A new dawn: The EU’s Foreign Subsidies Regulation applies from today

Today marks the start of the EU’s Foreign Subsidies Regulation regime. From this date, the European Commission, as the enforcer of the FSR, will have the power to launch investigations to tackle distortions caused by foreign subsidies in the internal market. M&A agreements signed from this date may need to later be notified to the EC if the transaction has not closed by 12 October 2023. The EC’s Implementing Regulation, setting out the rules on how the FSR will be implemented and the forms that will need to be used for the notifications of in-scope M&A deals and procurement projects, was also formally published today. Companies intending to participate in deals affecting European businesses and European procurement projects need to be ready for the EC’s new enforcement powers.

Today marks an important date in the EU’s calendar and a further step towards the goal of the European Commission (EC) to scrutinize subsidies granted by non-EU countries, as it does with internal Union aid. From today, the EU Foreign Subsidies Regulation (FSR) starts to apply. Inspired by the EU State aid rules, the EC now gains broad powers to start FSR investigations on “foreign subsidies”, i.e. financial contributions granted by non-EU countries which confer a benefit on companies and that are likely to distort the internal market. It is also an important date for companies entering into M&A deals with a European nexus: M&A deals that are signed from today that have not closed by 12 October 2023 may need to later be notified to the EC before their implementation where transaction thresholds are met. Today also marks the day when the EC’s FSR implementation rules - setting out how cases will be dealt with and what is required from companies - have been formally published. 

Understanding the new rules

The Implementing Regulation (IR) that has been adopted sets out the rules on how the EC will conduct investigations, the procedure for notifications and the procedural rights of the companies involved in FSR cases. While the EC’s powers of investigation for own-initiative cases mimic those under the antitrust rules (i.e. they include powers to conduct onsite investigations, interview individuals, take statements and send requests for information), the new requirements to notify concentrations and public procurement procedures bear some similarity to merger control and State aid notifications, but also introduce new sets of information that need to be provided to the EC. The notification requirement kicks in from 12 October 2023, meaning that companies intending to engage in M&A deals and public procurement projects must familiarize themselves with the EC’s new requirements as soon as possible. Our previous piece on the FSR can be found here

The IR includes two annexes, with annex 1 providing a template “Form FS-CO”, for the notification of concentrations, and annex 2 providing a template “Form FS-PP” for the notification of a public procurement activity. Those two annexes provide details on the content of the notification that will be required and much-needed clarity on the concept of “financial contribution” that caused significant debate when the EC publicly consulted on their draft proposals. Stakeholders will now be relieved to see in the IR that the EC has significantly lightened the burden on companies with regard to the notification obligations. 

Filing thresholds

The relevant filing thresholds for concentrations and public procurement were adopted in the text of the FSR itself. 

A concentration will need the EC’s approval when the following thresholds are met: 

  • the target in case on an acquisition, or in case of a merger at least one of the merging undertakings, or the JV is established in the EU and generates an aggregate turnover in the EU of at least EUR 500 million; and


  • the acquirer(s) and the target, or the merging parties, or the JV and its parents 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 imposes a requirement for undertakings in public procurement procedures in the EU to make a notification when the following thresholds are met:

  • the estimated value of the public procurement or framework agreement net of VAT, is equal to or greater than EUR 250 million; and


  • the bidder, including its subsidiary companies without commercial autonomy, its holding companies, and, where applicable, its main subcontractors and suppliers involved in the same tender in the public procurement procedure was granted aggregate financial contributions in the three years prior to notification equal to or greater than EUR 4 million per third country.


Notifications of concentrations will need to be made to the EC directly. Public procurement notifications will need to be made to the contracting authority or entity, which then transfers the notification to the EC. For public procurement cases, where there have been no notifiable foreign financial contributions in the last three years, a declaration still needs to be provided to the contracting authority or entity. 

The IR now confirms that for the calculation of thresholds, all financial contributions received should be taken into account. In other words, financial contributions that are taken into account for the purposes of establishing jurisdiction of the EC should not be limited to foreign subsidies. As the EC has stated on its website, sales of products and services to public entities (whose actions are attributable to third countries) constitute a financial contribution for the purpose of the notification thresholds, regardless of whether the conditions of sales are in line with normal market conditions. 

With regard to JVs, the EC has also stated that the thresholds would be met if the JV is established in the EU and has turnover in the EU exceeding the EUR 500 million threshold, meaning that newly created JVs without any turnover of its own would not meet the threshold. 

Content of the notification

There are some clear similarities between the notification forms for concentrations and public procurement and in particular with regards to information related to financial contributions. Nevertheless, each has their specificities inherent to the nature of concentrations and of public procurement. 

In the notification form for concentrations and in the context of public procurement, the IR splits the level of information that companies need to provide, depending on the nature of the financial contribution. Procedurally this marks a difference with EU State aid notifications (made by Member States) which only concern State aid, i.e. financial contributions that confer a benefit. 

The most burdensome requirement relates to financial contributions that risk distorting the internal market (i.e. foreign subsidies). The EC asks that parties provide detailed information regarding those financial contributions which took place in the last three years, that are worth more than EUR 1 million, and that fall into a category of foreign subsidies listed in the FSR where distortion of the internal market seems particularly likely, such as:

  • a foreign subsidy granted to an undertaking which will likely go out of business in the short or medium term in the absence of any subsidy;
  • a foreign subsidy in the form of an unlimited guarantee for the debts or liabilities of the undertaking;
  • an export financing measure that is not in line with the OECD Arrangement on officially supported export credit; 
  • a foreign subsidy directly facilitating a concentration; or
  • 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.

Such financial contributions are considered to most likely distort the internal market and must therefore be detailed in the forms, and the notifying party must supply supporting documents (in their original language, and where necessary, alongside a translation in the working language of the case) about the form of the financial contribution, the granting body of the third country, the amounts of financial contribution, the purpose and economic rationale of the financial contribution, the attached conditions, its main elements and characteristics, as well as the benefits involved.

There is also a secondary category of financial contributions that needs to be reported which relates to financial contributions that are likely to be less problematic. The EC states that these are contributions equal to or more than EUR 1 million granted in the last three years that are not included in the category above. This information needs to be provided in a table, sorted by granting country, and by type of contribution (e.g. direct grant, tax relief, State guarantee, etc.). For concentrations, the EC requires that the table includes only those third countries where the estimated aggregated amount of all financial contributions granted in the last three years is EUR 45 million or more; for procurement projects, the amount is EUR 4 million or more. 

The IR then provides an important exception, and exempts from the notification (but not from the calculation of the thresholds) the following types of financial contributions:

  • Deferrals of payment of taxes or of social security contributions, tax amnesties and tax holidays as well as normal depreciation and loss-carry forward rules that are of general application (unless they are limited to certain sectors, regions or types of undertakings);
  • Application of tax reliefs for avoidance of double taxation in line with the provisions of bilateral or multilateral agreements for avoidance of double taxation, as well as unilateral tax reliefs for avoidance of double taxation applied under national tax legislation to the extent they follow the same logic and conditions as the provisions of bilateral or multilateral agreements;
  • Provision/purchase of goods/services (except financial services) at market terms in the ordinary course of business, for example the provision/purchase of goods or services carried out following a competitive, transparent and non-discriminatory tender procedure.

Additional information required in the notification for concentrations

For concentrations, the notification must include additional information which resembles what parties provide in their Form CO in EU merger control procedures. This includes, for example, information about the parties and about the concentration (e.g. ownership and control). 

When a party to the concentration is an investment fund, or a controlled portfolio company of an investment fund, the IR provides a specific exemption, according to which only the directly involved fund needs to be considered, meaning that parties do not need to include foreign financial contributions granted to other investment funds managed by the same investment company but with a majority of different investors measured according to their entitlement to profit. However, in order to benefit from that exemption, parties must present evidence that the economic and commercial transactions between the fund which controls the acquiring entity and other investment funds (and controlled portfolio companies) managed by the same investment company are non-existent or limited. 

Finally, the parties can include in the notification a description of the potential positive effects of the foreign subsidy on the internal market. These justifications would be similar to those that would likely be made in the context of EU State aid investigations. 

Additional information required in the notification for public procurement

In addition to the two categories of financial contributions listed above, for public procurement, the IR provides a possibility to list in another – simpler - table non-notifiable foreign financial contributions, which are between EUR 200,000 and EUR 1 million. Those can be declared as aggregates, without indicating their values.

Also, if the financial contribution enables the undertaking to submit an unduly advantageous tender, the parties can bring elements to demonstrate that the tender is not unduly advantageous directly or indirectly due to the financial contributions.

Finally, the notification must include information such as a description of the public procurement and of the notifying parties. The parties can also describe the potential positive effects of the foreign subsidy on the internal market.

Next steps

The IR sets out that the EC is open to a discussion to waive the requirement for certain pieces of information, where that information is not readily available or not necessary for the examination of the case. The EC also encourages parties to engage in pre-notification discussions, in a way similar to that conducted under the EU merger control, on the basis of a draft form. This allows parties to engage with the EC on the precise amount of information required. Companies contemplating M&A activity affecting the EU or procurement projects in the EU may wish to take advantage of early engagement with the EC to ensure that their notification forms are complete given that the EC’s review process and timetable only begins with a complete filing.

The clarifications in the IR are a welcomed addition to the EC’s FSR package. Importantly, the EC has shown that it is receptive to stakeholders’ comments and has scaled back its position from the initial draft rules to significantly lessen the burden of the notification forms. That being said, there is still a burden. The task of identifying financial contributions for the purposes of the notification thresholds, and identifying and explaining foreign subsidies will not be insignificant and will be time consuming. The EC is also expecting a heavy workload: it has made a budget request to the EU for hundreds of additional staff, and only yesterday issued a EUR 3 million tender for external assistance to help it deal with enforcing the FSR. All eyes on the FSR for the next few months.



Authored by May Lyn Yuen and Hélène de Cazotte.


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