Repeal of the zero excise on LPG, natural gas and electricity

As of August 1, 2023 the zero excise rate on the following products was repealed:

• LPG and natural gas used as motor fuels;
• Heat energy;
• Energy products used for the combined production of heat energy and electricity;
• Electricity under code CN 2716 produced from the following renewable sources:
– Solar, wind, wave, tidal or geothermal power;
– Hydroelectric power;
– Biomass or biomass-based products;
– Methane emitted from abandoned coal mines;
– Fuel cells.

The zero excise rate was introduced back in July 2022 as a temporary measure in the wake of the energy crisis and was initially planned to apply until June 30, 2025. However, it was abolished much earlier and the excise rates are currently back to their regular amounts.

Abolishment of payment of certain salaries and dividends in cash

In an attempt to battle the grey economy the MPs voted for the mandatory payment by bank transfer and the abolishment of cash payment of the following:

• salaries paid by employers whose personnel exceed 100 employees (with the exception of seasonal agricultural workers);
• dividends over BGN 1000 (app. EUR 500) within the meaning of the Bulgarian Corporate Income Tax Act.

The new provision comes into force as of September 1, 2023.

Declaration of cash on hand and receivables from shareholders

Another measure to battle tax evasion requires the declaration of the ready available cash on hand, receivables from individual shareholders, employees and directors when their total amount at the end of the calendar quarter exceeds BGN 50 000 (app. EUR 25 5000). The required information is included in the quarterly withholding tax declaration which is filed by the end of the month following the respective calendar quarter.

The first reporting period would be Q3 of 2023 and the first report must be filed by November 14, 2023.

Electronic food vouchers

As of the beginning of 2024 food vouchers may be provided in an electronic form. Paper-based food vouchers may be used until June 30, 2024 and as of July 2024 only electronic vouchers will be provided. The non-taxable threshold of BGN 200 per employee per month continues to apply.

Advance declaration of high fiscal risk goods transportation

The advance declaration of high fiscal risk goods carriage, which is currently voluntary, will become mandatory when the transport is carried out with a means of transport with a load capacity of more than 3.5 tons. Cross-border carriage of high fiscal risk goods is subject to advance declaration as of October 1, 2023, while domestic carriage will be in the scope of mandatory advance declaration as of January 1, 2024.

High-fiscal risk goods comprise various foodstuffs such as meat, fish, dairy products, fruit, vegetables, coffee, nuts, flour, sugar, canned and prepared food, as well as mineral oils used as motor fuels.

There are certain exceptions to the advance declaration obligation, especially with regard to mineral oils whose carriage is already subject to reporting under other statutory acts.

Increase of minimum social security income for certain jobs

In order to catch up with the minimum wage which was increased in January 2023 to BGN 780, the lowest minimum social security income was increased as of August 1, 2023 to BGN 780 as well.

The personal tax relief for parents remains unchanged and in 2023 parents will be entitled to a tax relief from their annual personal tax in the amount of BGN 600 for one child, BGN 1200 for two children and BGN 1800 for three or more children.

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DELCHEV & PARTNERS

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By the end of 2022, the EU had introduced several temporary measures such as a “solidarity contribution” levied on the “surplus taxable profits” of companies in the oil, gas, coal, and refinery sectors; as well as a revenue cap on companies generating low-cost electricity from wind, solar, and nuclear sources. In the sections below, we delve deeper into some Member States’ national implementation of the EU measures, other national tax mechanisms, and also the measures adopted in the UK.

Bulgaria

1. Windfall tax and revenue cap on inframarginal electricity and gas producers

» A cap on the market revenues of electricity producers

Electricity producers and electricity traders must pay a targeted contribution on their market revenues that exceed certain mandatory caps that are determined depending on the sources of electricity generation. The targeted contribution will be paid for supplies made between 1 December 2022 and 30 June 2023. The contributions are paid into a dedicated “Electric Energy System Security” Fund and are treated as deductible expenses for tax purposes.

» Temporary solidarity contribution

EU companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors must pay a temporary solidarity contribution on their surplus profits. The rate of the solidarity contribution is 33% and it is calculated on the taxable profits in FY 2022 and FY 2023 that exceed a 20% increase of the average of the taxable profits in the fiscal years 2018, 2019, 2020 and 2021.

2. Energy taxation measures and other measures to compensate end-consumers for high energy prices

» A cap on the market revenues of electricity producers

The funds from the targeted contributions by electricity producers and electricity traders are used to compensate non-household final electricity consumers for the high electricity prices through their electricity suppliers.

» Zero excise on LPG, natural gas and electricity

From 9 July 2022 to 30 June 2025, excise tax has been abolished for the following products:
› LPG and natural gas used as motor fuels;
› Heat energy;
› Energy products used for the combined production of heat energy and electricity;
› Electricity under code CN 2716 produced from the following renewable sources:
» Solar, wind, wave, tidal or geothermal power;
» Hydroelectric power;
» Biomass or biomass-based products;
» Methane emitted from abandoned coal mines;
» Fuel cells.

3. VAT measures

A reduced VAT rate of 9% applies from 9 July 2022 to 1 July 2023 to the supplies of central heating and natural gas.

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At the end of 2022 the Bulgarian Parliament extended the period of the reduced VAT rates on certain supplies of goods and services and transformed some of the temporarily reduced VAT rates into a permanent measure. The amendments to the Value Added Tax Act were published in the Bulgarian State Gazette No. 102 on 23 December 2021 and come into force on 1 January 2023.

Supplies subject to reduced 9% VAT rate

What was initially adopted as a temporary tax measure in the midst of the COVID-19 pandemic now becomes a permanent VAT rate reduction which will apply to the following supplies:

• Books

9% reduced VAT rate applies to books on a physical medium or by electronic means or both, including textbooks, learning books and learning sets, children’s picture, drawing or colouring books and music printed or in manuscript form with the exception of publications wholly or predominantly devoted to advertising and publications wholly or predominantly consisting of video content or audible music.

• Newspapers and magazines

Newspapers and magazines were initially left outside the scope of the reduced VAT rate and were subject to the standard rate of 20%. However, as of 1 January 2023 the supply of newspapers and periodicals will be taxable at the rate of 9% on a permanent basis.

• Baby food and diapers

The baby foodstuffs falling within the scope of the permanent 9% reduced VAT rate include adapted milk formula, baby porridges and cereals, vegetable, fruit and/or meat purees in jars not exceeding 250g. Baby diapers are also subject to a reduced 9% VAT rate.

Extended period of application of the reduced 9% VAT rate

The extended period of application of the reduced 9% VAT rate on the supplies listed below starts on of 1 January 2023 and shall be in force until 31 December 2023.

• Restaurant and Catering Services

Restaurant and catering services consist of the supply of prepared or unprepared food, including take-away and delivery of food. The reduced rate does not apply to services consisting of the supply of wine, beer and alcoholic spirits. Take-away food from supermarkets and the like are excluded from the reduced rate.

• Supplies under the special travel-agent VAT scheme

The reduced VAT rate also applies to supplies falling within the scope of the special travel-agent VAT scheme, as well as to the excursions organised by tour operators and travel agents with occasional passenger transport by bus. However, the overall application of the reduced VAT rate to these services may be called into question by the European Commission in the framework of an infringement procedure, as they already fall within the scope of a special margin scheme.

• Supply of services for the use of sports facilities

The use of various sports facilities is also taxable under the reduced 9% VAT rate.

Extended period of application of the reduced 0% VAT rate

The super-reduced VAT rate of 0% which was introduced in the middle of 2022 and was initially designed to apply until 1 July 2023 shall now be in force for further 6 months until 31 December 2023. The 0% VAT rate applies to the following:

• Bread

“Bread” shall be understood as the product which is produced from the baking of dough as a mixture of wheat flour or another cereal, alone or in combination, and water, with or without adding salt, which rises using bread yeast or leaven, and technological additives (if necessary).

• Flour

“Flour” shall be understood as the product which is a result of grinding bread wheat and which may be used for making bread and bread products.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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As of 1 January 2023 taxable persons established in Bulgaria will be subject to a mandatory VAT registration when they reach a taxable turnover of BGN 100 000 (EUR 51 130) for a period encompassing the current month and 12 consecutive month prior to the current month.

The VAT registration turnover doubles compared to the BGN 50 000 (EUR 25 565) threshold which applied before the amendment. The significant increase in the turnover requiring a VAT registration is designed as a tax relief measure for SMEs which now incur significant compliance costs and which are less competitive due to the additional VAT on their goods and services.

The VAT registration turnover is meant to be further increased as of 2025 after EU Directive 2020/285 is transposed in the Bulgarian VAT Act.

The new measure will, however, not affect not-established taxable persons who are subject to a VAT registration before they make any supplies taxable in Bulgaria.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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A concise guide to doing business in Bulgaria and to the Bulgarian tax system. Have all tax and investment facts at a glance.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

The post A Glimpse at Taxation and Investment in Bulgaria 2022 appeared first on Delchev & Partners.

Tax Measures for Tackling the Increasing Energy Prices in
Bulgaria

In the wake of the energy crisis which caused the skyrocketing of fuel prices in Bulgaria the Bulgarian Parliament in its final hours before its probable adjournment and impending new elections adopted a number of tax measures aiming at reduction of consumer energy products prices.

The measures are all intended to apply for limited periods of time.

Reduced 9% VAT rate on central heating and natural gas

A reduced VAT rate of 9% shall apply from July 9, 2022 until July 1, 2023 to the following supplies:

• Central heating;
• Natural gas.

Zero excise on LPG, natural gas and electricity

As of July 9, 2022 excise tax has been abolished for the following products:

• LPG and natural gas used as motor fuels;
• Heat energy;
• Energy products used for the combined production of heat energy and electricity;
• Electricity under code CN 2716 produced from the following renewable sources:

– Solar, wind, wave, tidal or geothermal power;
– Hydroelectric power;
– Biomass or biomass-based products;
– Methane emitted from abandoned coal mines;
– Fuel cells.

The excise exemption is planned to apply until June 30, 2025 provided that the European Commission does not consider the measure incompatible with state aid rules.

Compensation to consumers for high motor fuel prices

In order to be compensated for the surge in motor fuel retail prices, consumers are provided with a discount from the retail prices of certain motor fuels.

The compensation is valid for the following motor fuels:

– Gasoline;
– Gasoil;
– LPG;
– Natural gas.

The compensation is provided in the form of a fixed discount of EUR 0.13 per liter/kilogram and is granted by retailers at the petrol stations from the retail price of the fuels. There is no limit on the quantity that may be purchased or in the number of purchases eligible for a discount. However, the grant of the discount by retailers
is voluntary.

Only natural persons owning or using passenger motor vehicles, motorcycles and mopeds are entitled to the discount after they prove their eligibility by presenting the vehicle registration certificate at the petrol station.

Retailers must account for VAT on the full price of the sold fuel and they are refunded the amount of the granted compensations on a monthly basis, within 10 days after the deadline for filing the VAT return for the respective monthly period.

The fuel compensation applies from July 9, 2022.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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Following the temporary reduction of the VAT rate on certain supplies of goods and services due to the Covid-19 pandemic, the scope of the reduced rates was further expanded to encompass certain basic goods in an effort to overcome the effects of increased consumer prices and inflation.

The measure is intended to apply for a limited one-year period.

Supplies subject to reduced 9% VAT rate

A reduced VAT rate of 9% shall apply to the following supplies:

• Central heating;

• Natural gas.

Supplies subject to reduced 0% VAT rate

A supe-reduced VAT rate of 0% shall apply to the domestic supply, importation and intra-Community acquisition of the following:

• Bread;

“Bread” shall be understood as the product which is produced from the baking of dough as a mixture of wheat flour or another cereal, alone or in combination, and water, with or without adding salt, which rises using bread east or leaven, and technological additives (if necessary).

• Flour;

“Flour” shall be understood as the product which is a result of grinding bread wheat and which may be used for making bread and bread products.

Narrowing the scope of restaurant and catering services subject to 9% VAT

The supply of beer, wine and alcoholic spirits shall be explicitly excluded from the scope of the 9% reduced VAT rate on restaurant and catering services and consequently should be taxable at the standard 20% rate.

Entry into force and period of application of the reduced VAT rates

The reduced VAT rates on the supplies listed above applies as of 9 July 2022 and shall be in force until 1 July 2023.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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Since December 2021, the Distribution Law Center has been publishing a weekly countdown newsletter on the expected changes of the Vertical Block Exemption Regulation (the “VBER”) and the Vertical Guidelines (the “VGL”). Now that the new VBER and VGL have been adopted and enter into force on 1 June 2022, it is time for us to wrap up our DLC countdown. This last countdown provides an overview of the main topics that we discussed during the past weeks and indicates for each of these topics how they found their way in the new VBER and VGL. At the same time, we would like to bring a number of additional changes to your attention. Be sure however to read through to the end of this countdown to find out what new series the Distribution Law Center has in store for you.

PERIOD OF VALIDITY

Before moving on to the different topics, we would like to draw your attention to the period of validity of the new texts. The VBER and VGL will apply for a period of 12 years (i.e., until 31 May 2034). The Commission has chosen a period of validity of 12 years, rather than 10, because in 2034 a new Commission will take office. Please also note that vertical agreements that comply with the previous VBER benefit from a transitional period of 1 year (i.e., until 31 May 2034) to satisfy the conditions of the new VBER.

AGENCY

Our DLC countdown started with the draft new rules on agency, which showed that a stricter regime would apply to agency agreements. The most important developments were (i) the legal test to measure the significance of the risks undertaken by the agent (see, DLC countdown no. 3), (ii) the temporary transfer of ownership (see, no. 4), and (iii) the combination of agency and distribution for so-called dual role agents (see, no. 5).

The new VGL confirm the stricter regime. Going forward, suppliers appointing agents should be aware of the following:

• The new VGL confirm the case law stating that the exception for agency agreements to fall outside the scope of Article 101(1) TFEU must be interpreted narrowly. For example, where the agent negotiates and/or concludes contracts on behalf of a large number of principals, it is less likely that he will qualify as a “genuine agent”.;

• The test to qualify as a genuine agent in a dual role scenario of agent and distributor has become rather burdensome and costly. First, burdensome, because the independent distributor must be genuinely free to enter into the agency agreement and it must be possible to effectively delineate the commercial and financial risks related to the agency. Second, costly, because of a quite expansive reading of the commercial and financial risks linked to the sale of the goods or services covered by the agency agreement, including market-specific investments, must be borne by the principal. With respect to market-specific investments, the principal must reimburse all investments that are required to operate in the relevant market. In other words, only investments exclusively related to the distribution of differentiated products outside the scope of the agency agreement are not covered by this obligation.

To end this section on a positive note, the new VGL do confirm that an agreement will not necessarily be excluded from the exception if the agent acquires the ownership of the goods for a very short period of time while selling them on behalf of the principal.

NON-COMPETE OBLIGATIONS

Moving on from agency, the following DLC countdowns focused on non-compete obligations, either imposed during the term of the distribution agreement (see, no. 6) or post-term (see, no. 7). Based on the draft VGL, the expectation was that the regime would remain largely unchanged. This is now confirmed:

• The definition of non-compete obligations continues to cover two types of obligations: single branding and the 80%-rule.

• Non-compete restrictions must in principle still be limited to five years to benefit from the exemption of the new VBER. However, non-compete obligations that are tacitly renewable beyond a period of five years can as well be exempted, provided that the distributor can effectively switch to a competing supplier. This means that the distributor must be given the opportunity to terminate the agreement within a reasonable time and at a reasonable cost.

• The new VBER exempts post-term non-compete obligations under the same strict and cumulative conditions that applied previously.

HARDCORE RESTRICTIONS (1): RPM

The DLC countdowns continued with the centrepiece of the VBER, namely the hardcore restrictions. After a general introduction (see, no. 8), we addressed resale price maintenance (see, no. 9), dual pricing (see, no. 10), and equivalence (see, no. 11).

New compared to the previous VBER is Article 4(e): the prevention of the effective use of the internet by the distributor or its customers to sell the contract goods or services is now explicitly blacklisted as an illegal territorial or customer restriction.

Otherwise, the list of hardcore restrictions in Article 4 remains largely the same, even if it is now split between exclusive, selective and open distribution. The attentive reader will however note that the actual split is between selective and non-selective distribution, as the lists of hardcore restrictions for exclusive and open distribution are identical.

As regards resale price maintenance (“RPM”), the following additions are worth mentioning:

• A provider of online intermediation services qualifies as a supplier, so that it is prohibited from imposing fixed or minimum sales prices for the transactions it intermediates.

• Imposing minimum advertised prices (“MAP”) is RPM.

• Under a fulfilment contract, where the customer selects the company providing the fulfilment services, the imposition of a resale price by the supplier may restrict the competition for the provision of the fulfilment services and amounts to RPM.

• Price monitoring is not in itself RPM, but increases price transparency and may therefore facilitate it.

• The new VGL provide an additional example of RPM that may lead to efficiencies: a minimum resale price or MAP can be used to prevent a particular distributor from regularly using a product as a loss leader, because this may damage the brand image and lead to a reduction of demand.

As regards online sales, the new regime is more flexible in relation to dual pricing and the previously existing equivalence requirement:

• Dual pricing of products sold online or offline – i.e., charging a different wholesale price for products sold online than for products sold offline – is a hardcore restriction only if it aims to prevent the effective use of the internet by the buyer, not if it is meant to incentivize or reward a difference in investments in online or offline sales channels made by a buyer.

• The same goes for the equivalence requirement. A supplier is henceforth entitled to impose online selective criteria that differ from the offline selective criteria, provided that the distinct online criteria do not aim to prevent the authorized distributors from effectively selling the contract product online.

HARDCORE RESTRICTIONS (2): ACTIVE SALES RESTRICTIONS

Next, the DLC countdowns addressed the conditions to legally impose active sales restrictions toward exclusive territories or customers: no. 12 dealt with the exclusivity condition, no. 13 with the parallel imposition requirement, and no. 14 with the roll-over prohibition.

Before addressing these conditions, it is worth highlighting that the concepts of active and passive sales are now defined in the VBER, and that the definition of active sales confirms that specific forms of online promotion (use of language and top-level domain names) can lead to active sales, because the promotion is specifically targeting certain territories or customers.

The new VBER finetunes the conditions for imposing active sales restrictions to better protect exclusive distributors and their investments, while at the same time allowing more intra-brand competition through shared exclusivity:

• The definition of exclusivity confirms that the exclusivity condition encompasses the possibility of shared exclusivity, now that a supplier may allocate a territory or customers to a maximum of five distributors.

• The requirement of parallel imposition, which is often a challenge in daily practice, is here to stay: the VBER unequivocally stipulates that the supplier must impose the active sales restriction on all its other buyers.

• The new VBER softens the roll-over prohibition. Under the new regime, suppliers are allowed to impose an active sales restriction not only on their buyers, but also on direct customers of the buyers.

DUAL DISTRIBUTION

The DLC countdowns dealing with dual distribution discussed the envisaged extension of the exception to wholesalers and importers (see. no. 15), the introduction of a market share threshold (see, no. 16) and how to deal with information exchanges in a dual distribution set-up (see, no. 17 and no. 18).

The main features of the new regime on dual distribution are as follows:

• Article 2(4)(a) of the new VBER extends the safe harbour for (non-reciprocal) vertical agreements concluded between competitors, as long as the buyer does not compete with the supplier at the upstream level where the buyer buys the contract goods. The upstream level may be the level where the supplier is active as manufacturer, importer or wholesaler.

• Information exchanges in the context of dual distribution are excluded from the safe harbour only if they (i) are not directly related to the implementation of the vertical agreement, or (ii) are not necessary to improve the production or distribution of the contract products, or (iii) fulfill neither of these two conditions. The new VGL (see, paragraphs 99-100) clarify what type of information exchanges are likely or unlikely to fulfil these conditions, and what precautions parties can take if their information exchange does not benefit from the exemption of the new VBER (firewalls).

Vertical agreements relating to the provision of online intermediation services do not benefit from the safe harbour if the provider of the online intermediation services competes on the relevant market for the sale of the intermediated goods or services. Briefly said, hybrid platforms require an individual exemption. Interestingly, the Commission will not prioritize enforcement action in respect of hybrid platforms if a supplier allows its buyers to use its web shop, but does not allow that web shop to be used to offer competing brands of products and the supplier is not otherwise active on the relevant market for the provision of online intermediation services (see, paragraph 109 of the new VGL). This benefits SMEs that have an online presence mainly or exclusively via the website of their supplier and was a suggestion of the Distribution Law Center in its comments on the draft new section on dual distribution.

BETTER PROTECTION FOR SELECTIVE DISTRIBUTION

The DLC countdowns also examined a number of envisaged changes to selective distribution (see, no. 19) and to hybrid distribution systems – i.e., when exclusive and selective distribution systems are combined (see, no. 20).

The Distribution Law Center is pleased to see that the new VBER allows a better protection of authorized distributors when a supplier operates selective distribution in certain territories and exclusive or open distribution in other, for instance because it is gradually rolling out selective distribution in the EU.

In order to protect the authorized distributors against sales to unauthorized distributors in the territory where the supplier operates selective distribution, it may from now onwards restrict active and passive sales by all other distributors and their customers (so not only their direct customers, but all customers) to unauthorized distributors located in that territory. This is a major improvement to enforce the closed nature of a selective distribution system.

E-COMMERCE

As the DLC countdowns on e-commerce were mostly published after the adoption of the new VBER and VGL, they already contain a handy overview of the rules applicable henceforth to restrictions or a ban of sales on online marketplaces (see, no. 22) and bans on price comparison services (see, no. 23).

In summary, suppliers whose products are sold online should bear in mind the following principles:

• The new VGL (see, paragraph 208) provide that restrictions relating to the use of particular online sales channels, such as online marketplaces, may generally benefit from the VBER, provided that they do not constitute a hardcore restriction and prevent the effective use of the internet by the distributors and their customers. This will generally not be the case where the distributors remain free to operate their own online store and may advertise online.

• The Commission is less tolerant when it comes to ban the use of price comparison services as an entire advertising channel. Such ban constitutes a hardcore restriction. By contrast, a ban on the use of particular price comparison services or restrictions on the use of price comparison services based on quality requirements does not amount to an absolute ban and can therefore benefit from the new VBER (again, provided that it does not have as its object the prevention of the effective use of the internet by distributors and their customers).

The above rules apply to vertical agreements that fall within the VBER. When this is not the case (e.g., because the 30% market share threshold is exceeded) it is recommended to carefully consider imposing any of the above restrictions above. The new VGL (see, paragraphs 340-342 and 353-355) can help assessing whether a restriction imposed can benefit from an individual exemption in accordance with Article 101(3) TFEU.

WITHDRAWAL IN INDIVIDUAL CASES

Finally, the power of the Commission or a national competition authority to withdraw the benefit of a block exemption in individual cases – respectively for the EU and the Member State concerned – can be found in the basic regulation for the implementation of Articles 101 and 102 TFEU – i.e., in Article 29 Regulation 1/2003. In the new block exemption regulations (see e.g., the draft horizontal block exemption regulations) the possibility to withdraw the benefit of the block exemption is now incorporated in the block exemption itself. Article 6 of the new VBER foresees the possibility of withdrawal of the block exemption for a highly concentrated market for online intermediation services, where buyers use multiple providers of online intermediation services that apply narrow parity obligations, which would lead to a situation where those buyers are restricted from offering, selling or reselling products to end users under more favorable conditions on their direct sales channels.

WHAT’S NEXT?

This last DLC countdown completes the examination of the differences between the previous and the new VBER regime. The countdown to the new VBER and VGL ends here.

We hope that you enjoyed it as much as we did.

Whilst the countdown ends here, our actual journey for the next 12 years has only just started. Together with you, we look forward to seeing what impact the new rules will have on the daily business of millions of European companies, and what issues or questions will arise going forward.

This impact will be the subject of a new series which the Distribution Law Center will launch in September. Every month, we will address a concrete question originating from the business and explain the applicable rules in a practical way. Therefore, stay tuned more than ever!

THE FINAL REVISED VBER IS PLANNED TO ENTER INTO FORCE ON 1 JUNE 2022.

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WANT TO KNOW MORE? STAY TUNED…
Counting down towards 1 June 2022, we aim to provide you with regular updates and the necessary legal knowhow in order to fully prepare your business for the future. Please also check out the Distribution Law Center platform (www.distributionlawcenter.com) and our LinkedIn page for much more information on the laws governing vertical agreements, covering both competition and commercial law. 27 specialized teams from all over the EEA are working hard to turn the platform into your favourite source of guidance and information.

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GETTING READY FOR 1 JUNE 2022 AND EUROPEAN COMPETITION RULES CHANGE

WHAT?

Price comparison services, such as price comparison websites or apps, are used as catalogues in which consumers can search for various goods, find out information about them and, in particular, find the cheapest online store. However, price comparison services do not only benefit consumers. Retailers can use them to increase their visibility and secure better sales.

Price comparison services (as opposed to online marketplaces) usually do not offer sale and purchase functionality. Their role is to re-direct customers to the online stores of specific retailers, where consumers can subsequently order goods. Therefore, price comparison services are more of an advertising tool than an online sales channel.
Since price comparison services contain publicly available offers from many online retailers, their existence leads to increased market transparency and has the potential to intensify both intra-brand and inter-brand price competition.

However, suppliers may wish to restrict or prohibit the use of price comparison services by distributors in distribution agreements. For example, the reason may be to protect the brand image, as price comparison services are most focused on the lowest price rather than on the quality of the goods or services. Another reason may be that suppliers seek to protect specific business models based on specialisation or high quality of the goods or services offered rather than on price. Restricting or banning the use of price comparison services may also make selling counterfeit goods more difficult, as it is the price comparison services that make it easier to get such goods to market.

RULES UNTIL 31 MAY 2022

Neither the Vertical Block Exemption Regulation (the “VBER”) nor the Guidelines on Vertical Restraints (the “Vertical Guidelines”) address the issue of price comparison service restrictions.

Therefore, it have been the competition authorities and courts that ruled on the matter.

The German ASICS case concerning branded sports footwear is key in this respect. In its judgment upholding the fine imposed by the competition authority’s decision, the Federal Supreme Court stated that price comparison services (tools) were an important means for consumers to facilitate their online shopping. They made it easy for consumers to choose the cheapest retailer offering the goods. It might be a small independent online store that would not be able to establish itself on the market and whose offer might not even be noticed by consumers without the existence of price comparison services. Thus, the Federal Supreme Court concluded that the ban on the use of price comparison services excluded a number of retailers from competition and, thus, restricted passive sales. Therefore, it was deemed a hardcore restriction, which was prohibited regardless of the market shares of the parties.

THE FUTURE AS OF 1 JUNE 2022?

The European Commission addresses price comparison services extensively in the new Vertical Guidelines. It deals with three basic situations, namely a restriction on the use of price comparison services, a complete ban on the use of price comparison services as an entire online advertising channel and a ban on the use of particular price comparison services.

First, mere restrictions on the use of price comparison services based on the quality requirements imposed on the advertising placed there do not as such constitute a ban on the use of price comparison services. The imposition of such conditions does not have as its object the prevention of the effective use of the internet by the distributor or its customers to sell the contract goods or services to particular territories or customers. It can therefore benefit from the new VBER.

Second, the ban on the use of price comparison services as an entire online advertising channel hinders the distributor from selling to customers who are located outside its area of activity and who wish to make online purchases. It can be imposed both directly and indirectly (e.g., restricting the possibility to provide price information to price comparison services, requiring the supplier’s prior approval to use price comparison services or prohibiting the use of the supplier’s brand on price comparison services). Such a prohibition has the object of preventing the effective use of the internet by the distributor to sell the contract goods or services. This is now a hardcore restriction within the meaning of Article 4(e) of the VBER and therefore is not within the safe harbour of the new VBER.

Third, the European Commission considers that the ban on the use of particular price comparison services does not generally have the object to prevent retailers from making effective use of the internet to sell the contract goods or services to particular territories or customers. Indeed, a retailer may continue to use other price comparison services to increase customer awareness of its online sales activities. If this is the case, the new VBER will apply to such a prohibition. However, if the ban were directed at the most widely used price comparison services and the other price comparison services were de facto not sufficiently effective to attract customers to the retailer’s online store, such a restriction could constitute an anticompetitive agreement. Therefore, it will always be necessary to assess whether a ban on selected price comparison services has as its object the prevention of the effective use of the internet by the distributor or its customers to sell the contract goods or services to particular territories or customers.

Under the VBER, targeting customers through price comparison services will be – under certain conditions – considered a form of active sales (see, DLC countdown no. 21). Therefore, restricting the use of price comparison services targeting customers located in an exclusive territory within an exclusive distribution system is permissible and even necessary to satisfy the condition of parallel imposition (see, DLC countdown no. 13).

In the new Vertical Guidelines, the European Commission also addresses the issue of price comparison services in the context of a purely qualitative selective distribution system to which the prohibition of anticompetitive agreements does not apply (see, DLC countdown no. 19). The European Commission points out that where restrictions on the use of price comparison services are used in a selective distribution agreement, it is first necessary to assess whether the restrictions are an appropriate and proportionate means to preserve quality or to ensure the proper use of the contract goods or services. In this respect, the European Commission notes that via price comparison services, customers merely access the distributor’s online store in relation to which the supplier can already set quality requirements. A prohibition to use price comparison services is therefore unlikely to qualify as a purely qualitative selection criterion.

IN PRACTICE?

As of 1 June 2022, there will be more legal certainty as to the European Commission’s approach to the issue of restrictions of price comparison services. Suppliers will be entitled to set the quality standards that price comparison services must meet. Conversely, they will not be allowed to impose a total ban on the use of price comparison services as an entire online advertising channel. Under certain conditions, it will be possible for them to impose a ban on the use of particular price comparison services, provided that this does not prevent the effective use of the internet by the distributor or its customers to sell the contract goods or services to particular territories or customers.

ASSESSMENT?

Given the increasing importance of online sales, the European Commission’s detailed treatment of price comparison services in the Vertical Guidelines is to be welcomed. This will lead to increased legal certainty for suppliers, who until now have only been able to assume what they can and cannot do.

The classification of the absolute ban on price comparison services as a hardcore restriction is not surprising in view of the judgment of the Federal Supreme Court in ASICS. However, the European Commission’s explicit recognition of the possibility to restrict the use of price comparison services in some ways is appreciated. This is a desirable element of flexibility, as many suppliers have so far taken a more cautious approach and have preferred to avoid restricting price comparison services.

THE FINAL REVISED VBER IS PLANNED TO ENTER INTO FORCE ON 1 JUNE 2022.

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WANT TO KNOW MORE? STAY TUNED…
Counting down towards 1 June 2022, we aim to provide you with regular updates and the necessary legal knowhow in order to fully prepare your business for the future. Please also check out the Distribution Law Center platform (www.distributionlawcenter.com) and our LinkedIn page for much more information on the laws governing vertical agreements, covering both competition and commercial law. 27 specialized teams from all over the EEA are working hard to turn the platform into your favourite source of guidance and information.

The post DLC – Countdown 23 – Vertical in the spotlight: Bans on use of price comparison services (EN) appeared first on Delchev & Partners.

GETTING READY FOR 1 JUNE 2022 AND EUROPEAN COMPETITION RULES CHANGE

WHAT?

An “online marketplace” is an e-commerce site that offers multiple products from many different sellers which connects merchants and potential customers with a view to enabling direct purchases. Over the last decade online marketplaces (such as Amazon and eBay) have become an important sales channel for both suppliers and retailers selling their products online.

Despite the significant benefits that result from online marketplaces in facilitating the ability of retailers to sell their products online and the associated consumer benefits, suppliers of specific products may choose to restrict the freedom of a retailer to use this particular online sales channel – through a marketplace ban – for various reasons. Examples include the protection of brand image, positioning of a brand, the aim of ensuring sufficient support services to the customer or in order to allow the retailer to maintain a direct relationship with customers.

An online marketplace ban should be distinguished from an absolute prohibition on a distributor to sell the contract goods online. The latter is considered to be a restriction by object within the meaning of Article 101(1) of the TFEU if it is not objectively justified.

RULES UNTIL 31 MAY 2022

Article 4(b) of the current VBER, which will expire on the 31 May 2022, prohibits agreements or concerted practices that have as their object the restriction of brick-and-mortar or online sales by a buyer party to the agreement or its customers, in as far as those restrictions relate to the territory into which or the customers to whom the buyer or its customers may sell the contract goods or services.

As regards online sales, paragraph 54 of the current Vertical Guidelines provides that a supplier “may require that its distributors use third party platforms to distribute the contract products only in accordance with the standards and conditions agreed between the supplier and its distributors for the distributors’ use of the internet. For instance, where the distributor’s website is hosted by a third party platform, the supplier may require that customers do not visit the distributor’s website through a site carrying the name or logo of the third party platform ”. With this somewhat opaque language, the Commission indicated that it would block exempt a requirement by the supplier on its buyers to use their own electronic shopwindow rather than to sell the supplier’s products via online marketplaces.

This was confirmed by the European Court of Justice in the Coty case (Case C-230/16). In that case, the Court first confirmed that the qualification of a selective distribution system as purely qualitative – making that it escapes the prohibition of Article 101(1) TFEU – is not lost when a supplier imposes a marketplace ban on its authorised distributors, at least not to the extent that the products concerned are luxury goods and the ban meets with the Metro criteria, meaning a.o. that it must be proportionate to preserve the luxury image of those goods. In addition, irrespective of the nature of the selective distribution system (purely qualitative or quantitative – see, on this distinction, DLC Countdown no. 19), the Court confirmed that a marketplace ban does not amount to a customer or territorial restriction in the sense of Article 4(b) of the current VBER.

THE FUTURE AS OF 1 JUNE 2022?

The new VBER and Vertical Guidelines, entering into force on 1 June 2022, clarify and consolidate the existing practice and case law. First, it is useful to flag that the list of hardcore restrictions (Article 4 (e) new VBER) now includes the “prevention of the effective use of the internet” as a separate hardcore restriction that may be relevant to any distribution system (selective, exclusive or open distribution).

With respect to luxury goods forming part of a purely qualitative selective distribution system, paragraph 150 of the new Vertical Guidelines incorporates Coty and states that a ban on the use of online marketplaces may be proportionate and comply with the Metro criteria so long as it does not indirectly prevent the effective use of the internet for sales to particular territories or customers. It does not do so where the authorised distributors remain free to operate their own online store and to advertise online in order to raise awareness for their online activities. In such circumstances, an online marketplace ban will be proportionate and fall outside of the scope of Article 101(1) TFEU, so that no further analysis under the new VBER is required.

Under the regime of the VBER, paragraph 208 of the new Vertical Guidelines does away with the previously somewhat opaque language and provides that “a direct or indirect ban on the use of online marketplaces” can benefit from the block exemption, provided again it does not run counter to the requirement of Article 4(e) new VBER regarding the effective use of the internet by buyers for the purposes of selling goods or services online. Also here, the Guidelines state that this will generally not be the case where the buyer remains free to operate its own online store and to advertise online.

The application of the new VBER continues to be subject to a double market share limit of 30%. Between paragraphs 338-342, the new Vertical Guidelines provide guidance for the assessment of restrictions on the use of online marketplaces in individual cases, where either or both parties exceed that market share limit.

IN PRACTICE?

The consolidation and clarification of the existing practice and case law in the new Vertical Guidelines bring clarity with regard to the permissibility of online marketplace bans and will surely lead to a more uniform assessment of such restrictions throughout the EU.

ASSESSMENT?

The clarifications in the new Vertical Guidelines on the appropriate assessment that should be undertaken for online marketplace bans, both in- and outside the VBER, are to be welcomed. Outside the VBER, the new Vertical Guidelines now contain guidance in respect of online marketplace bans in the context of purely qualitative selective distribution (so outside Article 101(1) TFEU) and also in situations where the supplier or buyer or both exceed the market share limit of 30%.

THE FINAL REVISED VBER IS PLANNED TO ENTER INTO FORCE ON 1 JUNE 2022.

==================================================================================================

WANT TO KNOW MORE? STAY TUNED…
Counting down towards 1 June 2022, we aim to provide you with regular updates and the necessary legal knowhow in order to fully prepare your business for the future. Please also check out the Distribution Law Center platform (www.distributionlawcenter.com) and our LinkedIn page for much more information on the laws governing vertical agreements, covering both competition and commercial law. 27 specialized teams from all over the EEA are working hard to turn the platform into your favourite source of guidance and information.

The post DLC – Countdown 22 – Vertical in the spotlight: E-Commerce online marketplace bans (EN) appeared first on Delchev & Partners.