The Finance Bill, 2020 (the Bill) proposes to amend section 60(1) of the Fair Competition Act, 2003 (the FCA) which relates to the imposition of penalties for various offences committed under the FCA. The Bill, which is expected to become operational on 1 July 2020, proposes to amend the FCA by explicitly allowing penalties imposed under the FCA to be calculated on the basis of the gross revenue obtained only in Tanzania instead of the global gross revenue. In this article, we outline the proposed change and its implication on merger notifications.
Background
Section 60(1) of the FCA provides that "where a person commits an offence against this Act (other than under Part VI, Part VII or sections 58, 59 or 88) or is involved in such an offence, the Commission may impose on that person a fine of not less than five percent of his annual turnover and not exceeding ten percent of his annual turnover"
It should be noted that the above section is not explicit as to the basis upon which the relevant annual turnover should be calculated.
The proposed change
The Bill proposes section 60(1) of the FCA to be amended as follows "where a person commits an offence against this Act (other than under Part VI, Part VII or sections 58, 59 or 88) or is involved in such an offence, the Commission may impose on that person a fine of not less than five percentbut not exceeding ten percent of his annual turnover which has a source in mainland Tanzania".
Accordingly once the proposed change becomes effective, it will be clear that penalties for offences under the FCA (other than those excluded in the abovementioned section) will be calculated on the basis of the gross revenue which has a source in mainland Tanzania.
Implication of this change on merger notifications
Once this change becomes effective, failure to notify the Fair Competition Commission (the FCC) in relation to a notifiable merger may result on a fine of between 5% and 10% of a party's annual turnover which has a source in mainland Tanzania being imposed on any of the parties to the transaction. An additional fine equivalent to twice the monetary value of any damage caused by the failure to notify (to the extent this can be quantified) may also be imposed.
Section 60(3) of the FCA provides that where the fine is imposed upon a body corporate, any director, manager or officer of that body corporate may also be charged jointly in the same proceedings.
As per the FCA, a merger is notifiable if it results in the change of control of a business, part of a business or an asset of a business in Tanzania and breaches the notification threshold which is currently at TZS 3.5 billion (approximately USD 1.55 million).
Whilst change of control has not been defined in the FCA and its regulations; the FCC has previously provided guidance on what constitutes a change of control by stating that:
"change of control for the purposes of merger control and regulation is the potential ability of the acquiring firm to materially influence the business policy and operations of the Target firm in the post-merger scenario irrespective of size of ownership change."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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