On July 12, 2023, the EU Foreign Subsidies Regulation (FSR) will be enforced. This new set of rules, which were agreed upon by the European Parliament in June 2022, provides a guideline for the European Commission to investigate subsidies provided by non-EU governments to companies operating in the single market and redress its effects.
The purpose of the FSR is to ensure that any financial contributions granted by foreign governments to businesses operating within the EU do not distort or harm internal market competition. A distortion exists if the foreign subsidy improves the competitive position of the recipient or undertaking and if it actually or potentially adversely affects competitive conditions within the market.
What is considered a financial contribution?
Under the FSR, financial contributions include:
- State funding, such as capital injections, grants, loans, guarantees, fiscal incentives, compensation for financial burdens, debt forgiveness, debt to equity swaps or rescheduling, etc.
- Capital tax exemptions or the granting of special or exclusive rights without adequate remuneration
- Provision of goods or services or the purchase of goods or services
Obligations for companies receiving foreign subsidies
The FSR applies to all economic activities undertaken within the single market. Under these rules, companies must notify the Commission when:
- An M&A involves a contribution by a non-EU government where (i) the acquired company, one of the merging parties, or the joint venture generates at least €500 million and (ii) the foreign contribution is at least €50 million.
- A company participates in public procurement procedures, where (i) the estimated contract value is at least €250 million and (ii) the foreign contribution involved is at least €4 million per non-EU country.
For all other economic activities, the Commission can begin investigations (ex-officio) if it suspects that distortive foreign subsidies may be involved. This includes the possibility to request ad-hoc notifications for public procurement procedures and smaller acquisitions.
What business and transaction attorneys need to keep in mind
The Foreign Subsidies Regulation will impact ongoing business activity in the EU, making it critical for business and transaction attorneys to familiarize themselves with this new set of rules. Below is a list of key details business leaders and attorneys must keep in mind:
- Implementation will begin on July 12, 2023. As of this date, the Commission will be able to launch ex-officio investigations
- Rules will apply retroactively to foreign subsidies granted up to 5 years prior, if such contributions distort internal market conditions after July 12, 2023
- Notification obligations for companies will begin on October 12, 2023
- A fine of up to 10% of a company’s annual turnover may be imposed in cases of non-compliance
- Additionally, the approval of a subsidized M&A or the award of a public procurement contract could be prohibited
- Companies that receive foreign subsidies in non-EU countries and operate in the EU should maintain information on all foreign financial contributions
Get in touch
For more information on complying with the EU Foreign Subsidies Regulation or if you are unsure whether your company or client is required to comply, contact a CT Corporation representative.
