EU & Competition Law Update – November 2017

EU opens investigation into UK tax scheme for multinationals

No more sweeping anti-competitive practices under the carpet

Papering over the cracks – Düsseldorf court increases fines for wallpaper manufacturer due to price fixing

Italian Competition Authority Opens Investigation into Hazardous Waste Disposal

Hotel Comparison Websites Under Investigation

EU opens investigation into UK tax scheme for multinationals

The EU State aid rules are designed to stop Governments and local authorities giving companies a selective advantage, as doing so would create an unequal playing field. Say for example, a competitor in one country was given a 10% subsidy by the Government whilst the company’s closest competitor in another country was not given the same subsidy. It is likely the latter would not be able to compete effectively and could be driven out of business. These State aid rules also apply to tax breaks, the basic rule being that countries throughout the EU can have different tax levels, but they cannot apply advantages to a company or some companies which other companies do not enjoy. This means that a special tax break or status granted to a company can infringe the EU State aid rules.

On 26 October 2017, the EU Commission accused the UK of granting such a break, and therefore violating the EU State aid rules. According to the Commission, the infringing rule in question is the UK’s so-called ‘group financing exemption’ to its Controlled Foreign Company (CFC) rules. The general purpose of the UK's CFC rules is to prevent UK companies from using a subsidiary, based in a low or no tax jurisdiction, to avoid taxation in the UK. In particular, they allow the UK tax authorities to reallocate all profits artificially shifted to an offshore subsidiary back to the UK parent company, where it can be taxed accordingly.

The group financing exemption to CFC exempts financing income from UK taxation when that income is received by an offshore subsidiary from a foreign group company. The EU believes this exemption is being used by multinationals in the UK to channel their capital from the UK, to offshore subsidiaries. From there it goes through loan and interest repayments from the offshore subsidiary to a foreign group company and then back to the offshore subsidiary, where it then finally locates that capital back in the UK, where it will be free of tax.

The investigation has just commenced so it may be some time before the Commission either demands remedial action from the UK Government or fines particular companies it believes have enjoyed these select advantages.

The Commission’s press release (and helpful diagram) can be found here.

No more sweeping anti-competitive practices under the carpet

[co-author: Emmanuelle Mercier]

In a decision dated 18 October 2017, the French Competition Authority (FCA) imposed a record fine on the “resilient floor covering cartel” (one of the seven biggest fines in the history of the FCA), totalling 302 million EUR.

The cartel, composed of the three main resilient floor covering groups, Tarkett, Forbo and Gerflor, together with the floor covering trade union (SFEC), were sanctioned for wide-ranging anti-competitive practices including price fixing, some of which lasted for more than 20 years.

The case started in 2011, when the “General Directorate for Competition, Consumer Affairs and Fraud Control” (DGCCRF) submitted information relating to the anti-competitive practices of the three floor covering groups to the FCA. The relevant companies were placed under investigation and the FCA conducted dawn raids in order to gather the necessary information to evidence the existence of the cartel.

Subsequently, Tarkett and Forbo both filed leniency requests under Article L. 464-2 Section IV of the French Commercial Code, which enables a party guilty of agreements restricting or distorting competition to be exempted from all or part of the penalty, in return for submitting evidence regarding the cartel.

The FCA notified three grievances to the cartel in violation of Article L. 420-1 of the French Commercial Code and Article 101 of the TFEU:

  1. From 2001 until 2011, the cartel restricted competition on the floor covering market though agreements on prices and price increases and on market strategy in general. Their system was rather sophisticated: the three manufacturers would meet at secret so-called “1,2,3 meetings”, and discuss over the phone using dedicated phone lines. Each person involved had one phone from their own company and one that belonged to the competitors, such that calls were always made between two phones belonging to the same company in order to avoid suspicions.
  2. From 1990 until 2013, within the trade union, the three floor covering manufacturers met and exchanged confidential information regarding their strategies and commercial behaviors, information to which their other competitors had no access.
  3. Finally, from 2002 until 2011, Tarkett, Forbo, Gerflor and the SFEC had entered into an agreement under which each entity was prohibited from advertising the environmental performance of its products, in order to eliminate competing marketing practices based on environmental characteristics. In addition to the possible restriction of competition on the market, this agreement may have acted as a disincentive to manufacturers to improve the environmental characteristics of their products, thereby impacting a product differentiation factor.  

The FCA determined the amount of the penalty in light of the seriousness, duration and institutionalized nature of the practices, as well as the market share of the cartel (which accounted for between 65% and 85% of the market depending on the period and the consumer/professional distribution channel).

Furthermore, the significant amount of the fine imposed on the cartel is explained by the fact that, although the FCA entered into settlement agreements with each of the parties, it announced that it would not further reduce the fines in exchange for the parties’ undertakings to implement compliance programs, as it considers that such programs should be standard practice, especially for large groups.


FCA decision no. 17-D-20 dated 18 October 2017

FCA release dated 19 October 2017

Papering over the cracks – Düsseldorf court increases fines for wallpaper manufacturer due to price fixing

On 12 October 2017, the Senate of the Higher Regional Court of Düsseldorf announced the imposition of fines amounting up to more than 19 million EUR on the “Wallpaper-Cartel”. With this decision the Court increased the fines on the companies involved, in comparison to the prior fine of the Federal Cartel Office in 2013 and 2014. The high amount of the fine was due to the fact that the Senate had considered the worldwide volume of sales to determine the amount of fines and not only the sales affected by the price agreements.

The Senate acknowledged two cases of forbidden price fixing agreements between two European companies in the wallpaper business and also held five more persons accountable by imposing fines amounting up to 650,000 EUR.

In 2005, the two companies agreed during board meetings on a price increase in the range of 5% to 6% for wallpapers on the German market for the year 2006. One company played a prominent role as market leader. The managing director of one company supported the implementation of this price agreement by providing sensitive information and passing the impending announcement of the agreement to all member companies. With the help of this agreement, the companies aimed to control the market price for wallpapers in Germany which usually would evolve freely.

In addition, another price increase of approximately 5 % in January 2008 was arranged on the basis of an illegal anti-competitive agreement.

The fines were determined after weighing up the gravity and the duration of the antitrust violation. In this case the Senate of the Higher Regional Court of Düsseldorf went beyond the fines imposed by the Federal Cartel Office. The objection of the two wallpaper manufacturers against the previous decision of the Federal Cartel Office remained unsuccessful.

Italian Competition Authority Opens Investigation into Hazardous Waste Disposal

The Italian Competiton Authority (the “ICA”) has opened an in-depth investigation into the companies Langella Mario s.r.l., Ecologica Sud s.r.l., Ecosumma Sud s.r.l., Bifolco & Co. s.r.l. and Eco Transfer s.r.l. (the “Accused Companies”), operating in the hazardous and non-hazardous special waste disposal sector.

The investigation started as So.Re.Sa. S.p.A. (“Soresa”), a contracting State owned authority (headquartered in the Italian region Campania) operating in the health sector, reported to the ICA the alleged anti-competitive behaviour of the Accused Companies. The Accused Companies had allegedly allocated waste batches among themselves in a public tender launched by Soresa (the “Tender”).

The Tender consisted of six batches and the Accused Companies made separate formal bids. It is reported that each bid had the same format and contained the same offer for each batch.

The ICA alleges that the aforementioned conduct would amount to a violation of Article 101 of the TFEU, the prohibition of anti-competitive agreements.

However, the alleged anti-competitive behaviour has yet to be proven at this stage and the investigation continues.

Hotel Comparison Websites Under Investigation

On 27 October 2017, the UK’s Competition and Markets Authority (CMA) announced that it had launched investigations into several hotel booking websites on the grounds that they were potentially misleading consumers. Specifically, the CMA had concerns regarding:

  • the manipulation of search results once a consumer had entered their hotel search criteria, particularly hotels who paid more commission to the website being ranked higher;
  • creating false impressions as to room availability to rush consumer decision making;
  • advertising misleading discounts that may not be based on like for like criteria; and
  • hidden taxes and booking fees not disclosed with the initial advertised price.

The investigation follows a yearlong market study by the CMA into online comparison tools. That study educated the CMA in industry practices and led to ground rules in presenting information to consumers.

The current investigations are being brought under the Consumer Protection from Unfair Trading Regulations 2008 and the Consumer Rights Act 2015. Both the statutes create offences for misleading consumers and stipulate transparency and fairness in contractual terms.

The CMA has for four years or more had an intense interest in the hotel booking industry and comparison websites in general. Previous investigations and enforcement actions focused on price parity clauses where the hotels were not able to offer lower prices than those found on the comparison sites, which had led to a lack of competition in the market and higher prices for consumers. Although price parity clauses have been investigated and enforcement action taken in hotel booking and car insurance, the CMA now seems to feel that there is more to do and consumers are still getting a raw deal.

Interestingly, the move by the CMA has largely been welcomed by the hotel industry which is critical of the market power of the comparison websites. Hotels often lose 15% of the booking price through the commission fee of the comparison site, and some pay more for more prominent online placement, the very practice mentioned above that the CMA wish to eradicate.

The CMA has called for input from both accommodation providers and consumers by 15 December 2017. Please follow this link for further information.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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