Foreign subsidies: another addition to the M&A checklist

NL Law
EU Law

Checking for merger control notification obligations and Foreign Direct Investment screening mechanisms will be on the list for most companies involved in M&A deals. A third item may soon need to be added to this checklist: a notification obligation to tackle distortive foreign subsidies in the M&A context.

The European Commission has proposed a Regulation on foreign subsidies to level out the playing field between European and foreign-backed companies active on the EU’s internal market. If the proposed Regulation is adopted, companies may need to factor in the increased administrative burden, an additional standstill obligation and potential ex officio investigations into their transaction documentation and timetables.

Three new tools to tackle foreign subsidies

In contrast to financial support granted by EU Member States, non-EU government financing of concentrations or procurement bids falls outside EU state aid rules, thereby creating a potentially uneven playing field for competition in the EU’s internal market. The proposed Regulation aims to tackle these potential distortive effects of foreign subsidies with the following three tools: 

1. Concentrations: a pre-closing notification obligation for concentrations where (i) the target or at least one of the merging parties is established in the EU, (ii) the aggregate EU turnover of the target or at least of one of the merging parties is at least EUR 500 million, and (iii) the aggregate foreign financial contribution received in the three calendar years prior to notification is more than EUR 50 million. 

Interestingly, concentrations falling below these thresholds may still be caught by this prior notification obligation if the Commission suspects the companies concerned to have benefited from foreign subsidies in the three years preceding the concentration.

Similar to concentrations under the EU Merger Regulation’s system, concentrations fulfilling the above-mentioned conditions cannot be implemented before the Commission has issued a clearance decision. Failure to comply can result in fines of up to 10% of a company’s aggregate annual turnover. 

2. Public procurement bids: for EU public procurement procedures with an estimated value of at least EUR 250 million, a prior obligation applies for companies to notify the contracting authority of all foreign financial contributions they received in the three years preceding that notification.

If the Commission suspects a company from having benefited from foreign subsidies in the three years prior to submission of the tender, a similar prior notification obligation applies for public procurement procedures falling below the value threshold of EUR 250 million.

Fines of up to 10% of a company’s aggregate annual turnover can be imposed for failure to notify a subsidy.

3. Ex officio investigations: the Commission can launch investigations upon its own initiative in all other market situations (including concentrations and public procurement procedures falling below the above-mentioned thresholds) to assess and remedy the distortive effects of foreign subsidies.

A foreign subsidy’s potential distortive effects depend on a number of factors, such as the foreign subsidy’s amount, nature and purpose, the situation of the companies and markets concerned, and the companies’ level of economic activity on the internal market. After reviewing these factors, the Commission may issue a clearance decision, impose redressive measures or resort to prohibiting the foreign subsidised concentration or the award of a public procurement contract to a foreign subsidised bidder.

M&A checklist

Once adopted, the Regulation on foreign subsidies will be another rule to reckon with in M&A transactions. Companies should therefore pencil these upcoming foreign subsidy notification obligations into their compliance checklist for future M&A deals.

To help drafting this checklist, find below a short overview of where to find the different thresholds to keep in mind when involved in M&A transactions at EU level and in the Netherlands.


  EU thresholds National thresholds
Merger Control

Article 1 of the EU Merger Regulation.

NB: potential review of non-notifiable concentrations under Article 22 of the EU Merger Regulation (see our May 2021 newsletter).

Article 29 of the Dutch Competition Act.

Foreign Direct Investment

Framework for foreign direct investment screening in FDI Regulation (see our June 2020 newsletter).



Telecom sector: Articles 14a.2, 14a.3 and 14a.4(3) of the Telecommunications Act in combination with the related Decree.

Electricity sector: Article 86f of the Electricity Act.

Gas sector: Article 66e of the Gas Act.

Other existing restrictions on (foreign) investment in the following sectors:

- Mining

- Crude oil extraction

- Water

- Transport infrastructure

- Nuclear sector

- Defence

- Healthcare

- Financial institutions.

NB: Draft act to introduce an ex-ante and ex-post screening mechanism for investments in companies active in vital processes or sensitive technology on grounds of National Security (see our October 2020 newsletter). The exact thresholds are still to be specified.                           

Foreign Subsidies

Article 18 of proposed Foreign Subsidies Regulation.


  • potential prior notification of non-notifiable concentrations under Article 19(5) of the proposed Regulation.
  • potential ex officio review of concentrations under Article 7 of the proposed Regulation.



This article was published in the Competition Newsletter of June 2021. Other articles in this newsletter: