Foreign Subsidies Regulation crosses the finish line

NL Law

On 30 June 2022, the European Parliament and the European Council reached agreement on the final text of the Foreign Subsidies Regulation. Adding to the regulatory burdens, this Regulation creates a notification obligation for companies that receive subsidies from non-EU governments in transactions or public procurement procedures. 

As stated in an earlier newsletter article, the European Commission proposed the FSR to close a regulatory gap and create a level playing field between European and foreign-backed companies active on the internal market. Currently, subsidies granted by EU Member States are subject to close scrutiny, while subsidies by non-EU governments are not. 

The FSR sets out an obligation for companies to notify:

  • concentrations where the acquired company, one of the merging parties or the joint venture (i) is established in the EU and (ii) generates an aggregate EU turnover of at least €500 million and all parties involved in the transaction were granted non-EU combined financial contributions in the three calendar years prior to the notification of at least €50 million; and
  • tenders in public procurements where the estimated contract value is at least €250 million and the bid involves a non-EU financial contribution in the three years prior to the notification of at least €4 million per third country.

Similar to EU merger control, the FSR introduces a standstill obligation, meaning that the transaction/awarding of the contract must first be cleared by the Commission before the concentration can be completed or the bidder can be awarded the contract. If companies breach the standstill obligation, the Commission may impose a fine of up to 10% of their aggregate turnover or prohibit the transaction/awarding of the contract.

The FSR also gives the Commission the power to investigate, ex officio, and to request an ad hoc notification if it suspects that a distortive foreign subsidy may be involved.

If the Commission finds a distortive foreign subsidy, it may conduct a balancing test (taking into account both the positive and negative effects of the subsidy) and impose structural or non-structural redressive measures on companies to remedy the distortion, or accept them as commitments.

The FSR will enter into force once it is formally adopted by the Council and the Parliament and (20 days after it is) published in the Official Journal. The notification obligations under the FSR will likely apply from mid-2023. The Commission will be empowered to investigate subsidies granted up to five years before the entry into force of the FSR.

Once the FSR enters into force, companies involved in M&A transactions need to deal with all regulatory checks, including merger control, FDI and FSR.

This article was published in the Competition Newsletter of July 2022. Other articles in this newsletter: