During the Covid-19 outbreak, the Vietnamese Government issued an important decree implementing the Competition Law 2018. Among other things, the Government has introduced a (mostly) complete new set of merger filing thresholds. Unfortunately, like social distancing measures applied during Covid-19, the new merger filing thresholds could potentially put more “legal distance” between parties to M&A deals in Vietnam especially those conducted by large corporations.

Under the old Competition Law 2004, the Government only applies the “market share” test to determine whether a merger filing should be made. Due to the vagueness and difficulty of determining market share numbers in practice, only a few M&A deals are subject to merger filing under the old Competition Law 2004. Now, it is no longer the case. In addition to the old market share test, Decree 35/2020 introduces two new “bright-line” tests (i.e., “size- of-person” test and “size-of-transaction” test) without any exception. Any “economic concentration” triggering any of the three separate and independent tests will now need to be reported to the not-yet-established National Competition Committee (NCC). In short, the NCC now presumably has more testing tools for a merger filing than the competition authorities in EU(one), US (two), and China (one), which unfortunately is not a good sign for M&A lawyers in Vietnam.

Details of each test for each industry are set out in the table below (US$ numbers are approximates):

Threshold	Threshold value
Threshold	Insurance	Securities	Banking	Other industries
Asset in Vietnam (i.e., size-of-person)	VND15,000b/ USD650m	VND15,000b	20% of total assets of all credit institutions in Vietnam	VND3,000b/ USD130m
Sale revenue or purchase costs in Vietnam (i.e., size-of-person)	VND10,000b/ USD 420m	VND3,000b	20% of total sale revenue (not purchase costs) of all credit institutions.	VND3,000b
Transaction value (i.e., size of transaction)	VND 3,000b	VND 3,000b	20% of total charter capital of all credit institutions	VND1,000b/ US$43m
Combined market share	20%	20%	20%	20%

Below is a non-exhaustive list of issues or problems arising from the above table:

The size-of-person test takes into account assets, sale revenues, and purchase costs in Vietnam of affiliated companies of the party to the M&A transaction in question. However, unlike EU merger filing regulations, Decree 35/2020 does not clearly exclude inter-company revenue or purchase between companies of the same group of companies although inter-company transactions are excluded from calculation of market shares. It is also not clear whether a consolidated account of a group of companies should be used for the size-of-person test.
Unlike EU merger filing regulations, in case of an economic concentration involving only a part of a business, Decree 35/2020 does not exclude from the size-of-person test assets, revenues or purchase costs of unrelated parts of the business which are not subject to the concentration. Decree 35/2020 also does not exclude assets, revenue, or purchase cost of the vendor in the concentration from the size-of-person test.
The size-of-person does not exclude sale rebates, value-added taxes, or similar taxes from the calculation of revenue.
The size-of-person test takes into account the purchase costs of the relevant company. This is a new-but-not-so-reasonable criteria, which is not provided in the Competition Law 2018 and in fact not provided in US, EU, and China merger filing regulations. Taking into account the purchase costs of a company in a size-of-person test would make a company which is in the investment stage and has zero revenue (or market share) to be subject to the merger filing requirement.
Under Decree 35/2020, the size-of-transaction test is applied independently from the size-of-person test. As such unlike US merger filing regulations, which exclude small transactions conducted by a large corporation, transactions of any size (small or big) by an entity satisfying size-of-person test will need to be reported to the NCC.
In the size-of-person test, unlike US merger filing regulations, Decree 35/2020 also does not distinguish between acquiring entity and non-acquiring entity.
It is not clear whether the location of an asset is determined by reference to the location of the owner of such an asset or the location of the asset itself.
It is not clear how the size-of-person is calculated. For example, if A and B are about to undertake an economic concentration, it is not clear if the size-of-person test is met if (1) the total assets/total turnover of either A or B exceeds VND 3,000 billion; or (2) the total assets/total turnover of neither A nor B exceeds VND 3,000 billion but the sum thereof exceeds VND 3,000 billion; or (3) the total assets/total turnover of A exceeds VND 3,000 billion and the total assets/total turnover of B also exceeds VND 3,000 billion. The draftsman of Decree 35/2020 seems to use interpretation (1) but nothing ensures that the NCC will adopt such interpretation.
It is not clear how the size-of-transaction test is conducted. For example, it is not clear if the NCC will require the parties to submit a fair-market value estimate of transaction.
The size-of-transaction test does not apply to a foreign-to-foreign transaction. This could create an advantage for foreign investors over domestic investors. Logically, for a foreign-to-foreign transaction, the parties should provide a separate transaction value for Vietnam assets.
The size-of-person test does not address M&A transactions in technology sector where data and users may be more important than revenue and assets.

This post is written by Ha Thanh Phuc, Le Minh Thuy, and Nguyen Quang Vu.

Vietnam Business Law