Legal and Tax Updates

Issue: No.033P/21-27 October 2021

On this 5 October, 2021, the King of Cambodia has put in place Law on Competition (“Law”) which would greatly impact on the current business in Cambodia. Below is a summary of the key points introduced by this new Law.

1. Purpose

The Law sets out the provisions and applicable procedures to unlawful activities which prevent, restrict or distort competition. The purpose is to

• Encourage fair business relations;
• Promote economic efficiency and the establishment of new businesses; and
• Assist consumers to obtain goods and services of higher quality at lower prices and with
  greater variety and greater choice.

2. Coverage

The Law applies to all persons conducting business activities, or any actions supporting business activities, which significantly prevent, restrict, or distort competition in a market in the Kingdom of Cambodia regardless of whether the activities take place inside or outside the territory of the Kingdom of Cambodia.

3. Competent Institution

The Law establish a commission called “Competition Commission of Cambodia” (CCC), which shall be led by the Minister of Commerce, to regulate this matter.

4. New Restrictions Introduced by this New Law
   1. Agreements which prevent, restrict or distort competition

Horizontal Agreement (Article 7). It is prohibited to have horizontal agreements which affect the competition by:

1. Fixing, controlling or maintaining the price of goods or services
2. Preventing, restricting or limiting:

• the quantity of goods or services which are made available for sale;
• the type of goods or services which are made available for sale;
• the development of new goods or services;
• Allocating geographic areas between Competitors;

1. Allocating customers between Competitors; or
2. Favouring one bidder in bids for a contract.

Vertical Agreement (Article 8). Persons are prohibited from making and implementing a Vertical Agreement which directly or indirectly requires a purchaser to resell purchased goods or services at a minimum price set by the seller or which requires a purchaser to accept any conditions of this kind set by the seller. It is prohibited to have vertical agreements which affect the competition by:

1. Requiring a purchaser to resell purchased goods or services only within a defined geographic area;
2. Requiring a purchaser to resell purchased goods or services only to specified customers or specified categories of customers;

• Requiring a purchaser to purchase all or nearly all of its requirements for particular goods or services exclusively from the seller;

1. Preventing a seller from selling goods or services to another purchaser; or
2. Requiring a purchaser to purchase unrelated goods or services in addition to the goods and services that the purchaser wants to purchase.
   1. Abuse of a Dominant Position in a Market (Article 9)

Persons with a Dominant Position in a Market shall not conduct activities having the object or effect of significantly preventing, restricting or distorting competition in a Market by:

1. Requiring or inducing a supplier or customer not to deal with a Competitor;
2. Refusing to supply goods or services to a Competitor;

• Selling goods or services on the condition that the purchaser purchases separate goods or services unrelated to the object of the contract;

1. Selling goods or services below the cost of production; or
2. Refusing to give a Competitor or potential Competitor access to an Essential Facility.

Exception. Despite the above, it shall not be considered as and abuse of dominance if the CCC determines that:

• There is a reasonable reason to legally perform the relevant activity for the benefit of the business; and that
• such activity does not significantly prevent, restrict or distort competition.
  1. Business Combination (Article 11)

Law defines that a Business Combination means the acquisition of the right of control, voting rights, shares or assets by one Person from any other Persons or the combination of two or more Persons in order to acquire joint ownership of that combined Person or new entity.

Under this law, any Business Combination which has or may have the effect of significantly preventing, restricting or distorting competition in a Market shall be unlawful. Business Combination shall be subject to examination, monitoring and evaluation of their effect on competition by the CCC. Rules and procedures for Business Combination shall be determined by Sub-Decree.

1. Exemptions

Horizontal agreement, vertical agreement and the abuse of dominance are exempted if the activities meet the following requirement:

1. There are significant identifiable technological, economic or social benefits;
2. Such benefits would not have arisen without the Agreement or activity having the effect of significantly preventing, restricting or distorting competition;

• The technological, economic or social benefits arising from the Agreement or activity outweigh the anticompetitive effects of the Agreement or activity significantly preventing, restricting or distorting competition; and

1. The Agreement or activity would not eliminate competition in any substantial part of a Market for goods or services.

Any person wishing to have horizontal agreement, vertical agreement, abuse of dominance and business combination shall seek prior approval from CCC.

1. Non Compliance
   1. Interim measures and orders of the CCC

Interim measure includes:

• To suspend the execution of Agreements or activities which are suspected of violating article 7 (horizontal agreement), article 8 (vertical agreement), article 9(abuse of dominant position in market), and article 11 (business combination) of the law;
• To do, or refrain from doing, any acts but shall not require the payment of money.
  1. Penalties and sanctions

The penalties under this law include:

• Written warning;
• Suspension, withdrawal or cancellation of business registration, license or business permit, fine, financial sanction and imprisonment.

Any person violating article 8 (vertical agreement), article 9 (abuse of dominant position in market) and article 11 (business combination) will receive written warning and fine from 3% to 10% of total revenue earned during the violation period, but not exceeding 3 years.

After written warning, and in case of second violation, it shall subject to Suspension, withdrawal or cancellation of business registration, license or business permit, fine, financial sanction.

Legal person involving in horizontal agreement (article 7) shall be fined from KHR 100mn to KHR 2bn.

We hope that the above legal compliance alert is helpful for your investment and help you to invest more confidently.

 

Disclaimer

The article is merely for general information purposes. It does not constitute a legal advice on the subject matter. If you have any question or need any assistance, please feel free to contact us:

	SON Sokeng, Partner, Managing Director sokeng.son@sithisak-lawoffice.com +855 12 885 870	Sokeng has more than 8 years of professional experiences in corporate, commercial, investment and capital market sector in Cambodia. He advised and assisted various companies in various legal compliance issues, major investment projects and in conducting legal due diligence for major M&A and IPO projects. He has led many legal counsel teams to advise and assist ACLEDA Bank Plc., Phnom Penh Autonomous Port and other SMEs in the process of listing and proposed listing on the Cambodia Securities Exchange (CSX).
	NOEUM Sokvichhai, Partner, Head of Corporate, Commercial and Investment Practice Group sokvichhai.noeum@sithisak-lawoffice.com +855 12 826 785	Atty. Sokvichhai has more than 6 years of experiences in labour, corporate, commercial and investment advisory in Cambodia. He actively advices and assists various businesses in commercial, tax, and labour registration, business licensing, products registration & distribution, business recapitalization & restructuring, and mergers & acquisitions transaction. He also has particular experiences in advising collective investment fund and trust business, investment incentives & qualified investment project, and labour & employment related issues. Sokvichhai also assists major business in preparing various commercial agreements. Currently, Sokvichhai is also leading Sithisak’s Investigation Team to investigate any labour related misconduct within client’s company.

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