On 14 June 2021, a new merger control regime entered into force in Peru. Merger control laws have been in place in Peru for almost 30 years but these were limited to the electricity sector. The new merger control legislation (Law Nº 31112, approved by the Peruvian Congress in January 2021) has repealed the sector-specific legislation related to the electricity sector (Law Nº 26876 of 1997), is applicable across all sectors, and will remain in force until 2026.
This development – and the increasing activity, sophistication and cooperation among the competition authorities in Latin America – highlights the importance of understanding the merger control landscape in the region. This is particularly true in the context of global transactions that may require merger control notifications in many jurisdictions worldwide, including Latin America.
In this note we provide a brief overview of the merger control landscape in Latin America with a focus on the recently adopted merger control regime in Peru.
The merger control landscape in Latin America
The number of countries in Latin America with a merger control regime has increased significantly in recent years. In the early 2000s, only Argentina, Brazil, Colombia, Costa Rica, Mexico and Panama had merger control regimes in place. Currently 17 countries in the region have merger control regimes in place, which represents roughly 20% of all merger control regimes worldwide.
Most of these jurisdictions have adopted their merger control laws in the last 15 years and many have shifted from a system of post-closing filings to a system of mandatory pre-closing filings with suspensory effects (i.e. a transaction may not be implemented until merger control clearance is granted).
The new merger control regime in Peru
On 14 June 2021, a new merger control regime entered into force in Peru that creates a system of mandatory and suspensory pre-closing filings. Transactions that meet the notification thresholds require prior clearance by the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (“INDECOPI”) before they can be implemented. INDECOPI, and in particular, its Competition Commission (the “Commission”), is the independent administrative regulatory authority in charge of reviewing merger control filings and issuing decisions, which can be appealed before the Tribunal de Defensa de la Competencia (the “Competition Tribunal”).
Transactions that do not meet the notification thresholds may still be filed on a voluntary basis (e.g. to obtain reassurance that the transaction does not raise competition concerns). INDECOPI may also investigate transactions ex officio, even if they do not meet the applicable notification thresholds, if there is a reasonable risk that such transactions could result in a dominant position or a potential harm to competition (Article 6(4), Law Nº 31112).
What types of transactions are caught?
Article 5 of Law Nº 31112 provides that transactions involving a transfer or change of control over an undertaking or a part of it, are subject to prior notification and clearance in Peru. This includes the following:
- The merger of two or more previously independent undertakings;
- The acquisition of rights by one or more undertaking that, directly or indirectly, allow the holder to, individually or in association, exercise control over another undertaking;
- The incorporation by two or more independent undertakings of a joint company, joint venture or any other form of association agreement in which the former share control over a new autonomous entity that performs an economic activity; and
- The acquisition by an undertaking by any means, of direct or indirect control over productive operating assets of another undertaking.
The law defines “control” at Article 3(2) of Law Nº 31112 as “the possibility of exercising decisive and continuous influence over an economic agent through (i) property rights or rights of use of all or part of the assets of an undertaking; or (ii) rights or contracts that allow to influence in a decisive and continuous way the composition, deliberations or decisions of an undertaking’s decision-making bodies, directly or indirectly influencing their competitive strategy.” This definition appears to follow the definition of control applied in the EU but it remains to be seen how this will be implemented by INDECOPI in the years to come.
Acquisitions of a minority interest not amounting to control are not subject to the merger control law.
What are the applicable notification thresholds?
As mentioned above, a pre-closing notification is mandatory provided that the applicable merger control thresholds are met. Article 6 of Law Nº 31112 establishes the following thresholds:
- The parties to the transaction must have combined turnover or assets of at least 118,000 UIT (Unidad Impositiva Tributaria or “tax reference units”, a monetary value set annually by the Peruvian government) (approximately USD 141 million in 2021) in Peru; and
- At least two of the parties to the transaction must each have turnover or assets of at least 18,000 UIT (approximately USD 21.5 million in 2021) in Peru.
In the Guidelines on the calculation of notification thresholds published on 1 June 2021 (available here), INDECOPI clarified that when calculating the relevant turnover of the parties, only the sales of products and services provided to customers located in Peru should be taken into account. Similarly, only the assets located in Peru are relevant for the calculation of the parties’ turnovers.
The Guidelines and the accompanying Regulation of Law Nº 31112 also clarify that in order to calculate the parties’ turnover or asset, not only the turnover or assets of the undertakings participating directly in the transaction should be taken into account but also that of their respective economic groups. Article 3(3) of Law Nº 31112 defines an “economic group” as “the set of economic agents, local or foreign, comprised of at least two members, when any of them exerts control over the others, or when control over the economic agents belongs to one or more individuals that act as a single decision unit.”
What happens if the parties fail to notify a transaction?
If the notification thresholds are met and the parties fail to notify the transaction, but the transaction has not yet been implemented, INDECOPI could consider this as a minor offence (Article 27(1), Law Nº 31112) and can impose fines of up to 500 UIT (approximately USD 590,000 in 2021), provided that this amount does not exceed 8% of an undertakings’ annual turnover (Article 43(1)(a), Legislative Decree 1034). It is not entirely clear in which context this rule may apply because, in theory, INDECOPI could impose fines on merging parties that have not yet filed a notifiable transaction but are in the process of doing so. The law does also not specify a deadline for filing. This will require further clarification from the authority in the years to come.
If the parties fail to notify the transaction and the transaction is implemented before obtaining clearance (i.e. so-called “gun-jumping”), this is considered a serious offence (Article 27(2), Law Nº 31112) and INDECOPI may impose fines of up to 1,000 UIT (approximately USD 1.1 million in 2021), provided that such an amount does not exceed 10% of the undertaking’s annual turnover (Article 43(1)(b), Legislative Decree 1034). INDECOPI may also order the divestment or dissolution of the transaction until the conditions existing prior to the transaction are restored.
The merger control law does not contain provisions on carve-outs, allowing the parties to close a transaction globally before obtaining clearance in Peru. In such cases, the parties may directly consult with INDECOPI to find a suitable solution.
It is also interesting to note that while INDECOPI has the power to investigate transactions that met the notification thresholds but were not notified, it may do so only within a four year limitation period (Article 30, Law Nº 31112).
Are foreign-to-foreign transactions caught?
Foreign-to-foreign transactions that meet the notification thresholds are subject to a mandatory pre-closing notification requirement if they produce actual or potential effects in Peru. This can be as a result of being directly present in the local market by way of subsidiaries or assets located in Peru or as a result of having commercial activities and generating turnover in Peru. Article 2 of Law Nº 31112 explicitly provides that it applies to transactions that have “effects over part or the whole entire national territory, including those transactions carried out abroad that directly or indirectly involve undertakings that carry out economic activities within the national territory.”
Since the merger control regime in Peru has only entered into force in June 2021, there are not yet relevant precedents available.
Is there a pre-notification phase and who are the notifying parties?
Article 17 of Law Nº 31112 provides that the parties may, either jointly or individually, contact the Competition Commission’s Technical Secretariat before notification – on a confidential basis – to inquire about the notifiability of the transaction, what type of information is required and other related aspects. The Technical Secretariat’s opinion on these matter is not binding on the Commission.
The notification must be made jointly by the parties in case of a merger or acquisition of joint control. In all other cases (e.g. acquisition of control over another undertaking, acquisition of assets, etc.) the notification must be made by the party acquiring control (Article 18, Law Nº 31112). The filing fee has been set by the Peruvian government at PEN 91,629.40 (approximately USD 22,000).
Is there a fast-track procedure available?
The new merger control law also provides for a simplified notification form for transactions that are deemed less likely to raise competition concerns (i.e. if there are no overlaps between parties’ activities or if the transaction involves a change from joint to sole control). This simplified notification is not a fast-track procedure and the review periods remain the same. The only difference is that the Commission requires less information from the parties in such cases (Article 21, Law Nº 31112 and Article 10, Regulation of Law Nº 31112).
What are the Phase 1 and Phase 2 review periods?
Following submission of the notification, the Commission’s Technical Secretariat has 10 business days to determine whether the notification is complete. If any of the required information or documents are missing, the parties have another 10 business days to complete the notification and the Technical Secretariat has 5 business days to decide whether the notification is complete (Articles 21(2) and 21(3), Law Nº 31112).
Once the notification is deemed complete, the Phase 1 review starts and the Commission has 30 business days to decide whether the transaction raises any competition concerns (Article 21(4), Law Nº 31112). If the Commission finds that the transaction does not raise any concerns or that it does not fall within the scope of the merger control law, it may issue a clearance decision (Article 21(5), Law Nº 31112).
If, however, the Commission considers that the notified transaction raises serious concerns it will publish a brief summary and invite comments from interested third parties (Article 21(7), Law Nº 31112). This starts Phase 2 of the review which can last up to 90 business days (Article 21(8), Law Nº 31112). However, the Commission may decide to extend this review period to another 30 business days but only if this is duly justified (Article 21(9), Law Nº 31112).
At any time during the Phase 1 or Phase 2 review periods, the party(ies) who made the notification can request to be heard, in which case the review period may be extended another 15 business days (Article 24, Law Nº 31112). The law does not clarify whether any requests for information issued by the Commission may interrupt the review periods.
The Commission may issue a decision authorising the transactions with or without conditions. The Commission may also decide to block a transaction (Article 25, Law Nº 31112). The law also provides that if the Commission does not issue a decision within the statutory review periods, the transaction is deemed authorised by way of so-called “administrative silence” (Article 25(5), Law Nº 31112).
Can the parties appeal a decision by INDECOPI?
The party(ies) who filed the notification have a right to appeal any decision before the Competition Tribunal (which is an administrative body) within 15 business days. The Competition Tribunal must resolve any appeals within 90 business days (Article 26, Law Nº 31112). The Competition Tribunal’s decisions may be subject to further judicial review.
The new merger control regime in Peru enters into force in a context of rising merger control enforcement in Latin America. Competition authorities in the region are becoming more sophisticated and as the number of complex merger control filings increases in Latin America, cooperation among them has strengthened, giving rise to rigorous merger control enforcement. The newly adopted merger control regime in Peru adds another piece to this puzzle. Parties engaged in global transactions should be aware that if the notifications thresholds are met, their deals will be subject to mandatory pre-closing filings and prior clearance by INDECOPI is required before the deals can be implemented.
In practice, this means that the review periods to obtain merger control clearance in Peru should be factored in the parties’ proposed timelines for closing. Similarly, appropriately drafted condition precedents should be included in the relevant transaction documents to reflect the need to obtain merger control clearance in Peru before closing. If the deal raises any substantive concerns in Peru, careful consideration should be given to possible remedies, conditions or even the possibility of a prohibition. The fact that the merger control regime in Peru is only a few months old and that INDECOPI may not be as experienced with complex merger control filings as other competition authorities in the region, further increases the need to pay close attention to this jurisdiction going forward.
 These countries are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela.
 This was the case, for example, in Brazil (2012), Costa Rica (2012), Chile (2016), Argentina (2019) and most recently Uruguay (2020).
We will continue to monitor developments in this area, and encourage you to subscribe to be kept informed of latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.