EU’s Foreign Subsidies Regulation Has Entered into Force

On July 10, the European Commission adopted the Foreign Subsidies Regulation (”FSR”), with the start of its application since July 12. These rules offer ways to notify of and deal with distortions caused by foreign subsidies paid to the EU companies. This will allow to control trade and investment transactions, while ensuring a equal opportunities for all companies operating in the Single Market.

Scope of Use

The FSR applies to all economic activities in the EU: concentrations (mergers and acquisitions), public procurement procedures and other market situations. The new rules give the Commission the power to investigate financial contributions granted by non-EU countries to companies engaging in an economic activity in the EU and assess their distortive effects, if such occur.

The FSR consists of three main points:

? an obligation for companies to notify to the Commission concentrations involving a financial contribution by a non-EU government;

? an obligation for companies to notify to the Commission participation in public procurement procedures;

? a possibility for the Commission to start its own investigations on initiative (ex-officio), if it suspects that distortive foreign subsidies may be involved, for other cases.

Reporting Entities and Information

The FRS sets out an obligation for companies to notify:

? foreign financial contributions to concentrations where the acquired company, one of the merging parties, or the joint venture is established in the Union and generates an EU turnover of at least €500 million and where the parties to the transaction were granted combined aggregate foreign financial contributions of at least €50 million over the past 3 years;

? foreign financial contributions in public procurements procedures, where the estimated contract value is at least €250 million and the bid involves combined aggregate foreign financial contribution of at least €4 million per third country over the past 3 years.

For concentrations, companies must report:

? for foreign financial contributions which are considered by the FSR as the most likely to distort the internal market – information on all financial contributions of an individual amount of at least €1 million, granted to the parties to the transaction over the past 3 year;

? for all other foreign financial contributions – an overview of financial contributions granted to the notifying party/ies over the past 3 years, of an individual amount of a least €1 million and in relation only to those countries that have granted to the parties to the transaction at least €45 million over the 3 years before the concentration, subject to a number of exceptions.

For public procurement procedures, companies must report:

? for foreign financial contributions – information on all financial contributions of at least €1 million individually granted to the notifying party/ies in the three years prior to the notification;

? for all other foreign financial contributions – an overview of financial contributions granted to the notifying party/-ies of an individual amount of a least €1 million and in relation only to those countries that have granted to each of the notifying party/ies at least €4 million per country over the 3 years prior to the notification.

Reporting Forms

a) The notifying party/-ies must submit a notification to the Commission on a proposed concentration involving foreign financial contributions through the FS-CO Form. This document must include basic information and supporting documentation about the parties, the transaction, the foreign financial contributions received by the parties, as well as information necessary for assessing possible effects of foreign financial contributions (whether they may distort the internal market).

b) The FS-PP Form specifies the information that must be provided by the notifying party/ies when submitting a notification on public procurement. It includes: (i) a summary description of the public procurement procedure, (ii) information about the notifying party/ies and the foreign financial contribution(s), (iii) information on possible positive effects of the foreign subsidies, (iv) a list of the supporting documents, and (v) a signed attestation that the provided information is true, correct, and complete.

Measures to Combat Distortive Effects

If the Commission finds that a financial contribution is distortive in nature or if the notifying party fails to comply with the notification requirement, the Commission can impose measures to redress the distortive effects:

? requiring the company to repay the subsidy;

? requiring the company to divest of certain assets;

? reducing the company’s capacity or market presence;

? requiring the company to refrain from making certain investments;

? imposing fines or penalties.

Next Steps

As of July 12, 2023, the Commission will be able to launch ex-officio investigations. The notification obligation for companies will apply from October 12, 2023.

The Commission will also publish guidelines on the FSR within three years after its entry into force, including the criteria for determining a distortion in the Single Market, the balancing test and the criteria to request an ad-hoc notification.

Commission Implementing Regulation (EU) 2023/1441 of 10 July 2023 on foreign subsidies distorting the internal market 

Press release of the European Commission 

Questions and answers related to the Implementing Regulation