Hungarian merger control changes to be activated in January 2023

Multiple developments concerning the Hungarian merger control regime will come into play in the New Year. As of 1 January 2023, the Hungarian Competition Act, and in particular its provisions on merger control, will change significantly. In addition, the Hungarian Competition Authority’s (HCA) obligation to publish the list of relevant markets affected by concentrations will also kick in in January 2023, which led the HCA to issue a new notice on how this obligation will be fulfilled.

The following is an overview of these developments and their potential consequences.

I. Latest Amendments to the Competition Act

1.1 Changes affecting the notification thresholds for mergers

The first, and perhaps most important part of the Amendments, relates to the primary and secondary notification thresholds:

• The so-called “primary” net turnover-based thresholds in Subsection (1) of Section 24 of the Competition Act will be increased as follows: the combined net turnover figure of all groups of undertakings involved will be increased from HUF 15 billion to HUF 20 billion (approximately EUR 36.5 million to EUR 48.8 million), while the previous HUF 1 billion (EUR 2.4 million) threshold to be met by at least two groups of undertakings will be increased to HUF 1.5 billion (EUR 3.6 million). The above change is timely, as this threshold was last amended in 2017 by way of a less significant increase compared to the current one (only the threshold for at least two groups of undertakings was raised from HUF 500 million to HUF 1 billion). The amendment is necessary to take account of the significant increase in the inflation rate (22.5% in November 2022), which is likely to have led to the notification of mergers by several foreign companies, mainly those calculating their turnover in Euros, which would not have exceeded the thresholds in the absence of inflation.

• The nature of the “secondary threshold” in Subsection (4) of Section 24 of the Competition Act will be clarified. The current wording of the Competition Act ("a concentration must also be notified") implied that the secondary threshold was subject to a mandatory, rather than voluntary, regime. Although the HCA has actively communicated that, according to its interpretation, notification under the secondary threshold is not mandatory, there was a discrepancy between the wording of the legislation and the HCA's interpretation, which the current Amendments have addressed. In the Amendments to the Competition Act the term "the concentration must also be notified" will be replaced by “the concentration may also be notified”. This, read together with the wording of the Amendments to the Subsection (5) of Section 67 of the Competition Act (by the deletion of the word "subject to notification" from the following sentence: “The investigator shall […] adopt a ruling to order the examination of concentration subject to notification (to be replaced with: subject to Subsection (4) of Section 24 also”) essentially confirms the approach taken in practice by the HCA, according to which the secondary threshold does not fall under the mandatory regime. The application of the secondary threshold remains unchanged in the sense that the HCA will still have six months from the implementation of the concentration to initiate its competition control proceeding under the secondary threshold in case that it considers that the conditions for such a procedure are fulfilled.

The scope of undertakings to which the notification obligation under Section 24 of the Competition Act does not apply on the basis of Subsection (1) of Section 25 of the Competition Act (i.e. temporary acquisitions of control, which are made in preparation of resale) will also be clarified. Previously, these were listed as insurance company, credit institution, financial holding company, mixed-activity holding company, investment firm, or property management organisation. This scope of undertakings, however, will be clarified and expanded by the Amendments to read “insurer, insurance holding company, credit institution, financial holding company, mixed financial holding company, mixed-activity insurance holding company, investment firm, investment fund or investment fund management”.

1.2 Other substantive parts of the Amendments

Other substantive changes will concern the date of submission of the notification, the administrative service fees and the daily amount of the fine that may be imposed in the context of non-notified concentrations, as follows:

• With regard to the timing of notifications, the Amendments provide that, contrary to existing practice, the HCA can no longer require the availability of, for example, a signed contract at the time of submission of the notification. The new Subsection (2) of Section 28 of the Competition Act will state that "the notification may also be submitted if a good faith intention to conclude the merger is verified." This change is in line with prevailing EU practice, but it is likely to raise a number of practical questions, including what requirements the HCA will impose on companies concerning the verification of such a good faith intention. It is expected that the HCA will address such and similar issues in case-law as well as in soft law notices (see Notice 3/2021 on certain jurisdictional issues related to merger control proceedings and Notice 9/2017 on pre-notification discussions in merger control proceedings), which reflect the current situation. Additionally, the question may arise whether a corresponding modification of the HCA’s notification form may be necessary, taking into account that the current notification form includes multiple questions related explicitly to the contents of the underlying contract (e.g. conditions precedent, ancillary restraints), which may prove difficult to answer in case of notifications based on good faith intention.

• The amount of administrative service fees, with the exception of the HUF 1 million fee payable for the notification, will also change, as the fee for the Phase I procedure will increase from HUF 3 million to HUF 4 million (EUR 7,300 to EUR 9,750), while the fee for the Phase II (i.e. full) procedure will increase from HUF 15 million to HUF 19 million (EUR 36,500 to EUR 46,300).

• The modification of the level of sanctions for non-notified concentrations is also a substantial part of the Amendments, reflecting the strict approach towards such mergers worldwide. Pursuant to the changes affecting Subsection (1c) of Section 78 of the Competition Act, the maximum daily fine for failure to notify mergers will be HUF 300 thousand (EUR 730) without a statutory minimum (instead of the previous minimum daily fine of HUF 50,000 and a maximum daily fine of HUF 200,000 (EUR 122 and EUR 488 respectively). The Amendments also clarify the way the fine is calculated. The daily amount of the fine will be calculated from the date of executing the deal, and will end on the date of the post-notification of the initially non-notified concentration (or, if pre-notification has taken place, the date of its initiation) or, if no post-notification of the concentration takes place, on the date of the initiation of the competition control proceeding concerning the concentration or, if the implementation of the concentration takes place during the notification procedure or the competition control proceeding, on the date of the HCA’s decision. However, the sanction regime remains unchanged in that the total amount of the fine may not exceed 10% of the net turnover of the undertaking (or group of undertakings) generated in the business year preceding the HCA’s decision.

Practical issues may arise in the application of the above Amendments, and it is recommended that expert advice be sought to ensure that these are effectively addressed.

II. New HCA notice concerning the list of relevant markets

As of 1 January 2022 a new provision has been added to the Competition Act, pursuant to which, in each year, the HCA is obliged to publish a list of relevant markets affected by the concentrations cleared by way of an authority certificate (i.e. without the initiation of a Phase I procedure and a full-scale decision). The reason behind this amendment was that in recent years the growing majority of concentrations have been cleared by authority certificates, while less and less concentrations are investigated in Phase I or Phase II procedures. Given that authority certificates, contrary to full-scale decisions, do not contain a reasoning, less and less information is available about the HCA’s approach to market definitions. In this light, the list was introduced in order to give market players an insight into the HCA’s thinking.

The HCA will have to publish the first of such lists in January 2023 with respect to concentrations notified in 2022. As a preparatory step, the HCA has recently published a new notice (i.e. soft-law document) outlining its approach to the preparation and interpretation of such a list.

According to the notice, the HCA will compile two lists, one for markets that have already been addressed either by the HCA or the European Commission and one for markets for which no such practice is available. In addition to product and geographical market definitions, both lists will include the HCA’s case number and the name of the participants, while the former list will also contain reference to the relevant HCA or Commission practice, which was taken into account by the HCA. While the notice states that market players can reasonably expect that the lists reflect the HCA’s uniform position as to the adequacy of the featured market definitions, it is also highlighted that they are based on the markets indicated by market players in the notification forms. In other words, the lists do not contain the "official" market definitions of the HCA’s Competition Council, which means that the HCA may request information relating to different markets and may ultimately establish different market definitions, if appropriate.

In light of the above, the HCA’s lists will certainly be a useful starting point when identifying potentially relevant markets for which information should be provided in notification forms. Therefore, it seems worthwhile to look forward to their publication later in January 2023. Taking into account that defining markets can be a rather complex task, it is worthwhile to seek expert advice in this regard and, if appropriate, to engage in pre-notification discussions with the HCA.

For more information on competition law in Hungary and how it could affect your business, contact your CMS client partner or local CMS experts.

The article was co-authored by Márton Angyal and Kristóf Keresztes.