SAUDI ARABIA Law and Practice Contributed by: Alex Saleh, Asad Ahmad, Omar Halbouni and Shahad Al-Humaidani, GLA & Company
a joint venture will be considered a “full-function joint venture” on a case-by-case basis. Attributes of a “full- function joint venture” include the following. • The joint venture must operate in a market and perform the functions normally carried out by a commercial undertaking operating in that market. • The joint venture must ordinarily have a manage - ment team dedicated to its day-to-day opera - tions and access to sufficient resources, including finance, staff and tangible and intangible assets, to conduct, on a lasting basis, its business activi - ties within the area provided for in the joint venture agreement. • It must be intended to operate for a sufficiently long period to bring about a lasting change in the structure of the undertakings concerned (the resources of the joint venture will be indicative of this). • It will ordinarily have sufficient autonomy from its parent undertakings, in terms of its operational decision-making, to be considered a “full-function joint venture”. A joint venture may begin its life as a non-full-function joint venture and subsequently become a “full-func - tion joint venture”. At that time, it will be considered a new economic concentration requiring notification. This change in the nature of the joint venture can include the following. • The joint venture’s activities expand over its life - time, such as the commencement of commercial sales to third parties in the open market. • Enlargement of the joint venture, such as through the joint venture’s acquisition of the whole or part of another undertaking from the parent undertak - ings. • The parent undertakings transfer significant addi - tional assets, contracts, know-how or other rights to the joint venture, where such transfer will con - stitute or enable an extension of the joint venture’s activities, products or geographical markets that were not the object of the original joint venture. • A change in the organisational structure of the joint venture.
Additionally, the Guidelines add an important qualifi - cation for joint ventures established to develop new products/markets (particularly those contributing to foreign investment attraction, industry localisation or knowledge transfer) that may qualify for an exemption from notification, provided they meet specific criteria relating to the transaction’s nature, including the fol - lowing: • The joint venture relates to the manufacture of a product that is not currently produced in Saudi Arabia or, when manufactured in Saudi Arabia, can only be distributed to a limited part of Saudi Arabia, for technical reasons inherent in the nature of the product. • The joint venture consists of partners who are not, individually or together, current or potential com - petitors in the product market. Changes in the nature of the joint venture are con - sidered to have taken place upon the shareholder(s) or the joint venture’s management taking the relevant decision that led to the joint venture becoming a “full- function joint venture” or from when the relevant activ - ity commenced. 2.11 Power of Authorities to Investigate a Transaction The GAC has no express authority under the KSA Competition Law or the Implementing Regulations to investigate a transaction solely because it does not meet the jurisdictional thresholds. However, the GAC retains broad investigative powers under Article 14 and Article 15 of the KSA Competition Law to investi - gate potential violations of competition rules, includ - ing gun-jumping or the implementation of a notifiable economic concentration without prior clearance. 2.12 Requirement for Clearance Before Implementation The KSA Competition Law states that undertakings participating in an economic concentration or transac - tion may not complete the transaction unless notified in writing by the GAC of its approval, or if 90 days have elapsed since the GAC’s review period commenced and it has not provided approval or rejection.
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