The Competition Authority has concluded its investigation into anti-competitive practices in the gymnasium and health club market

I. Object of the investigation

1. The 2008 National Budget Law (Law No. 67-A/2007 of 31 December) clarified the applicability of the reduced VAT rate (5%) to physical and sporting activities. Over the first quarter of 2008, following approval of the budget, it was seen that most of the undertakings operating in the market for sports-related services, which is made up of gymnasia, health clubs and physical activity centres, did not pass on this reduced rate to consumers. This should have been reflected in a reduction in the end prices charged for the use of facilities or the services covered.
2. On 24 April 2008, as a result of various complaints and following a range of preliminary investigation measures, the Competition Authority opened an administrative-offence inquiry involving 34 undertakings and an association of undertakings, all of which operated in the market mentioned.
3. The objective of this investigation was to ascertain whether the behaviour identified was the result of concerted action among economic operators, prohibited by Article 4 of Law No. 18/2003 of 11 June (which outlaws agreements between undertakings, concerted practices between undertakings or decisions by associations of undertakings) or whether it was a question of behaviour reflecting the rational adaptation of economic agents confronted with changes in the operating conditions of the market in which they do business, which is not prohibited by the rules safeguarding competition.
4. The start of administrative offence proceedings in no way implies a pre-judgement on the existence of an offence or the identity of the offenders but merely the finding that there is sufficient evidence of an offence, which may be dismissed at the end of the inquiry or, if corroborated, lead to a guilty verdict.

 

II. The Ruling by the Competition Authority Council

5. During the investigation, the Competition Authority carried out over 50 enquiries, between questionnaires and requests for data and information from the various undertakings and the association of undertakings involved, including economic operators that cover the whole of the territory of Portugal, in particular the large conurbations, in order to establish if there is evidence of a concerted practice in this sector and proof of such a practice.
6. The Authority also received information and data from other institutions and organisations, in particular the State Secretariat for Youth and Sport, the Portuguese Institute for Sport, the Directorate General for Consumer Affairs, and the Authority for Food Safety and Economic Surveillance, and examined the information forwarded to it in the various private complaints received.
7. The information obtained covers the period between 2000 and 2008 and clearly describes the behaviour of these companies, especially with regard to the relevant tax changes registered in this period, which were as follows:
• On 1 July 2005, the alteration in the standard rate of VAT from 19% to 21% came into force;
• On 19 January 2006, the Department of VAT Services issued Circular No. 30088 / 2006, relating to application of the reduced rate of 5% for services involving the use of Sporting facilities;
• The 2008 National Budget Law (Law No. 67-A/2007 of 31 December), which came into effect on 1 January 2008, stated specifically that the reduced VAT rate (5%) applies to the practice of physical and sporting activities, including those carried out in gymnasia.
8. Only certain operators followed the January 2006 change, since most of them were not aware of its applicability, which was only clarified with the passage of the 2008 Budget Law and its coming into effect in January this year.
9. The change in the standard VAT rate from 21% to 20% on 1 July 2008, in accordance with Law No. 26-A/2008 of 27 June, was not considered relevant, given the explicit inclusion in the reduced VAT rate, at that time, of the activities provided by the undertakings subject to complaint.
10. The Competition Authority concluded that, until the amendment to the law introduced by the 2008 National Budget, gymnasia and health clubs did not always apply the reduced VAT rate in a uniform manner to the services they provided, even after the official clarification by the Department of VAT Services in 2006 with regard to the framework for this activity.
11. The Competition Authority's investigation did not produce proof of the exchange of information between the different economic operators investigated or the guiding of behaviour, driven by the operators with the largest market share, or an association between the most representative undertakings in the sector.
12. On the contrary, the economic analysis carried out by the Competition Authority concluded that there was no pattern of concerted behaviour between the different economic operators investigated, both on account of the divergence in time ascertained and the discrepancy itself in the application/passing on of the alteration in the VAT rate in the period under discussion.
    Thus, no items of proof were found of a concerted understanding between these undertakings.
13. On this basis, the Competition Authority Council has decided to discontinue the investigation as it has concluded that there is no evidence of anti-competitive practices that may be imputed to the undertakings involved in this case.

 

III. Explanation for undertakings, economic operators and consumers

14. The Competition Authority exercises its powers in accordance with the way in which the legal framework applicable to its action defines them. Matters relating to the protection of consumer rights and, especially, the private contract relationship, fall outside the scope of theCompetition Authority's legal powers.
15. Considering the facts ascertained during the investigation undertaken and their possible inclusion within the sphere of the powers of other bodies, the Competition Authority Council has decided to inform the bodies responsible for consumer protection and the supervision of economic activities that it has discontinued this administrative-law case.