On 6 February 2023, the European Commission presented the draft implementing regulation with two draft notification forms for the Regulation on Foreign Subsidies Distorting the Internal Market (FSR). The drafts introduce some important clarifications to the new set of tools that entered into force on 12 January 2023 and will apply across the European Union as of 12 July 2023. These tools could have far-reaching consequences for companies economically active in the European Union. The new regime empowers the Commission to take action ex-officio against any economic activity, if the Commission suspects third-state subsidies to distort the internal market. In addition, two new notification requirements specifically target third-country subsidies in concentrations and in the context of public procurement procedures. The FSR is an attempt by the Commission to ensure a level playing field throughout the internal market by putting third-country subsidies on an equal footing with European state aid and preventing distortions caused by such subsidies. 

Which activities are affected?

According to the text of the FSR, potentially all economic activities of companies that received third-state subsidies—if such activity might lead to a distortion of the internal market—can become subject to the new set of regulatory instruments. The draft implementing regulation makes clear that the measures will primarily target large transactions¹ and large-scale tender procedures². That said, all other transactions that involve foreign subsidies—even those below the thresholds requiring notification to the Commission—may also attract the Commission’s attention. In this respect, the FSR allows the Commission to call in below-threshold transactions and impose notification requirements if it suspects the involvement of distortive foreign subsidies. Under this instrument, the Commission has wide-reaching powers to review any transaction involving foreign subsidies, regardless of whether the thresholds are reached. The origin of the subsidy may become a decisive factor for the initiation of (further) investigation by the Commission. 

How is an activity to be notified?

The draft implementing regulation provides detailed information on who, exactly, has to make a notification: The party or parties obliged to make a notification differ(s) according to the type of activity (e.g. jointly by the parties to the merger; the person(s) or undertaking(s) acquiring (joint) control; the main contractor). The Commission’s draft notification forms illustrate a vast amount of information to be provided to the Commission. In addition to information clearly needed for the Commission to assess the existence of a notifiable activity (e.g. the amount of foreign financial contributions, descriptions of the exact transaction and—depending on the instrument—turnover data), the Commission also expects significantly more information, such as a list of the largest competitors and documents discussing the purpose and economic rationale of the foreign financial contribution (the types of information requested depend on the kind of activity being reviewed by the Commission). The specific information requirements deserve special attention as time deadlines do not start to run after an incomplete notification and incomplete notifications can result in sanctions for the parties involved (fines or periodic penalty payments). 

What does this mean for companies active in the European Union?

The draft implementing regulation as well as its annexes confirm the views that emerged during the review of the FSR: Companies receiving third-country subsidies face a considerably increased burden. The mere coexistence with other procedures, i.e. merger control and foreign (direct) investment control, leads to increasing complexity for economic operators. Although the Commission tries to create efficiencies in this regard—for instance companies may consent to having the information they submit for one purpose also be used for other (specified) purposes—there is no indication that in the future other obligations could in any way become dispensable. The potential for facilitations and efficiencies is limited as other notifications often fall within the competence of the member states, which is mostly the case in particular with foreign (direct) investment review. 

In view of the (additional) burden on companies, the draft implementing regulation and annexed draft notification forms attempt to make the new procedures viable for all parties involved. For instance, according to the draft, the Commission may dispense with the obligation to provide certain information in the notification form if it is not reasonably available, or if it is not necessary for the purposes of the examination. However, the companies are obliged to justify such exceptions; furthermore, the Commission can still request that information at any time during the review—and such an exemption from the information obligation does not prevent the companies from having to collect all potentially relevant data in the first place.

Due to the new obligations set out in the FSR, companies must be able to track extremely extensive, detailed information about financial contributions from third countries and, as shown, to provide it in full. In this respect, the extent of information to be provided to the Commission set out in the draft implementing regulation indicates once again how important it is to start compiling such data now, regardless of a specific transaction. Data for past periods can become relevant in the future, not least because, under certain circumstances, the Commission can decide to review activities prior to the entry into force of the FSR. For instance, details about past transactions must be notified in the case of a concentration. It is highly recommended to companies economically active in the European Union to address the new obligations and to provide for appropriate data collecting and monitoring systems.

Next Steps / Outlook

Interested parties have until 6 March 2023 to submit their views on the FSR’s draft implementing regulation and draft notification forms. Stakeholder participation is particularly important in order to leave no stone unturned in further reducing the burden on the companies concerned. 

As of 12 October 2023, companies will have to notify concentrations and participation in public procurement procedures that fall into the scope of the FSR. 

If you have any questions on this matter or need assistance in implementing the various obligations resulting from the new regulations, feel free to contact us.

To learn more about the background and possible implications of the FSR, please also click here to read a recently published article by our Public Policy and Regulation team in Germany. 

1. At least one of the undertakings concerned, the acquired undertaking or the joint venture is established in the EU and has a total turnover in the EU of at least €500 million and all companies involved have together received foreign financial contributions of at least €50 million in the three years preceding the deal. ↩
2. In particular, where the estimated contract value is at least €250 million, and the aggregate amount of the third-country financial contribution within the three years prior to notification is at least €4 million per country.↩