Commission Notice on calculation of turnover under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings
Date: 1998-03-02
Institutions: European Commission
Subjects: accounting, economic concentration, merger control, shareholding, turnover

2.3.98

EN

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COMMISSION  NOTICE

on  calculation  of  turnover  under  Council  Regulation  (EEC)  No  4064/89  on  the  control
of  concentrations  between  undertakings

(98/C  66/04)

(Text  with  EEA  relevance)

I. 

‘ACCOUNTING’  DETERMINATION  OF  TURNOVER

1.  Turnover  as  a  reflection  of  business  activity

1.1.  The  concept  of  turnover

1.2.  Ordinary activities

2.  ‘Net’  turnover

2.1.  The  deduction  of  rebates  and  taxes

2.2.  The  deduction  of  ‘internal’  turnover

3.  Adjustment  of  turnover  calculation  rules  for  the  different  types  of  operations

3.1.  The  general  rule

3.2.  Acquisition  of  parts  of  companies

3.3.  Staggered  operations

3.4.  Turnover  of  groups

3.5.  Turnover  of  State-owned  companies

II.  GEOGRAPHICAL  ALLOCATION  OF  TURNOVER

1.  General  rule

2.  Conversion  of  turnover  into  ecu

III.  CREDIT  AND  OTHER  FINANCIAL  INSTITUTIONS  AND  INSURANCE  UNDERTAKINGS

1.  Definitions

2.  Calculation  of  turnover

1. 

2. 

The  purpose  of  this  Notice  is  to  expand  upon  the
text  of  Articles  1  and  5  of  Council  Regulation
(EEC)  No  4064/89 (1)  as  last  amended  by  Council
(EC)  No  1310/97 (2) 
Regulation 
(hereinafter
referred  to  as  ‘the  Merger  Regulation’)  and  in  so
doing  to  elucidate  certain  procedural  and  practical
questions  which  have  caused  doubt  or  difficulty.

This  Notice  is  based  on  the  experience  gained  by
the Commission in applying the Merger Regulation
to  date.  The  principles  it  sets  out  will  be  followed
and 
the  Commission’s
practice  in  individual  cases.

further  developed  by 

This  Notice  replaces  the  Notice  on  calculation  of
turnover (3).

3. 

The  Merger  Regulation  has  a  two  fold  test  for
Commission  jurisdiction.  One  test  is  that  the
transaction  must  be  a  concentration  within  the
meaning of Article 3 (4).  The  second  comprises  the
turnover  thresholds  contained  in  Article  1  and
designed  to  identify  those  transactions  which  have
an  impact  upon  the  Community  and  can  be

(1)  OJ  L  395,  30.12.1989,  p.  1;  corrected  version  OJ  L  257,

21.9.1990,  p.  13.

(2)  OJ  L  180,  9.7.1997,  p.  1.

(3)  OJ  C  385,  31.12.1994,  p.  21.
(4)  See  the  Notice  on  the  concept  of  concentration.

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deemed to be of ‘Community interest’. Turnover is
used  as  a  proxy  for  the  economic  resources  being
combined  in  a  concentration,  and  is  allocated
geographically  in  order  to  reflect  the  geographic
distribution  of  those  resources.

in  order 

the  worldwide 

to  establish  whether 

Two  sets  of  thresholds  are  set  out  in  Article  1,  in
paragraph  2  and  paragraph  3  respectively.  Article
1(2)  sets  out  the  thresholds  which  must  first  be
checked 
the
transaction  has  a  Community  dimension.  In  this
is
respect, 
intended  to  measure  the  overall  dimension  of  the
undertakings  concerned;  the  Community  turnover
the
threshold 
level  of
concentration 
activities  in  the  Community;  and  the  two-thirds
rule  aims  to  exclude  purely  domestic  transactions
from  Community  jurisdiction.

to  determine  whether 

involves  a  minimum 

threshold 

turnover 

seek 

‘multiple  notifications’).  For 

Article  1(3)  must  only  be  applied  in  the  event  that
the  thresholds  set  out  in  Article  1(2)  are  not  met.
This  second  set  of  thresholds  is  designed  to  tackle
those  transactions  which  fall  short  of  achieving
Community  dimension  under  Article  1(2),  but
would  need 
to  be  notified  under  national
competition  rules  in  at  least  three  Member  States
this
(so  called 
purpose,  Article  1(3)  provides  for  lower  turnover
thresholds,  both  worldwide  and  Community-wide,
to  be  achieved  by  the  undertakings  concerned.  A
concentration has a Community dimension if these
lower  thresholds  are  fulfilled  and  the  undertakings
individually  a
concerned  achieve 
minimum 
least  three
Member  States.  Article  1(3)  also  contains  a
two-thirds  rule  similar  to  that  of  Article  1(2),
which 
domestic
identify 
transactions.

level  of  activities 

jointly  and 

purely 

in  at 

aims 

to 

4. 

The  thresholds  as  such  are  designed  to  establish
jurisdiction  and  not  to  assess  the  market  position
of  the  parties  to  the  concentration  nor  the  impact
of the operation. In so doing they include turnover
derived  from,  and  thus  the  resources  devoted  to,
all  areas  of  activity  of  the  parties,  and  not  just
those directly involved in the concentration. Article
1 of the Merger Regulation sets out the thresholds
to  be  used  to  determine  a  concentration  with  a
‘Community  dimension’  while  Article  5  explains
how  turnover  should  be  calculated.

5. 

The  fact  that  the  thresholds  of  Article  1  of  the
Merger  Regulation  are  purely  quantitative,  since

is 

they are only based on turnover calculation instead
of  market  share  or  other  criteria,  shows  that  their
aim 
to  provide  a  simple  and  objective
mechanism  that  can  be  easily  handled  by  the
in  order  to
companies 
determine  if  their  transaction  has  a  Community
dimension  and  is  therefore  notifiable.

in  a  merger 

involved 

The  decisive  issue  for  Article  1  of  the  Merger
Regulation  is  to  measure  the  economic  strength  of
the  undertakings  concerned  as  reflected  in  their
respective  turnover  figures,  regardless  of  the  sector
where  such  turnover  was  achieved  and  of  whether
those  sectors  will  be  at  all  affected  by  the
transaction  in  question.  The  Merger  Regulation
has  thereby  given  priority  to  the  determination  of
the  overall  economic  and  financial  resources  that
are being combined through the merger in order to
decide  whether 
is  of  Community
interest.

latter 

the 

the  undertakings 

In  this  context,  it  is  clear  that  turnover  should
reflect  as  accurately  as  possible  the  economic
strength  of 
in  a
transaction.  This  is  the  purpose  of  the  set  of  rules
contained  in  Article  5  of  the  Merger  Regulation
which  are  designed  to  ensure  that  the  resulting
figures  are  a  true  representation  of  economic
reality.

involved 

The  Commission’s  interpretation  of  Articles  1  and
5 with respect to calculation of turnover is without
prejudice to the interpretation which may be given
by  the  Court  of  Justice  or  the  Court  of  First
Instance  of  the  European  Communities.

I. ‘ACCOUNTING’  CALCULATION  OF  TURNOVER

1. 

Turnover  as  a  reflection  of  activity

1.1. 

the  concept  of  turnover

The concept of turnover as used in Article 5 of the
Merger Regulation refers explicitly to ‘the amounts
derived from the sale of products and the provision
of 
the
undertaking’s activity, is thus the essential criterion
for  calculating  turnover,  whether  for  products  or

services’.  Sale,  as  a 

reflection  of 

6. 

7. 

8. 

9. 

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the  provision  of  services.  ‘Amounts  derived  from
sale’  generally  appear  in  company  accounts  under
the  heading  ‘sales’.

the  case  of  products, 

In 
determined  without 
identifying  each  commercial  act 
transfer  of  ownership.

difficulty, 

turnover  can  be
namely 
by
involving  a

In the case of services, the factors to be taken into
account  in  calculating  turnover  are  much  more
complex,  since  the  commercial  act  involves  a
transfer  of  ‘value’.

10. 

11. 

12.  Generally  speaking,  the  method  of  calculating
turnover  in  the  case  of  services  does  not  differ
from  that  used  in  the  case  of  products:  the
Commission  takes  into  consideration  the  total
amount of sales. Where the service provided is sold
directly  by  the  provider  to  the  customer,  the
turnover  of  the  undertaking  concerned  consists  of
the  total  amount  of  sales  for  the  provision  of
services  in  the  last  financial  year.

13.  Because of the complexity of the service sector, this
general  principle  may  have  to  be  adapted  to  the
specific conditions of the service provided. Thus, in
certain  sectors  of  activity  (such  as  tourism  and
advertising),  the  service  may  be  sold  through  the
intermediary  of  other  suppliers.  Because  of  the
diversity  of  such  sectors,  many  different  situations
may  arise.  For  example,  the  turnover  of  a  service
undertaking  which  acts  as  an  intermediary  may
consist solely of the amount of commissions which
it receives.

14. 

Similarly,  in  a  number  of  areas  such  as  credit,
financial services and insurance, technical problems
in  calculating  turnover  arise  which  will  be  dealt
with  in  Section  III.

For 

example, 

price (5). 
the
consumption of a product allows the manufacturer
to  sell  at  a  higher  price  than  that  actually  paid  by
consumers.

towards 

aid 

In 

its  Decision 

17.  With  regard  to  services,  the  Commission  looks  at
the  undertaking’s  ordinary  activities  involved  in
establishing  the  resources  required  for  providing
the 
the
service. 
case (6), 
Accor/Wagons-Lits 
the  Commission
decided  to  take  into  account  the  item  ‘other
operating  proceeds’ 
in  Wagons-Lits’s
loss  account.  The  Commission
profit  and 
considered that the components of this item which
included  certain  income  from  its  car-hire  activities
were  derived  from  the  sale  of  products  and  the
provision of services by Wagons-Lits and were part
of  its  ordinary  activities.

included 

in 

2.  ‘Net’  turnover

18.  The  turnover  to  be  taken  into  account  is  ‘net’
turnover,  after  deduction  of  a  number  of
components  specified 
in  the  Regulation.  The
Commission’s  aim  is  to  adjust  turnover  in  such  a
way as to enable it to decide on the real economic
weight  of  the  undertaking.

2.1.  The  deduction  of  rebates  and  taxes

19.  Article  5(1)  provides  for  the  ‘deduction  of  sales
rebates  and  of  value  added  tax  and  other  taxes
directly  related  to  turnover’.  The  deductions  thus
relate  to  business  components  (sales  rebates)  and
tax  components  (value  added  tax  and  other  taxes
directly  related  to  turnover).

1.2.  Ordinary activities

15.  Article  5(1)  states  that  the  amounts  to  be  included
in  the  calculation  of  turnover  must  correspond  to
the 
the  undertakings
concerned.

‘ordinary  activities’  of 

20. 

‘Sales  rebates’  should  be  taken  to  mean  all  rebates
or discounts which are granted by the undertakings
during 
their
customers and which have a direct influence on the
amounts  of  sales.

their  business  negotiations  with 

16.  With  regard  to  aid  granted  to  undertakings  by
public  bodies,  any  aid  relating  to  one  of  the
ordinary  activities  of  an  undertaking  concerned  is
liable  to  be  included  in  the  calculation  of  turnover
if  the  undertaking  is  itself  the  recipient  of  the  aid
and  if  the  aid  is  directly  linked  to  the  sale  of
products  and  the  provision  of  services  by  the
in  the
undertaking  and 

is  therefore  reflected 

(5)  See  Case  IV/M.156  —  Cereol/Continentale  Italiana  of  27
November  1991.  In  this  case,  the  Commission  excluded
Community aid from the calculation of turnover because the
aid  was  not  intended  to  support  the  sale  of  products
manufactured  by  one  of  the  undertakings  involved  in  the
merger,  but  the  producers  of  the  raw  materials  (grain)  used
by  the  undertaking,  which  specialized  in  the  crushing  of
grain.

(6)  Case  IV/M.126  —  Accor/Wagons-Lits,  of  28  April  1992.

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21.  As  regards  the  deduction  of  taxes,  the  Merger
Regulation  refers  to  VAT  and  ‘other  taxes  directly
related  to  turnover’.  As  far  as  VAT  is  concerned,
its  deduction  does  not 
in  general  pose  any
problem.  The  concept  of  ‘taxes  directly  related  to
turnover’  is  a  clear  reference  to  indirect  taxation
since  it  is  directly  linked  to  turnover,  such  as,  for
example,  taxes  on  alcoholic  beverages.

2.2.  The  deduction  of  ‘internal’  turnover

22.  The  first  subparagraph  of  Article  5(1)  states  that
‘the  aggregate 
turnover  of  an  undertaking
concerned shall not include the sale of products or
the  provision  of  services  between  any  of  the
undertakings referred to in paragraph 4’, i.e. those
which  have  links  with  the  undertaking  concerned
(essentially  parent  companies  or  subsidiaries).

23.  The  aim  is  to  exclude  the  proceeds  of  business
dealings  within  a  group  so  as  to  take  account  of
the  real  economic  weight  of  each  entity.  Thus,  the
into  account  by  the  Merger
‘amounts’  taken 
Regulation reflect only the transactions which take
place  between  the  group  of  undertakings  on  the
one  hand  and  third  parties  on  the  other.

3.  Adjustment  of  turnover  calculation  rules  for

the  different  types  of  operations

3.1.  The  general  rule

24.  According 

turnover  comprises 

to  Article  5(1)  of 

the  Merger
Regulation,  aggregate 
the
amounts  derived  by  the  undertakings  concerned  in
the  preceding  financial  year  from  the  sale  of
products  and  the  provision  of  services.  The  basic
principle 
for  each  undertaking
concerned the turnover to be taken into account is
the  turnover  of  the  closest  financial  year  to  the
date  of  the  transaction.

thus 

that 

is 

are 

country 

observed, 

audited  or  other  definitive  accounts.  However,  in
cases  where  major  differences  between 
the
Community’s  accounting  standards  and  those  of  a
non-member 
the
Commission  may  consider  it  necessary  to  restate
these  accounts  in  accordance  with  Community
standards  in  respect  of  turnover.  The  Commission
is, in any case, reluctant to rely on management or
any  other  form  of  provisional  accounts  in  any  but
exceptional circumstances (see the next paragraph).
Where  a  concentration  takes  place  within  the  first
months  of  the  year  and  audited  accounts  are  not
yet available for the most recent financial year, the
figures  to  be  taken  into  account  are  those  relating
to  the  previous  year.  Where  there  is  a  major
divergence  between  the  two  sets  of  accounts,  and
in  particular,  when  the  final  draft  figures  for  the
most  recent  years  are  available,  the  Commission
into
may  decide  to  take  those  draft  figures 
account.

27.  Notwithstanding  paragraph  26,  an  adjustment
must  always  be  made  to  account  for  acquisitions
or  divestments  subsequent  to  the  date  of  the
audited  accounts.  This  is  necessary  if  the  true
resources  being  concentrated  are  to  be  identified.
Thus  if  a  company  disposes  of  part  of  its  business
at  any  time  before  the  signature  of  the  final
agreement  or  the  announcement  of  the  public  bid
or the acquisition of a controlling interest bringing
about a concentration, or where such a divestment
or  closure  is  a  pre-condition  for  the  operation (7)
the  part  of  the  turnover  to  be  attributed  to  that
part  of  the  business  must  be  subtracted  from  the
turnover of the notifying party as shown in its last
audited  accounts.  Conversely,  the  turnover  to  be
attributed  to  assets  of  which  control  has  been
acquired subsequent to the preparation of the most
recent  audited  accounts  must  be  added  to  a
company’s  turnover  for  notification  purposes.

25.  This  provision  shows  that  since  there  are  usually
no  audited  accounts  of  the  year  ending  the  day
before the transaction, the closest representation of
a  whole  year  of  activity  of  the  company  in
question is the one given by the turnover figures of
the  most  recent  financial  year.

28.  Other  factors  that  may  affect  turnover  on  a
temporary  basis  such  as  a  decrease  in  orders  for
the  product  or  a  slow-down  in  the  production
process  within  the  period  prior  to  the  transaction
will  be  ignored  for  the  purposes  of  calculating
turnover.  No  adjustment  to  the  definitive  accounts
will  be  made  to  incorporate  them.

26.  The Commission seeks to base itself upon the most
accurate and reliable figures available. As a general
rule  therefore,  the  Commission  will  refer  to

(7)  See  Judgment  of  the  Court  of  First  Instance  in  Case  T-3/93,

Air  France  v  Commission,  [1994]  ECR  II-21.

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29.  Regarding  the  geographical  allocation  of  turnover,
since  audited  accounts  often  do  not  provide  a
geographical  breakdown  of  the  sort  required  by
the  Merger  Regulation,  the  Commission  will  rely
on  the  best  figures  available  provided  by  the
companies  in  accordance  with  the  rule  laid  down
in  Article  5(1)  of  the  Merger  Regulation  (see
Section  II.1).

34. 

3.2.  Acquisitions  of  parts  of  companies

30.  Article 5(2) of the Merger Regulation provides that
‘where the concentration consists in the acquisition
of  parts,  whether  or  not  constituted  as  legal
entities,  of  one  or  more  undertakings,  only  the
turnover relating to the parts which are the subject
of the transaction shall be taken into account with
regard  to  the  seller  or  sellers’.

as  one  and  the  same  concentration  arising  on  the
date  of  the  last  transaction’.

In  practical  terms,  this  provision  means  that  if
company  A  buys  a  subsidiary  of  company  B  that
represents  50 %  of  the  overall  activity  of  B  and
one  year  later  it  acquires  the  other  subsidiary  (the
remaining  50 %  of  B),  both  transactions  will  be
taken  as  one.  Assuming 
the
subsidiaries  attained  a  turnover  in  the  Community
of  only  ECU  200  million,  the  first  transaction
would  not  be  notifiable  unless  the  operation
fulfilled  the  conditions  set  out  in  Article  1(3).
However,  since  the  second  transaction  takes  place
within  the  two-year  period,  both  have  to  be
notified  as  a  single  transaction  when  the  second
occurs.

that  each  of 

included 

31.  This  provision  states  that  when  the  acquirer  does
not  purchase  an  entire  group,  but  only  one,  or
part,  of  its  businesses,  whether  or  not  constituted
as  a  subsidiary,  only  the  turnover  of  the  part
in  the  turnover
acquired  should  be 
calculation.  In  fact,  although  in  legal  terms  the
seller  as  a  whole  (with  all  its  subsidiaries)  is  an
essential  party 
the
sale-purchase  agreement  cannot  be  concluded
without  him,  he  plays  no  role  once  the  agreement
has  been  implemented.  The  possible  impact  of  the
transaction  on  the  market  will  depend  only  on  the
combination  of 
financial
resources that are the subject of a property transfer
with  those  of  the  acquirer  and  not  on  the
remaining  business  of  the  seller  who  remains
independent.

the  economic  and 

transaction,  since 

the 

to 

3.3.  Staggered operations

32. 

Sometimes  certain  successive  transactions  are  only
individual  steps  within  a  wider  strategy  between
the  same  parties.  Considering  each  transaction
alone,  even  if  only  for  determining  jurisdiction,
would  imply  ignoring  economic  reality.  At  the
same  time,  whereas  some  of  these  staggered
operations may be designed in this fashion because
they  will  better  meet  the  needs  of  the  parties,
others  could  be  structured  like  this  in  order  to
circumvent 
the  Merger
the  application  of 
Regulation.

33.  The  Merger  Regulation  has 

foreseen 

these
scenarios  in  Article  5(2),  second  subparagraph,
which  provides  that  ‘two  or  more  transactions
within  the  meaning  of  the  first  subparagraph
which take place within a two-year period between
the  same  persons  or  undertakings  shall  be  treated

35.  The  importance  of  the  provision  is  that  previous
transactions  (within  two  years)  become  notifiable
with 
the
the  most  recent 
thresholds  are  cumulatively  met.

transaction  once 

3.4.  Turnover  of  groups

36.  When an undertaking concerned in a concentration
within  the  meaning  of  Article  1  of  the  Merger
Regulation (8)  belongs  to  a  group,  the  turnover  of
the group as a whole is to be taken into account in
order to determine whether the thresholds are met.
The aim is again to capture the total volume of the
economic  resources 
that  are  being  combined
through  the  operation.

37.  The Merger Regulation does not define the concept
of  group  in  abstract  terms  but  focuses  on  whether
the  companies  have  the  right  to  manage  the
undertaking’s  affairs  as  the  yardstick  to  determine
which  of  the  companies  that  have  some  direct  or
indirect 
links  with  an  undertaking  concerned
should  be  regarded  as  part  of  its  group.

38.  Article  5(4)  of  the  Merger  Regulation  provides  the

following:

‘Without  prejudice  to  paragraph  2  [acquisitions  of
parts],  the  aggregate  turnover  of  an  undertaking
concerned  within  the  meaning  of  Article  1(2)  and
(3)  shall  be  calculated  by  adding  together  the
respective  turnovers  of  the  following:

(8)  See  the  Commission  Notice  on  the  concept  of  undertakings

concerned.

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(a) the  undertaking  concerned;

a:  The  undertaking  concerned

(b) those  undertakings  in  which  the  undertaking

concerned  directly  or  indirectly:

b:  Its  subsidiaries  and  their  own  subsidiaries  (b1  and

b2)

c:  Its parent companies and their own parent companies

—  owns  more  than  half  the  capital  or  business

(c1)

assets,  or

—  has the power to exercise more than half the

voting  rights,  or

—  has the power to appoint more than half the
members  of  the  supervisory  board,  the
administrative  board  or  bodies 
legally
representing  the  undertakings,  or

— has  the  right  to  manage  the  undertaking’s

affairs;

(c) those  undertakings  which  have 

an
undertaking  concerned  the  rights  or  powers
listed  in  (b);

in 

(d) those  undertakings  in  which  an  undertaking  as
referred to in (c) has the rights or powers listed
in  (b);

(e) those  undertakings  in  which  two  or  more
undertakings  as  referred  to  in  (a)  to  (d)  jointly
have  the  rights  or  powers  listed  in  (b).’

This  means  that  the  turnover  of  the  company
directly  involved  in  the  transaction  (point  (a))
should include its subsidiaries (point (b)), its parent
companies  (point  (c)),  the  other  subsidiaries  of  its
parent  companies  (point  (d))  and  any  other
undertaking  jointly  controlled  by  two  or  more  of
the  companies  belonging  to  the  group  (point  (e)).
A  graphic  example  is  as  follows:

The  undertaking  concerned  and  its  group:

c1

100 %

c

c

50 %

50 %

a

100 %

d

51 %

51 %

100 %

b

b

100 %

100 %

50 %

b1

b2

b

e

50 %

d:  Other  subsidiaries  of  the  parent  companies  of  the

undertaking  concerned

e:  Companies 

jointly  controlled  by  two  (or  more)

companies  of  the  group

Note: 

these  letters  correspond  to  the  relevant  points  of
Article  5(4).

Several  remarks  can  be  made  from  this  chart:

1.  As  long  as  the  test  of  control  of  point  (b)  is
fulfilled,  the  whole  turnover  of  the  subsidiary
in  question  will  be 
into  account
regardless  of  the  actual  shareholding  of  the
controlling company. In the example, the whole
turnover  of  the  three  subsidiaries  (called  b)  of
the  undertaking 
(a)  will  be
included.

concerned 

taken 

2.  When  any  of  the  companies 

identified  as
belonging  to  the  group  also  controls  others,
these  should  also  be  incorporated  into  the
calculation. 
the
subsidiaries  of  a  (called  b)  has  in  turn  its  own
subsidiaries  b1  and  b2.

the  example,  one  of 

In 

3.  When  two  or  more  companies  jointly  control
the  undertaking  concerned  (a)  in  the  sense  that
the agreement of each and all of them is needed
in order to manage the undertaking affairs, the
turnover  of  all  of  them  should  be  included (9).
In  the  example,  the  two  parent  companies  (c)
of  the  undertaking  concerned  (a)  would  be
taken  into  account  as  well  as  their  own  parent
companies  (c1  in  the  example).  Although  the
Merger  Regulation  does  not  explicitly  mention
this  rule  for  those  cases  where  the  undertaking
concerned  is  in  fact  a  joint  venture,  it  is
inferred  from  the  text  of  Article  5(4)(c),  which
uses  the  plural  when  referring  to  the  parent
companies.  This 
interpretation  has  been
consistently  applied  by  the  Commission.

4.  Any intra-group sale should be subtracted from
the  turnover  of  the  group  (see  paragraph  22).

(9)  See  Commission  Notice  on  the  concept  of  undertakings

concerned  (paragraphs  26-29).

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39.  The Merger Regulation also deals with the specific
scenario 
two  or  more
that  arises  when 
undertakings  concerned  in  a  transaction  exercise
joint  control  of  another  company.  Pursuant  to
point  (a)  of  Article  5(5),  the  turnover  resulting
from  the  sale  of  products  or  the  provision  of
services  between  the  joint  venture  and  each  of  the
undertakings  concerned  or  any  other  company
connected  with  any  one  of  them  in  the  sense  of
Article  5(4)  should  be  excluded.  The  purpose  of
such  a  rule  is  to  avoid  double  counting.  With
regard  to  the  turnover  of  the 
joint  venture
generated  from  activities  with  third  parties,  point
(b)  of  Article  5(5)  provides  that  it  should  be
apportioned  equally  amongst  the  undertakings
concerned,  to  reflect  the  joint  control (10).

40. 

Following  the  principle  of  point  (b)  of  Article  5(5)
by  analogy,  in  the  case  of  joint  ventures  between
undertakings  concerned  and  third  parties,  the
Commission’s practice has been to allocate to each
of  the  undertakings  concerned  the  turnover  shared
equally  by  all  the  controlling  companies  in  the
joint  venture.  In  all  these  cases,  however,  joint
control  has  to  be  demonstrated.

The practice shows that it is impossible to cover in
the  present  Notice  the  whole  range  of  scenarios
which could arise in respect of turnover calculation
of  joint  venture  companies  or  joint  control  cases.
Whenever  ambiguities  arise,  an  assessment  should
always  give  priority  to  the  general  principles  of
avoiding  double  counting  and  of  reflecting  as
accurately as possible the economic strength of the
undertakings  involved  in  the  transaction (11).

41. 

It  should  be  noted  that  Article  5(4)  refers  only  to
the  groups  that  already  exist  at  the  time  of  the
transaction, 
the
undertakings  concerned  in  an  operation,  and  not
to  the  new  structures  created  as  a  result  of  the
concentration. For example, if companies A and B,

the  group  of  each  of 

i.e. 

(10) For  example,  company  A  and  company  B  set  up  a  joint
venture C. These  two parent companies exercise at the same
time  joint  control  of  company  D,  although  A  has  60 %  and
B  40 %  of  the  capital.  When  calculating  the  turnover  of  A
and  B  at  the  time  they  set  up  the  new  joint  venture  C,  the
turnover  of  D  with  third  parties  is  attributed  in  equal  parts
to  A  and  B.

(11) See  for  example  Case  IV/M.806  —  BA/TAT,  of  26  August

1996.

together  with  their  respective  subsidiaries,  are
going  to  merge,  it  is  A  and  B,  and  not  the  new
entity,  that  qualify  as  undertakings  concerned,
which implies that the turnover of each of the two
groups  should  be  calculated  independently.

42. 

Since the aim of this provision is simply to identify
the companies belonging to the existing groups for
the  purposes  of  turnover  calculation,  the  test  of
having  the  right  to  manage  the  undertaking’s
affairs  in  Article  5(4) (12)  is  somewhat  different
from  the  test  of  control  set  out  in  Article  3(3),
which  refers  to  the  acquisition  of  control  carried
out  by  means  of  the  transaction  subject  to
examination.  Whereas  the  former  is  simpler  and
easier to prove on the basis of factual evidence, the
latter is more demanding because in the absence of
an  acquisition  of  control  no  concentration  arises.

3.5.  Turnover  of  State-owned  companies

read 

turnover, 

in  order 

should  be 

43.  While  Article  5(4)  sets  out  the  method  for
determining  the  economic  grouping  to  which  an
undertaking  concerned  belongs  for  the  purpose  of
calculating 
in
it 
conjunction  with  recital  12  to  Regulation  (EEC)
No  4064/89  in  respect  of  State-owned  enterprises.
This  recital  states 
to  avoid
that 
discrimination  between  the  public  and  private
sector,  account  should  be  taken  ‘of  undertakings
making  up  an  economic  unit  with  an  independent
power of decision, irrespective of the way in which
their  capital 
rules  of
is  held  or  of 
administrative  supervision  applicable  to  them’.
Thus  the  mere  fact  that  two  companies  are  both
State-owned  should  not  automatically  lead  to  the
conclusion  that  they  are  part  of  a  group  for  the
purposes  of  Article  5.  Rather, 
it  should  be
considered  whether  there  are  grounds  to  consider
that  each  company  constitutes  an  independent
economic  unit.

the 

to 

any 

coordination  with 

44.  Thus  where  a  State-owned  company  is  not  part  of
an  overall  industrial  holding  company  and  is  not
subject 
other
State-controlled holdings, it should be treated as an
independent  group  for  the  purposes  of  Article  5,
and  the  turnover  of  other  companies  owned  by
that  State  should  not  be  taken  into  account.
Where,  however,  a  Member  State’s  interests  are
grouped  together  in  holding  companies,  or  are

(12) See for example Case IV/M.126 — Accor/Wagons-Lits, of 28
April  1992,  and  Case  IV/M.940  —  UBS/Mister  Minit,  of  9
July  1997.

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2.3.98

managed  together,  or  where  for  other  reasons  it  is
clear  that  State-owned  companies  form  part  of  an
‘economic  unit  with  an  independent  power  of
decision’,  then  the  turnover  of  those  businesses
should  be  considered  part  of  the  group  of  the
undertaking  concerned’s 
the  purposes  of
Article  5.

for 

may  well  be  driven  across  Europe  by  its  purchaser
but  it  was  purchased  at  only  one  place  —  Paris,
Berlin  or  Madrid  say.  This  is  also  true  in  the  case
of those services where it is possible to separate the
purchase of a service from its delivery. Thus in the
case  of  package  holidays,  competition  for  the  sale
of  holidays  through  travel  agents  takes  place
locally,  as  with  retail  shopping,  even  though  the
service  may  be  provided  in  a  number  of  distant
locations. This turnover is, however, earned locally
and  not  at  the  site  of  an  eventual  holiday.

II. GEOGRAPHICAL  ALLOCATION  OF  TURNOVER

1.  General  rule

45.  The  thresholds  other  than  those  set  by  Article
1(2)(a)  and  Article  1(3)(a)  select  cases  which  have
sufficient  turnover  within  the  Community  in  order
to  be  of  Community  interest  and  which  are
primarily  cross-border  in  nature.  They  require
turnover  to  be  allocated  geographically  to  achieve
this.  The  second  subparagraph  of  Article  5(1)
provides 
is
determined  by  the  location  of  the  customer  at  the
time  of  the  transaction:

location  of 

turnover 

that 

the 

47.  This 

applies 

even  where 

a  multinational
corporation  has  a  Community  buying  strategy  and
sources  all  its  requirements  for  a  good  or  service
from  one  location.  The  fact  that  the  components
are  subsequently  used  in  ten  different  plants  in  a
variety  of  Member  States  does  not  alter  the  fact
that  the  transaction  with  a  company  outside  the
group  occurred 
in  only  one  country.  The
subsequent  distribution  to  other  sites  is  purely  an
internal  question  for  the  company  concerned.

48.  Certain  sectors  do,  however,  pose  very  particular
the  geographical
regard 

problems  with 
allocation  of  turnover  (see  Section  III).

to 

‘Turnover,  in  the  Community  or  in  a  Member
State,  shall  comprise  products  sold  and  services
provided  to  undertakings  or  consumers,  in  the
Community  or  in  that  Member  State  as  the  case
may  be.’

2.  Conversion  of  turnover  into  ecu

46.  The  reference  to  ‘products  sold’  and  ‘services
provided’  is  not  intended  to  discriminate  between
goods  and  services  by  focusing  on  where  the  sale
takes  place  in  the  case  of  goods  but  the  place
where  a  service  is  provided  (which  might  be
different  from  where  the  service  was  sold)  in  the
case  of  services.  In  both  cases,  turnover  should  be
attributed  to  the  place  where  the  customer  is
located  because  that  is,  in  most  circumstances,
where a deal was made, where the turnover for the
supplier  in  question  was  generated  and  where
competition  with  alternative 
took
place (13). The second subparagraph of Article 5(1)
does  not  focus  on  where  a  good  or  service  is
enjoyed  or  the  benefit  of  the  good  or  service
derived. In the case of a mobile good, a motor car

suppliers 

(13) If the place where the customer was located when purchasing
the  goods  or  service  and  the  place  where  the  billing  was
subsequently  made  are  different, 
turnover  should  be
allocated  to  the  former.

49.  When  converting  turnover  figures  into  ecu  great
care  should  be  taken  with  the  exchange  rate  used.
The  annual  turnover  of  a  company  should  be
converted at the average rate for the twelve months
concerned.  This  average  can  be  obtained  from  the
Commission.  The  audited  annual  turnover  figures
into  component
should  not  be  broken  down 
quarterly,  monthly,  or  weekly  sales  figures  which
are  converted  individually  at  the  corresponding
average  quarterly,  monthly  or  weekly  rates,  with
the  ecu  figures  then  added  to  give  a  total  for  the
year.

50.  When  a  company  has  sales 

in 

in  a  range  of
currencies,  the  procedure  is  no  different.  The  total
turnover  given 
the  consolidated  audited
accounts and in that company’s reporting currency
is  converted  into  ecu  at  the  average  rate  for  the
twelve  months.  Local  currency  sales  should  not  be
converted  directly  into  ecu  since  these  figures  are
not  from  the  consolidated  audited  accounts  of  the
company.

2.3.98

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III. CREDIT  AND  OTHER  FINANCIAL  INSTITUTIONS
AND  INSURANCE  UNDERTAKINGS

1.  Definitions

51.  The  specific  nature  of  banking  and  insurance
activities  is  formally  recognized  by  the  Merger
Regulation  which 
includes  specific  provisions
dealing  with  the  calculation  of  turnover  for  these
sectors (14).  Although  the  Merger  Regulation  does
not  provide  a  definition  of  the  terms,  ‘credit
institutions  and  other  financial  institutions’  within
the  meaning  of  point  (a)  of  Article  5(3),  the
its  practice  has  consistently
Commission 
adopted  the  definitions  provided  in  the  First  and
Second  Banking  Directives:

in 

— ‘Credit institution means an undertaking whose
to  receive  deposits  or  other
business 
repayable  funds  from  the  public  and  to  grant
credits  for  its  own  account (15)’.

is 

—  ‘Financial institution shall mean an undertaking
other  than  a  credit  institution,  the  principal
activity  of  which  is  to  acquire  holdings  or  to
carry  one  or  more  of  the  activities  listed  in
points  2  to  12  in  the  Annex (16)’.

—  issuing  and  managing  instruments  of  payment
(credit  cards,  travellers’  cheques  and  bankers’
drafts),

—  guarantees  and  commitments,

—  trading  on  own  account  or  on  account  of
customers 
instruments,
in  money  market 
foreign exchange, financial futures and options,
exchange  and  interest  rate  instruments,  and
transferable securities,

—  participation  in  share  issues  and  the  provision

of  services  related  to  such  issues,

—  advice  to  undertakings  on  capital  structure,
industrial  strategy  and  related  questions  and
advice  and  services  relating  to  mergers  and  the
purchase  of  undertakings,

—  money  broking,

—  portfolio  management  and  advice,

—  safekeeping  and  administration  of  securities.

2.  Calculation  of  turnover

52. 

as 

regarded 
the  other  hand, 

From  the  definition  of  ‘financial  institution’  given
above,  it  is  clear  that  on  the  one  hand  holding
financial
companies  must  be 
that
institutions  and,  on 
undertakings which perform on a regular basis as a
principal  activity  one  or  more  activities  expressly
mentioned 
the
abovementioned  Annex  must  also  be  regarded  as
financial  institutions  within  the  meaning  of  point
(a) of Article 5(3) of the Merger Regulation. These
activities include:

in  points  2 

to  12  of 

53.  The  methods  of  calculation  of  turnover  for  credit
and  other  financial  institutions  and  for  insurance
undertakings  are  described  in  Article  5(3)  of  the
Merger  Regulation.  The  purpose  of  this  Section  is
to  provide  an  answer  to  supplementary  questions
related 
the
abovementioned  types  of  undertakings  which  were
raised  during  the  first  years  of  the  application  of
the  Merger  Regulation.

calculation 

turnover 

for 

to 

—  lending  (inter  alia,  consumer  credit,  mortgage

2.1.  Credit and financial institutions (other than

credit, factoring,. . .),

—  financial leasing,

—  money  transmission  services,

financial  holding  companies)

2.1.1.  G e n e r a l

(14) See  Article  5(3)  of  the  Merger  Regulation.
(15) Article  1  of  First  Council  Directive  77/780/EEC  of  12
December 1977 on the coordination of laws, regulations and
administrative  provisions  relating  to  the  taking  up  and
pursuit  of  the  business  of  credit  institutions  (OJ  L  322,
17.12.1977,  p.  30).

(16) Article  1(6)  of  Second  Council  Directive  89/646/EEC  of  15
December 1989 on the coordination of laws, regulations and
administrative  provisions  relating  to  the  taking  up  and
pursuit  of  the  business  of  credit  institutions  (OJ  L  386,
30.12.1989,  p.  1).

and  other  kinds  of 

54.  There  are  normally  no  particular  difficulties  in
applying  the  banking  income  criterion  for  the
definition  of  the  worldwide  turnover  to  credit
institutions 
financial
institutions.  Difficulties  may  arise  for  determining
turnover  within  the  Community  and  also  within
individual  Member  States.  For  this  purpose,  the
appropriate criterion is that of the residence of the
branch  or  division,  as  provided  by  Article
5(3)(a)(v),  second  subparagraph,  of  the  Merger
Regulation.

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2.1.2.  T u r n o v e r   o f   l e a s i n g   c o m p a n i e s

leases  and  operating 

55.  There  is  a  fundamental  distinction  to  be  made
between  financial 
leases.
Basically,  financial  leases  are  made  for  longer
periods  than  operating  leases  and  ownership  is
generally transferred to the lessee at the end of the
lease term by means of a purchase option included
in  the  lease  contract.  Under  an  operating  lease,  on
the  contrary,  ownership  is  not  transferred  to  the
lessee at the end of the lease term and the costs of
maintenance,  repair  and  insurance  of  the  leased
equipment  are  included  in  the  lease  payments.  A
financial  lease  therefore  functions  as  a  loan  by  the
lessor  to  enable  the  lessee  to  purchase  a  given
asset.  A  financial  leasing  company  is  thus  a
financial  institution  within  the  meaning  of  point
(a)  of  Article  5(3)  and  its  turnover  has  to  be
calculated  by  applying  the  specific  rules  related  to
the  calculation  of  turnover  for  credit  and  other
financial 
that  operational
leasing activities do not have this lending function,
they  are  not  considered  as  carried  out  by  financial
institutions,  at  least  as  primary  activities,  and
therefore  the  general  turnover  calculation  rules  of
Article  5(1)  should  apply (17).

institutions.  Given 

2.2.  Insurance  undertakings

2.2.1.  G r o s s   p r e m i u m s   w r i t t e n

56.  The  application  of  the  concept  of  gross  premiums
written  as  a  measure  of  turnover  for  insurance
undertakings  has  raised  supplementary  questions
notwithstanding  the  definition  provided  in  point
(b)  of  Article  5(3)  of  the  Merger  Regulation.  The
following  clarifications  are  appropriate:

—  ‘gross’  premiums  written  are  the  sum  of
received premiums (which may include received
the  undertaking
reinsurance  premiums 
if 
concerned  has  activities 
field  of
in 
reinsurance).  Outgoing  or  outward  reinsurance
premiums,  i.e.  all  amounts  paid  and  payable

the 

the  undertaking 

by 
get
reinsurance  cover,  are  already  included  in  the
gross  premiums  written  within  the  meaning  of
the  Merger  Regulation,

concerned 

to 

—  wherever  the  word  ‘premiums’  is  used  (gross
premiums,  net  (earned)  premiums,  outgoing
reinsurance  premiums,  etc.),  these  premiums
are related not only to new insurance contracts
made  during 
the  accounting  year  being
considered  but  also  to  all  premiums  related  to
contracts made in previous years which remain
into
in 
consideration.

force  during 

the  period 

taken 

2.2.2.  I n v e s t m e n t s  
u n d e r t a k i n g s

o f  

i n s u r a n c e

57. 

In order to constitute appropriate reserves allowing
for the payment of claims, insurance undertakings,
which are also considered as institutional investors,
usually  hold  a  huge  portfolio  of  investments  in
shares, 
land  and
property and other assets which provide an annual
revenue  which  is  not  considered  as  turnover  for
insurance  undertakings.

interest-bearing 

securities, 

and 

is  not 

involved 

the  undertakings  where 

58.  With  regard  to  the  application  of  the  Merger
Regulation,  a  major  distinction  should  be  made
between  pure  financial  investments,  in  which  the
in  the
insurance  undertaking 
the
management  of 
investments  have  been  made, 
those
investments leading to the acquisition of an interest
giving control in a given undertaking thus allowing
the  insurance  undertaking  to  exert  a  decisive
influence on the business conduct of the subsidiary
or  affiliated  company  concerned.  In  such  cases
Article 5(4) of the Merger Regulation would apply,
and  the  turnover  of  the  subsidiary  or  affiliated
company  should  be  added  to  the  turnover  of  the
insurance undertaking for the determination of the
thresholds 
the  Merger
down 
Regulation (18).

laid 

in 

(17) See  Case  IV/M.234  —  GECC/Avis  Lease,  15  July  1992.

(18) See  Case  IV/M.018  —  AG/AMEV,  of  21  November  1990.

2.3.98

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2.3.  Financial holding companies (19)

59.  A 

is  a 

financial  holding  company 

financial
institution  and  therefore  the  calculation  of  its
turnover  should  follow  the  criteria  established  in
point  (a)  of  Article  5(3)  for  the  calculation  of
turnover  for  credit  and  other  financial  institutions.
However,  since  the  main  purpose  of  a  financial
holding  is  to  acquire  and  manage  participation  in
other  undertakings,  Article  5(4)  also  applies,  (as
for  insurance  undertakings),  with  regard  to  those
financial  holding
participations  allowing 
company  to  exercise  a  decisive  influence  on  the
business  conduct  of  the  undertakings  in  question.
Thus,  the  turnover  of  a  financial  holding 
is
basically to be calculated according to Article 5(3),
but  it  may  be  necessary  to  add  turnover  of
undertakings falling within the categories set out in
Article  5(4)  (‘Article  5(4)  companies’).

the 

In  practice,  the  turnover  of  the  financial  holding
company  (non-consolidated)  must  first  be  taken
into account. Then the turnover of the Article 5(4)
companies  must  be  added,  whilst  taking  care  to
deduct  dividends  and  other  income  distributed  by
those  companies  to  the  financial  holdings.  The
following  provides  an  example  for  this  kind  of
calculation:

ECU  million

1. Turnover 
activities 
P&L)

related 

financial
to 
(from  non-consolidated

2. Turnover related to insurance Article
(gross  premiums

5(4)  companies 
written)

3 000

300

3. Turnover  of  industrial  Article  5(4)

companies

4. Deduct  dividends  and  other  income
derived  from  Article  5(4)  companies
2  and  3

5. Total turnover financial holding and

its  group

2 000

(200)

5 100

60. 

to  be 

identical  within 
taken 

In  such  calculations  different  accounting  rules,  in
particular  those  related  to  the  preparation  of
consolidated  accounts,  which  are  to  some  extent
the
harmonised  but  not 
Community,  may  need 
into
consideration.  Whilst  this  consideration  applies  to
any  type  of  undertaking  concerned  by  the  Merger
Regulation,  it  is  particularly  important  in  the  case
of  financial  holding  companies (20)  where  the
number  and  the  diversity  of  enterprises  controlled
and  the  degree  of  control  the  holding  holds  on  its
subsidiaries,  affiliated 
companies  and  other
companies  in  which  it  has  shareholding  requires
careful examination.

61.  Turnover 

for 

calculation 

financial  holding
companies  as  described  above  may  in  practice
prove  onerous.  Therefore  a  strict  and  detailed
application of this method will be necessary only in
cases  where  it  seems  that  the  turnover  of  a
financial  holding  company  is  likely  to  be  close  to
the Merger Regulation thresholds; in other cases it
may  well  be  obvious  that  the  turnover  is  far  from
the  thresholds  of  the  Merger  Regulation,  and
therefore  the  published  accounts  are  adequate  for
the  establishment  of  jurisdiction.

(19) The principles set out in this paragraph for financial holdings
may  to  a  certain  extent  be  applied  to  fund  management
companies.

(20) See  for  example  Case  IV/M.166  —  Torras/Sarrió,  of  24
February 1992, Case IV/M.213 — Hong Kong and Shanghai
Bank/Midland, of 21 May 1992, IV/M.192 — Banesto/Totta,
of  14  April  1992.