Competition Bureau’s proposal to increase the filing fee for merger reviews

About the Competition Bureau

As an independent law enforcement agency, the Bureau ensures that Canadian businesses and consumers can prosper in an innovative and competitive marketplace. The Bureau is responsible for the administration and enforcement of the Competition Act, the Consumer Packaging and Labelling Act (except as it relates to food), the Textile Labelling Act and the Precious Metals Marking Act.

The Bureau conducts a variety of activities relating to the enforcement and promotion of competition in Canada, such as investigating anti‑competitive activities, advocating the benefits of competition, promoting compliance with the Competition Act and reviewing proposed merger transactions. The Bureau charges fees for some of these activities, such as for CA Numbers for textile dealers, merger reviews and written opinions.

The Bureau’s Mergers Directorate undertakes activities relating directly and indirectly to merger enforcement. The Directorate’s direct enforcement activities include reviewing notifiable and non‑notifiable^{Footnote 1} mergers in all sectors of the economy. The other work it undertakes in support of its enforcement mandate includes but is not limited to developing technical guidance publications, establishing memoranda of understanding (MOUs) with other government agencies, and undertaking various projects aimed at improving the timeliness and effectiveness of merger reviews.

Legislative and policy framework

The Competition Act prohibits mergers that prevent or lessen, or are likely to prevent or lessen competition substantially. Under subsection 114(1) of the Act, merging parties to a transaction that exceeds certain monetary thresholds are required to notify the Commissioner of Competition about a proposed transaction (pre‑merger notification), and/or request an Advance Ruling Certificate (ARC). Since November 1997, the Bureau has required the payment of fees for notification filings and ARC requests. At that time, a $25,000 fee was fixed by the Minister of Industry pursuant to sections 18 and 20 of the DIA. Less than six years later, in April 2003, the fee was increased to $50, 000 and has remained unchanged since that time. Under the DIA, the Minister is required to consult stakeholders before establishing and or revising service fees. The Bureau will be holding online consultations for 30 days with stakeholders to hear their views on this important proposal.

The Bureau is also subject to the Service Fees Act (SFA). Implemented in June 2017, the SFA replaced the User Fees Act (UFA), which was repealed as part of the Government’s initiative to modernize business fees. The SFA introduced a number of changes aimed at enhancing government accountability and stewardship of taxpayer dollars. These changes include performance standards and annual reporting for all fees and an annual adjustment of fees based on the Consumer Price Index (CPI). The requirement to adjust fees annually based on the CPI will come into force on April 1, 2018. The SFA also requires departments and agencies to establish a mechanism for remitting fees when service standards are not met. The Treasury Board and ISED are currently developing guidelines on fee remmissions.

The Bureau also consulted Government of Canada guidance documents during the development of the fee proposal. The Treasury Board’s Guidelines on Costing was used to calculate the full costs, including both indirect and direct costs, and resource allocations associated with the merger filing fee. The Guide to Establishing the Level of a Cost‑Based User Fee or Regulatory Charge will be used to determine the pricing of the fee.

Why is the Competition Bureau proposing an increase in the merger filing fee?

The Bureau first introduced a fee and service standards for pre‑merger notifications (PMNs) and ARC requests in November 1997. The $25,000 fee was implemented to offset the resource demands placed on the Bureau as a result of increasing mergers activities.

Although the total number of mergers reviewed by the Bureau has been relatively constant since fiscal year 2008‑09, there has been an increase in the number of resource‑intensive complex cases reviewed in recent years. For example, the number of concluded complex cases reviewed rose from 48 in 2013‑14 to 65 in 2015‑16. Maintaining the filing fee at $50,000 for the last 14 years, despite these changes, has led the merger program to incur revenue deficits over the last few years. Recent judicial decisions have contributed significantly to the deficits and changes. In particular, the Supreme Court of Canada’s decision in Tervita established a requirement for more complex quantification of anti‑competitive effects, which has increased the time and cost of merger reviews. A trend toward more complex, strategic mergers requiring greater analysis is a change that is occurring at both the domestic and global levels^{Footnote 2}. Other related factors that contribute to the deficits include the increasing volume of documents and data requiring analysis, higher costs associated with hiring economic and industry experts, and an increase in the salaries of Bureau officers as a result of collective bargaining agreements. The Bureau is also subject to a 5 percent budget reduction over the next three years associated with a restructuring within ISED to support the Government of Canada’s Innovation and Skills Plan announced in 2017.

The Bureau has taken some steps to address these challenges, such as using in‑house economists and Bureau officers for econometric or efficiencies analyses. However, despite these efforts, the deficits continue to rise, making an increase in the filing fee a necessary and appropriate solution

Private vs public benefit

With the guidance of the Treasury Board, the Bureau has assessed the benefit of the service to be 100 percent private. Merging parties are also impacted by other activities undertaken as part of the merger program. For example, non-notifiable merger reviews brought before the Competition Tribunal or the courts can result in judicial guidance that provides clarity to merger program stakeholders; developing Technical Guidance publications supports transparency and predictability of the merger review process; improvement of electronic information gathering and analytics help to speed up merger reviews; efforts to coordinate with foreign competition agencies can speed up review times or lead to cooperation on remedial action for mergers; and, MOUs or arrangements with other government agencies to coordinate timing or share information can result in more timely outcomes for stakeholders.

Impact analysis

The Bureau is of the view that the proposed fee does not place an unreasonable financial burden on merging parties. To assess the impact of the fee on merging parties, the Bureau considered the fee against the size-of-transaction thresholds for PMNs and ARCs. The assessment revealed that a $72,000 filing fee represents .08 percent of the minimum $88 million size-of-transaction threshold. At the $400 million size-of-parties threshold, the fee represents .02 percent of merging parties’ assets or revenues.

Public policy objectives

The proposed filing fee increase outlined in this document will contribute to revenues that will help support the activities of the Bureau’s merger program. By reviewing proposed mergers to ensure they do not substantially lessen or prevent competition, the Bureau is contributing to the Government’s efforts to keep the Canadian economy competitive, innovative and accessible to businesses. The proposed fee increase also aligns with the Government’s 2017 initiative to modernize business service fees. An increase in the merger filing fee will ensure that merging parties pay their share of the costs associated with reviewing mergers.

Did the Bureau consider other fee options?

The Bureau has periodically considered various fee structures for the merger filing fee. The Bureau considered fee structures in a 1993 internal review of service fees, during consultations in 2002 and 2007, and through internal studies conducted in 2012 and 2014. In addition to a flat fee, fees may be imposed through a tiered fee structure. Tiered fees can be based on the time used to examine a merger, the size of assets or revenues of merging parties, or the complexity of the merger review. The Bureau finds the flat fee to be a simple, efficient and transparent way to charge fees for merger reviews. In the Bureau’s view, the flat fee approach does not discriminate against industries and poses fewer issues than some of the other fee options available. For example, a time-based fee could suffer from inconsistent application. Although the Bureau is proposing a flat fee, it will continue to assess the benefits and suitability of the flat fee approach, as well as consider other fee options in the future.

International comparison

Since introducing a fee for merger filings in 1997, the Bureau has periodically compared its fee with the fees of competition agencies in other jurisdictions. An international comparison of fees shows that the proposed filing fee conforms with international norms, even when the fee structures of the agencies differ.

The proposed fee also aligns with the International Competition Network’s (ICN) recommendation that merger notification filing fees should be easily understood, readily determinable at the time of filing, easily administered, and consistent with the jurisdiction’s legislative and policy framework.

Service standards

Under the SFA, federal departments and agencies are required to establish performance standards and report annually on fees. The Bureau has had service standards in place for merger reviews since 1997, and reports its performance on merger reviews annually to ISED. Currently, the Bureau classifies mergers under two complexity levels: non‑complex and complex. The service standards for reviews are based on the complexity of the competition issues raised by a proposed merger. The service standard is 14 calendar days for non‑complex cases and 45 days for complex cases. When the Bureau issues a Supplementary Information Request (SIR), the service standard is 30 days after the parties have complied with the SIR. In 2016‑17, the Bureau met the service standards in 74 percent of complex cases and 99 percent of non‑complex cases^{Footnote 7}.

The current merger review complexity levels and the related service standards are not expected to change with the submission of this proposal. However, the Bureau will continue to consider updating the complexity level designations and service standards to better reflect the time, work and information required to review mergers.

Remission of fees

The SFA requires that departments and agencies establish a mechanism for remitting fees when service standards are not met. Guidelines on remissions are currently being developed by ISED and the Treasury Board.

Annual adjustment of fees

The SFA includes a provision for adjusting fees to account for inflation. Each fiscal year, fees will be increased by the percentage change over 12 months in the CPI for Canada for the previous fiscal year. The adjusted merger filing fee will be published on the Bureau’s website annually.

Consultations with stakeholders

Consulting stakeholders on the proposed fee is a requirement under the DIA. Stakeholders will be invited to comment on the fee proposal, which will be published on the Bureau’s website for 30 days. The Bureau will review and consider comments on the proposed fee and costing analysis, fee approach, service standards for merger reviews, and the fee setting process. The Bureau will also prepare and share a summary of the consultations with the Minister.

The Bureau will be inviting input from key stakeholders, including consumer groups and industry associations from the real‑estate, oil and gas, manufacturing, grocery, telecommunications and retail sectors.