The EU Foreign Subsidies Regulation – an Overview

The European Union’s Foreign Subsidies Regulation (FSR) entered into force on 12 January 2023 and establishes a new legal framework protecting against distortions of competition on the EU internal market caused by foreign subsidies. Starting from 12 October 2023, acquisitions of significant EU businesses and large EU public tenders will be subject to mandatory notification and approval requirements.

Notification of concentrations

Transactions meeting the following thresholds will be subject to mandatory notification to the European Commission:

at least one of the merging undertakings, the acquired undertaking or the joint venture is established in the EU and generates an aggregate turnover in the Union of at least EUR 500 million, and
the undertakings involved (e.g. acquirers, merging entities or joint venture partners) were granted combined aggregate financial contributions of more than EUR 50 million from third countries in the three years preceding the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.

The FSR provides a broad definition of financial contributions, i.e.:

a benefit, including among others, grants, loans, fiscal incentives, tax exemptions, setting off of operating losses, debt forgiveness, provision of goods or services etc.,
provided, directly or indirectly, by a third country, including central government, public authorities, a foreign public or private entity whose actions can be attributed to a third country,
limited to one or more undertakings or industries.

Notifiable concentrations must be notified to the Commission prior to their implementation and following the conclusion of the agreement. Concentrations implemented before 12 October 2023 are not subject to notification.

Once duly notified, the implementation of the transaction will be suspended for 25 to 90 working days depending on whether the European Commission opens an in-depth investigation. Following an in-depth investigation, the Commission may adopt a no objection decision, decision with commitments or a prohibition of the concentration, where the Commission finds that a foreign subsidy distorts the internal market as provided in the FSR.

Foreign subsidies most likely to distort the internal market include, among others, (i) subsidies to companies who are most likely to go out of business in short or medium term in the absence of the subsidy unless a restructuring plan with specific characteristics is in place; (ii) subsidies in the form of an unlimited guarantee for the debts or liabilities of the undertaking; (iii) subsidies directly facilitating a concentration.

Failure to notify a notifiable transaction will be subject to a fine of up to 10% of the parties’ aggregate turnover for the preceding financial year. Provision of incorrect or misleading information may result in fines of up to 1%.

Notification of public tenders

Companies participating in public tenders must notify the European Commission where the following thresholds are met:

the contract value is equal to or greater than EUR 250 million, and
the bidder (including its subsidiaries, holding companies, subcontractors and suppliers) was granted aggregate financial contributions equal to or greater than EUR 4 million per third country in the three years prior to the notification.

If, following an in-depth investigation, the European Commission finds that the bidder benefits from a foreign subsidy distorting the internal market, as provided in the FSR, and where the bidder offers commitments that fully and effectively remedy the distortion in the internal market, the Commission shall adopt an implementing act in the form of a decision with commitments. In case of failure by the bidder to propose commitments or where the Commission considers that the commitments are neither appropriate nor sufficient to fully and effectively remedy the distortion, the Commission can adopt a decision prohibiting the award of the contract to that bidder.

Failure to notify and provision of misleading or inaccurate information is subject to similar fines as those provided for concentrations.

Implementing Regulation

On 10 July 2023 the European Commission adopted an Implementing Regulation that clarifies the procedural aspects of the FSR regime. It also provides two standard forms detailing the information that companies need to notify in the context of concentrations (FS-CO) and public procurement (FS-PP).

The information contained in this article is not a legal advice and should be relied or acted upon as such.