The "Foreign Subsidies Regulation" is being sharpened: Reporting requirements for mergers and public procurement procedures apply as of today | Fieldfisher
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The "Foreign Subsidies Regulation" is being sharpened: Reporting requirements for mergers and public procurement procedures apply as of today



On 12 January 2023, Regulation (EU) 2022/2560 on foreign subsidies in the European Union (EU) that distort the internal market came into force. In the meantime, the buzzword-like abbreviation for the Foreign Subsidies Regulation, FSR, has become generally accepted. The FSR contains regulations for mergers and procurement procedures within the EU and is directly applicable alongside the respective merger control regimes and the regulations concerning foreign direct investment (FDI).

Although the FSR has already been applicable since 12 July 2023, a notification obligation of mergers and procurement procedures, if the FSR is applicable, only exists as of today, 12 October 2023. It should be noted that mergers, where the signing took place on/after 12 July 2023, but closing will take place only after the 12 October 2023, are also subject to a notification obligation as of today. In parallel to the FSR, the European Commission (Commission) has adopted the Implementing Regulation (EU) 2023/1441 (Implementing Regulation), which has been in force since 12 July 2023. Below, we provide an overview of the essential elements of the FSR as well as an outlook for the practice:


I. Three new review mechanisms for the Commission

The FSR contains three new review mechanisms for the Commission to review subsidies that potentially distort competition in the internal market:

1. Merger control 2.0

Pursuant to Art. 21 (1) FSR, concentrations (merger, acquisition of sole/ joint control and creation of a full-function joint venture) - in accordance with Art. 3 FSR - must be notified to the Commission if they exceed the thresholds of Art. 20 (3) FSR:
  • The target (acquisition of control), joint venture (creation) or one of the parties (merger) is established in the EU and has an EU-wide turnover of at least EUR 500 million in the last financial year; and
  • The companies involved in the merger have received financial contributions of at least EUR 50 million from third countries in the last three years prior to the closing of the transaction.
The calculation of turnover should not be problematic, as this follows the generally known rules from merger control. This is likely to be different in the case of the identification of financial contributions from third countries (see III. below).

2. Public procurement procedures

When reviewing public procurement procedures, there is a notification obligation to the Commission under Art. 29 (1) FSR if the thresholds of Art. 28 (1) FSR are exceeded:
  • The contract value of the public procurement procedure is at least EUR 250 million; and
  • The respective tenderer (including subsidiaries and holding companies as well as the main subcontractor(s) and supplier(s)) has received financial contributions of at least EUR 4 million per third country in the last three years prior to the notification.
In contrast to the notification of mergers, if the thresholds are not met in public procurement procedures, the tenderer must submit a declaration listing all financial contributions received from third countries and additionally confirming that the threshold of EUR 4 million has not been exceeded.

3. Ex-officio procedure by the Commission

Finally, the Commission has the power to investigate all market situations, i.e. in particular mergers and public procurement procedures, even if they are below the thresholds, if the Commission suspects distortive third-country subsidies (cf. Art. 9 FSR). In this case, the Commission can initiate an ex-officio investigation and request comprehensive information (e.g. from the companies involved, but also from Member States or other market participants) or investigate itself by way of searches (cf. Art. 14 FSR). If the Commission concludes through the ex-officio investigation that third-country subsidies distort the internal market, it can either take interim measures or order remedial measures or declare commitments by the companies involved to be binding.


II. General duration of proceedings and implementing regulation

The review procedures for mergers and public procurement procedures are structured in two stages each:
  • Thus, for mergers (cf. Art. 25 FSR), a period of 25 working days applies for the preliminary review (Phase I) from receipt of the notification. If the Commission initiates an in-depth investigation, the deadline is 90 working days (Phase II). Analogous to merger control, extensions of the deadline are possible upon request or on the basis of commitments by the parties. At the same time, the Commission can also suspend the deadline if, for example, information is not provided in full "stop-the-clock".
  • In the context of public procurement procedures (cf. Art. 30 FSR), a period of 20 working days from receipt of the notification applies (Phase I), which may be extended by the Commission by a maximum of 10 additional working days. If the Commission initiates an in-depth examination, the deadline is 110 working days (Phase II), which may be extended once by 20 working days.
To facilitate the respective notifications in practice, the Implementing Regulation contains detailed provisions on the procedures as well as the relevant deadlines for individual stages of the procedure, rules on the confidentiality of information provided, third-party access to files and the Commission's powers of investigation. In particular, the forms "FS-CO" (mergers) and "FS-PP" (public procurement procedures) contained in the annexes to the Implementing Regulation provide helpful guidance as to which information must be provided to the Commission in the context of the notification.


III. Financial contributions vs. subsidies

In Art. 3 (2) FSR, the FSR essentially defines a third-country subsidy as a direct or indirect financial contribution which confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited in law or in fact to one or a number of undertakings or industries. Such contribution must be granted either by the central government, authorities of a third country or by public bodies respectively private entities whose actions are attributable to the third country. For the purposes of the FSR, the notion of financial contributions includes, but is not limited to
  • the transfer of funds or liabilities, such as capital injections, grants, loans, loan guarantees, fiscal incentives, the setting off of operating losses, compensation for financial burdens imposed by public authorities, debt forgiveness, debt to equity swaps or rescheduling, or
  • the foregoing of revenue that is otherwise due, such as tax exemptions or the granting of special or exclusive rights without adequate remuneration, or
  • the provision of goods or services or the purchase of goods or services.
The concept of financial contribution is modelled on the concept of aid under Art. 107 TFEU. Consequently, it is (i) very broad and (ii) requires a comprehensive assessment of commercial transactions undertaken with public authorities. Subsidies should be relatively easy for a company to identify, as they are direct benefits. In the case of financial benefits, i.e. indirect benefits, this is likely to be much more difficult. In principle, this includes all measures that provide a company with an advantage that could not have been obtained in this form under normal market conditions. In this respect, the Commission makes it clear in its FAQs on the FSR that in the first step, all financial contributions granted by a third country must be included without exception when assessing the threshold values. However, whether these constitute an actual benefit must be assessed by the Commission in a second step.  

Based on the very broad understanding, indirect benefits granted by the state and not identified per se as a financial contribution by their nature should therefore already fall under Art. 3 (2) FSR. An example of this would be the establishment of business premises, in the context of which the company establishing the business premises has received e.g. tax relief, energy respectively infrastructure cost subsidies or loans or other financial securities. Also included would be advantages granted by public companies such as energy suppliers or airports, if these are attributable to the state. Thinking further, ultimately any conscious or unconscious state economic support is to be taken into consideration for the concept of financial support when examining any notification obligations on the basis of the FSR.

In this context, the question whether the compensation in return for the sale of goods and/or services that are sold at arm's length is also relevant for the assessment of a financial contribution is likely to be of particular importance for the practice. In this regard, the FAQs clarify that all compensation in return for the sale of goods to a third country (e.g. sale of medical devices to a state hospital) must be included without exception when assessing the thresholds. However, provided that this is done at arm's length, any such contributions (most likely) do not constitute an advantage for the recipient within the meaning of the FSR.

In summary, the following rule applies: All direct or indirect financial contributions by a third country must be included in the assessment of the thresholds. Whether these constitute a benefit and thus a subsidy, is up to the Commission's assessment. The identification of financial contributions is likely to be the greatest challenge for companies under the new FSR (see VI. below).


IV. Substantive assessment

Irrespective of the actual investigation procedure, the Commission examines whether foreign subsidies lead to a distortion on the internal market. Art. 4 FSR sets out the standard of review. According to this, a distortion exists if a foreign subsidy is liable to improve the competitive position of an undertaking on the internal market and the foreign subsidy thereby actually or potentially negatively affects competition in the internal market.

In order to determine such a distortion, the Commission uses various indicators in its assessment, including the amount, nature and purpose of the subsidy, the situation and size of the company and the extent of the company's activity in the domestic market. In addition, the Commission specifies in Art. 5 FSR which categories of subsidies it considers most likely to cause distortion:
  • a foreign subsidy granted to an ailing undertaking, namely an undertaking which will likely go out of business in the short or medium term in the absence of any subsidy, unless there is a restructuring plan that is capable of leading to the long-term viability of that undertaking and that plan includes a significant own contribution by the undertaking;
  • a foreign subsidy in the form of an unlimited guarantee for the debts or liabilities of the undertaking, namely without any limitation as to the amount or the duration of such guarantee;
  • export financing measures that is not in line with the OECD Arrangement on officially supported export credits;
  • a foreign subsidy directly facilitating a concentration
  • a foreign subsidy enabling an undertaking to submit an unduly advantageous tender on the basis of which the undertaking could be awarded the relevant contract.
If the Commission finds negative effects of a foreign subsidy according to these standards, the Commission may balance any effects with possible positive effects on the development of the subsidised economic activity concerned in the internal market and, in doing so, also examine other positive effects of the foreign subsidy, such as the wider positive effects in relation to the relevant policy objectives, in particular those of the EU (balancing test, cf. Art. 6 FSR). In doing so, it will be up to the companies to demonstrate positive effects, as the Commission can by its very nature only base its assessment on the information provided by the companies involved in the notification.

If the Commission finds during its investigation that there is a distortion of the internal market on the basis of the foreign subsidy, it can order remedial measures or declare commitments binding in order to eliminate the distortion on the internal market (cf. Art. 7 (1) and (2) FSR). As already known from merger control, remedies or commitments can include both structural and behavioural obligations. Conceivable, for example, would be the granting of licences or access to a certain infrastructure or also the repayment of corresponding subsidies or the sale of assets (cf. Art. 7 (4) FSR).


V. Sanctions / Prohibition of enforcement

In case of non-compliance with the FSR, the Commission may impose both fines and penalties. Incorrect or misleading information on financial contributions can be penalised with up to 1% of the total turnover achieved in the previous year (both in the case of mergers and public procurement procedures (cf. Art. 17 (2), Art. 26 (2), Art. 33 (2) FSR)). If a mandatory notification is not made, the Commission may impose fines of up to 10% of the total turnover (also in the case of both mergers and public procurement procedures (cf. Art. 26 (3), 33 (3) FSR)). Since notifiable mergers are also subject to the enforcement prohibition (gun-jumping) known from merger control, any infringement in view of an too early consummation can also be punished with a fine of up to 10% of the total turnover.


VI. Outlook for practice

Due to the FSR, M&A transactions or public procurement procedures are becoming increasingly complex:
  • M&A advice: Already now, in the context of M&A transactions, it must be examined at an early stage whether the respective transaction falls under the merger control regimes of the Member States or the Commission. Furthermore, it often requires a parallel examination whether national investment control regimes are relevant. In addition, it is now also necessary to examine whether a notification under the FSR is relevant. As a result, transaction advice, which is often already complex, faces further challenges, as notification procedures under the FSR must also be considered in the contractual arrangements between the parties, the transaction duration of parallel and independent review procedures is becoming increasingly difficult to forecast and, with increasing review procedures, the transaction security will ultimately also be more difficult to assess.
  • Internal company data collection on financial contributions: In order to be able to guarantee legally compliant advice on the basis of the FSR, companies must now systematically identify, record and collate the receipt of financial contributions - which they receive worldwide. Since the collection and evaluation of any data is likely to involve a great deal of effort and the use of considerable time and human resources, there is a risk that transactions will be significantly delayed if the relevant data is not yet available. Consequently, a system must be established within the company that guarantees the permanent and complete recording of financial contributions
It remains to be seen how the FSR and the reporting procedures will develop in practice and whether the Commission will be able to ensure that the reporting procedures are carried out swiftly and transparently, especially in unproblematic cases. With a view to questions that remain open at present, such as the substantive assessment and the possible limitation of disclosing financial contributions, guidelines would be desirable for the purpose of clarification. However, publication is probably only to be expected in a few years' time. Art. 46 (1) FSR provides for the issuance of guidelines by 12 January 2026 at the latest.

The relevant texts can be found under the following links: FSR, Implementing Regulation and FAQ.


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