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COMMENTARY
ASIAN LEGAL BUSINESS ISSUE 5.10
Regional updates
Each month, ALB draws on its panel of country editors to bring readers
up to date with regulatory developments across the region
For more information about ALB regional updates and how to participate,
contact Marios Koundouros (+852 2815 5988)
CHINA
Latest draft of the AntiMonopoly Law
It has been over a decade since drafters
began to work on an Anti-Monopoly Law
for China. Given the short gap between
the April draft and the latest draft dated
27 July (the Latest Draft), it is interesting
to analyse how much progress has been
made and see how far we are from the
finishing line.
The latest draft has considerably
broadened the scope of the law, and
tightened the control over anti-monopoly
behaviour. It has removed the exception
for cases involving a share of less than
10% in the relevant market. The definition
of ‘concentration’ has been modified such
that instead of requiring a merger or an
acquisition of 20% or more voting shares
or a majority of assets, the obtaining of
‘sufficient’ voting rights or substantial
assets would constitute concentration.
The draft does not, however, expand on the
meaning of ‘sufficient’. Similarly, monetary
thresholds for notification and calculation
of turnover have also been lowered giving
rise to a further broadening of the scope of
reportable cases.
On the conditions for prohibition of
concentration, the previous drafts only
focused on ‘effects on economic development
and public interest’ and as such have been
criticised as being open to manipulation.
The Latest Draft has introduced seven
additional factors (including effects on
customers and degree of concentration of
relevant market), which promote greater
objectivity and certainty.
Perhaps one of the most noteworthy
changes is the introduction of provisions
to prevent administrative authorities
and public organisations from imposing
discriminatory treatment on foreign goods,
whether in terms of prices, technical
requirements, restrictions on entry into the
local market or participation in bidding.
They are also prohibited from restricting or
preventing foreign operators from investing
locally or setting up branches. These can be
seen as efforts to alleviate suspicions that
the Anti-Monopoly law is mainly targeted
at foreign companies. Transparency is also
enhanced by requiring the Anti-Monopoly
Authority to submit regular reports to the
State Council and to release such reports
to the public.
Although the changes made in this
latest draft might not have incorporated
many of the extensive comments made
by the American Bar Association on the
April draft, China is indeed another step
closer to the finishing line. It is hoped that
the law drafters will soon accomplish the
daunting mission of coming up with an
Anti-Monopoly Law that is not just in
line with international standards, but
is also tailored for China’s needs. With
China in the fourth year as a member of
the World Trade Organization and the
further opening of the domestic market,
it is important that there is clarity on the
applicability of anti-monopoly principles,
in particular on how it affects the domestic
market and not merely in relation to
foreign investment.
By Jeanette Chan
and Amy Chau
Paul, Wiess, Rifkind,
Wharton & Garrison
Oriental Plaza
Tower E3, Suite 1205
No 1 East Chang An Avenue
Dong Cheng District
Beijing 100738, PRC
Tel: 852 2536 9933
Fax: 852 2536 9622
INDIA
Mulla & Mulla
FDI in petroleum
sector and air transport
services
Liberalisation by GOI has resulted in an
increase in the foreign direct investment
(FDI) limit in the sectors of petroleum and
air transport services for domestic airlines
under the automatic route.
In sectors pertaining to petroleum
product marketing, oil exploration in
both small and medium-sized fields and
petroleum product pipelines, FDI up
to 100% is now permissible under the
automatic route.
Prior to liberalisation, the ceilings on FDI
in respect of the domestic air transport
services sector stood at 40% with prior
government approval of FIPB. FDI by
non-resident Indians (NRIs) up to 100%
has now been allowed under the automatic
route and up to 49% by others. However,
no direct or indirect equity participation by
foreign airlines would be permissible.
By raising the FDI cap, the domestic
scheduled and non-scheduled airlines
are likely to acquire more equity from
foreign investors, thus enhancing their
competitiveness.
Shardul Thacker
Partner
Jeanette Chan
Mulla & Mulla & Craigie
Blunt & Caroe
Mulla House, 51 M.G. Road
Mumbai 400 001 India
Tel: + 91 22 2204 4960 (Board)
+ 91 22 5634 5496 (Direct)
Fax: + 91 22 5634 5497
E-mail: shardul.
thacker@mullaandmulla.com
Shardul Thacker
ASIAN LEGAL BUSINESS ISSUE 5.10
MALAYSIA
Retrospective
moneylending
exemption order issued
The recent issue of an exemption order
under the Moneylenders Act 1951 (the Act)
in June 2005 provided relief to a problem
plaguing many routine commercial
transactions. An amendment of the
Act in November 2003 to rein in illegal
‘loanshark’ operators deleted a much relied
on exception to the general prohibition
against unlicensed moneylending. The
deleted provision stated that “any person
bona fide carrying on any business not
having for its primary object the lending
of money in the course of which and for the
purpose whereof he lends money” was to
be exempted from the Act.
The unintended result of this deletion
was that it arguably rendered illegal intercompany loans where interest was charged.
This was a serious interference to the way
many corporations were managing their
group finance functions. Such corporations
also found themselves unable to invest
surplus funds in private debt securities
issued by other corporations. It also
hampered fund management companies
who traditionally invested in both equities
and fixed income instruments because the
latter was considered moneylending by
some quarters.
There was much confusion after the
amendment, followed by a flood of
applications to the regulatory authority
for special exemption orders.
Eventually, on 27 June the Minister of
Local Government and Housing issued
and gazetted an exemption order with
retrospective effect. The order exempted
certain lending transactions made by a
company from 1 November 2003 onwards.
If a company had lent money to its
related company or directors, subscribed
or purchased debt securities or if the
company is authorised to carry out unit
trust schemes and had invested in fixed
income instruments, the exemption order
cured all that. With this exemption order,
it is status quo going forward too.
David Lee
Senior associate
Corporate Practice
Tay & Partners
6th floor, Plaza See Hoy Chan
Jalan Raja Chulan,
50200 Kuala Lumpur
Malaysia
Tel: +603 2050 1888
mail@taypartners.com.my
David Lee
PHILIPPINES
Philippine Supreme
Court upholds
expanded VAT law
The enforcement of the recent law on
expanded value added tax (VAT) has
become a legal saga, from the heated
debates in the congress where the law
was forged, to the temporary restraining
order imposed on 1 July, the day the law
was supposed to come into effect.
Unpopular with the public but seen as
essential by economic planners, the new
VAT measures are part of Republic Act No.
9334 (RA No. 9337). RA No. 9337 amends
key provisions of the Philippine National
Internal Revenue Code. The provisions on
VAT essentially increase the scope of the
tax and allow for an increase of the tax rate
under certain circumstances. Critics are
protesting a possible bump of the current
10% rate up to 12%, as well as the imposition
of VAT upon (among others) electricity and
petroleum products, goods that had not
previously been subject to VAT.
COMMENTARY
Various parties filed petitions with
the Supreme Court to question the
constitutionality of the law, arguing that a
provision granting the President the power
to increase the rate from 10 to 12% upon
certain trigger events is undue delegation
of legislative power. Furthermore, the
provisions increasing the scope of the tax
were claimed to be arbitrary, oppressive,
excessive and confiscatory. The court issued
a temporary restraining order against the
implementation of the VAT.
On 1 September the Supreme Court
upheld the constitutionality of the law. The
court ruled that there was no delegation of
legislative power, but simply a delegation
of ascertainment of facts on which the
increase of the rate is contingent. As to
the challenge that the tax measures were
unduly oppressive and confiscatory, the
court said that it “cannot strike down a
law as unconstitutional simply because
of its yokes”. The court noted that RA No.
9337 itself provides mitigating measures
to cushion the impact of the imposition of
the tax on those previously exempt.
The court’s ruling upheld the legality
of the law in its entirety, but did not
lift the restraining order on the law’s
implementation. Philippine law grants
parties 15 days to file an appeal. After
such period, the decision will be deemed
final and the restraining order will be
deemed lifted.
Government financial advisers and
local economists view the tax measures of
RA No. 9337 as an important component
of the government’s economic policies.
With the imposition of the expanded
VAT, the government hopes to rein in the
budget deficit.
Allan Verman Y Ong
SyCip Salazar Hernandez
& Gatmaitan Law Offices
105 Paseo De Roxas
Makati City
1200, Philippines
Tel: +63 2 817 9811
Allan Verman Y Ong
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