of the group of companies that such a company belongs to (the Group). Therefore, an internal restructuring does not have any impact on the market share of the Group and accordingly any anti-competitive impact on the market. Relying on Article 1 of the Competition Law 2018 which provides for the scope of application of the Competition Law 2018, one could argue that an internal restructuring transaction is not governed by the Competition Law 2018;

Potential structures for overcoming a merger filing threshold in Vietnam

The merger filing thresholds under the new Decree 35/2020 are drafted broadly and have no exception (see more here). Accordingly, many M&A transactions, which have no anti-competitive impact in Vietnam are still subject to filing requirements. A filing process could take substantial time and effort since at law and in practice, the competition authority (NCC) has very broad discretion in demanding additional information or documents about the parties. Below are some potential structures for overcoming the merger filing threshold in Vietnam. The risks associated with these structures is that Vietnamese authorities may take the view that the parties have undertaken a transaction to conceal another transaction and therefore the first transaction is not valid. Failure to notify the NCC may be subject to a penalty from 1% to 5% of the total revenue in Vietnam of the parties.

Unincorporated joint venture

For a joint venture transaction, instead of incorporating a new joint venture company, the parties may consider entering into an unincorporated joint venture where no new entity is established (e.g., a Production Sharing Contract). An unincorporated joint venture does not fall into the types of economic concentration that is subject to merger filing in Vietnam. This is because the Competition Law 2018 only expressly applies to incorporated joint ventures but not unincorporated joint ventures.

Decree 35/2020 – New merger filing thresholds in Vietnam

During the Covid-19 outbreak, the Vietnamese Government issued an important decree implementing the Competition Law 2018. Among other things, the Government has introduced a (mostly) complete new set of merger filing thresholds. Unfortunately, like social distancing measures applied during Covid-19, the new merger filing thresholds could potentially put more “legal distance” between parties to M&A deals in Vietnam especially those conducted by large corporations.

Under the old Competition Law 2004, the Government only applies the “market share” test to determine whether a merger filing should be made. Due to the vagueness and difficulty of determining market share numbers in practice, only a few M&A deals are subject to merger filing under the old Competition Law 2004. Now, it is no longer the case. In addition to the old market share test, Decree 35/2020 introduces two new “bright-line” tests (i.e., “size- of-person” test and “size-of-transaction” test) without any exception. Any M&A transaction triggering any of the three separate and independent tests will now need to be reported to the not-yet-established National Competition Committee (NCC). In short, the NCC now presumably has more testing tools for a merger filing than the competition authorities in EU(one), US (two), and China (one), which unfortunately is not a good sign for M&A lawyers in Vietnam.

Details of each test for each industry are set out in the table below (US$ numbers are approximates):

A Comparison Between Vietnam’s Trade In Service Commitments under WTO, CPTPP, and EVFTA

The full text of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Agreement (CPTPP) and the Free Trade Agreement between Vietnam and European Union (EVFTA) have been made available for public information. Please download here a table comparing the existing commitments of Vietnam under WTO Agreement, CPTPP and EVFTA Agreement for certain service sectors. The comparison is done by Tran Thuy Tien, Nguyen Thuc Anh and Le Minh Thuy.

Notes:

Vietnam’s specific commitments are contained in two Annexes (Annex I and Annex II) of Chapter 9 of the CPTPP and Chapter 8 and Annex 8-B of the EVFTA Agreement. The list below covers specific commitments in specific sectors or sub-sectors. But there are commitments which apply to all sectors and are not listed in here.

CPC codes are as used in the Provisional Central Product Classification.
No limitation means no limits on national treatments in terms of Foreign ownership, forms of investment or other restriction.
Branching is generally not allowed unless otherwise indicated.

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Vietnam Business Law