KPPU presents guidelines on administrative fines
Continuing our series of Omnibus Law Insights and in light of the publication of the Law Enforcement Regulations, our team is currently reviewing these regulations to assess their impact on your business.
In this update we will highlight the changes in the competition sector.
Following the government’s decision to uphold the capping of administrative fines for competition law violations, the KPPU issued an implementing technical regulation on administrative fines. While this regulation (KPPU Regulation No. 2 of 2021 on Guidelines for Imposing Administrative Fines) was promulgated and entered into force on May 31, 2021, it only recently became available to the public.
As indicated in our previous update on this subject (click here to read), the new ceiling for administrative fines is linked either to 50% of the net profit of the company concerned, or to 10% of its turnover. The new regulation contains more detailed provisions on the calculation and payment mechanism, including payment in installments. The regulation also emphasizes the obligation for the declared party to post a bank guarantee when filing an appeal against the decisions of the KPPU.
As mentioned above, the KPPU can calculate the cap from 50% of the company’s net profit or 10% of the company’s turnover, both calculated from the relevant market during the period of violation. Interestingly, net profit is defined as gross profit minus fixed costs, taxes and levies, as opposed to deducting the total cost (i.e. the sum of fixed costs and variable costs) of the gross profit. It remains to be seen whether the variable cost will also be included as a deduction.
To confirm the net profit or turnover, a company must provide strong supporting documents to the KPPU. For the bottom line, the company must provide its legitimate and convincing financial and summary statements, as well as proof of (i) sales; (ii) attributable fixed costs; (iii) tax payments; and (iv) deductions (all of which are necessary to calculate net profit). At the same time, for turnover, the company must take into account, among others, the following factors: (i) its legitimate and convincing financial statements; (ii) bank statements; (iii) the volume of sales; (iv) market price; (v) price list; (vi) the price list of the offer; (vii) summary and proof of sale and / or purchase; or (viii) other relevant data recognized by the KPPU Panel of Commissioners.
Naturally, questions arise as to what constitutes “legitimate and convincing” financial statements. The regulation defines legitimate and convincing financial statements as either the audited financial statements of the company or the financial statements of the company supported by a statement by a certified public accountant.
Reiterating Government Regulation No.44 of 2021, the regulation states that a party intending to appeal the KPPU’s decision to the commercial court must post a bank guarantee. The bank guarantee must be issued by a commercial bank in Indonesia and deposited with the chairman of the KPPU within 14 working days of receipt of the decision from the KPPU.
The KPPU will liquidate the bank guarantee if the commercial court has upheld the fine imposed by the KPPU (making the decision of the KPPU final and binding). Otherwise, the bank guarantee will be returned to the party.
Penalty for late payment
Assuming that the KPPU decision on the fine has become final and enforceable, the party must pay the fine within 30 working days from the date the decision becomes final and enforceable. Otherwise, KPPU will impose a penalty for late payment.
However, the regulations do not specify how the penalty will be calculated. Because the penalty is considered non-tax revenue of the state (pajak pendapatan negara bukan), its calculation will refer to the state’s non-tax revenue laws and regulations, but it is unclear which one. If the calculation refers to Law No.9 of 2018 on State Non-Tax Revenue, in conjunction with Government Regulation No.58 of 2020 on the Management of State Non-Tax Revenue, a penalty of 2 % of the total fine per month with a maximum period of 24 months will apply. It should also be noted that a delay of one day will be considered a full month.
If the reported party wishes to pay the fine in installments, this request must be submitted to the President of the KPPU no later than 14 working days after the decision of the KPPU becomes final and binding. The request must be accompanied by the financial statements of the party which include at least the following data:
- the cash flow of the business over the proposed period as well as an analysis of how the cash flow of the business will be affected if the fine is paid up front;
- a cash flow plan which includes a proposal for payment or payment within a certain timeframe; and
- an explanation of the analysis of how the disbursement or proposed payments within a certain timeframe are suited to the financial capacity or business activities of the enterprise.
The maximum duration of the deposit is 36 months. If the payment period is more than 12 months, the declared party must present sufficient collateral approved by the KPPU in the form of insurance, bank guarantee, bond, security or other guarantees.
In general terms, the new regulation fills the void on administrative fines. However, we believe that more clarity is needed in practice.
As the government continues to catch up with the framework adopted under the Omnibus Law (Law No. 11 of 2020), further Supreme Court legislation is expected to be enacted to regulate the bank guarantee on appeal. Therefore, it remains to be seen how this regulation will be implemented.
To read our previous alerts on the Omnibus Law, please click here