A new EU regulation on foreign subsidies (FSR) entered into force on January 12, 2023 (please see our previous publication on this topic). It allows the European Commission to review financial contributions granted to businesses by non-EU countries. You will find a summary of the key new rules below.

• foreign subsidies are defined broadly, including not only direct cash and capital injections, but also tax breaks and other tax incentives as well as loans, guarantees, public concessions, compensation for public services or transactions in goods or services on preferential conditions;
• the Commission can examine EU operations of (non-EU and EU) businesses receiving third country subsidies and (as from July 12, 2023) start investigations in that respect;
• moreover, an entity which received subsidies outside the EU in excess of €50 million and engages in a concentration in the EU, where the EU turnover of the acquiring entity or of the EU target is at least €500 million, will need (as from October 12, 2023) to notify the concentration to the Commission;
• in addition, a bidder participating in an EU tender with the estimated value of at least €250 million would need (as from October 12, 2023) to notify to the Commission subsidies received outside the EU in excess of €4 million;
• a concentration cannot be completed, and a contract under a public tender cannot be concluded, unless and until the Commission provides its approval;
• furthermore, the Commission can also request notification of foreign subsidies in case of concentrations or public procurement below the above thresholds, or review such concentrations or public procurement following their completion/conclusion;
• the Commission has broad investigative powers, including information injunctions, interviews, inspections, searches of property (including outside the EU) as well as requests for information from EU member states and third countries alike;
• if the Commission finds a foreign subsidy to be distortive, it will expect the undertaking concerned to offer adequate commitments, which the Commission will examine and, if assessed as adequate, make it legally binding; otherwise, the Commission will impose on that undertaking appropriate redressive measures;
• redressive measures (or commitments) may take different and potentially intrusive forms, including access to infrastructure or licencing of assets of the undertaking concerned, reduction of capacity or market presence, or even the duty to refrain from certain investments or to adapt governance structure, to divest assets, to dissolve a concentration or to repay foreign subsidies with interest;
• the Commission can impose important financial sanctions, including penalties up to 10% of annual turnover and periodic penalty payments, in case of non-compliance (including attempted circumvention), such as failure to notify concentrations or tenders, to cooperate with the Commission or to abide by the Commission’s decisions;
• entities that feel affected by third country subsidies granted to particular businesses or industries can complain to the Commission, with the view to triggering its investigation, and/or potentially litigate before national courts in the EU member states;
• undertakings allegedly receiving distortive subsidies from third countries enjoy the right of defence and have various legal measures to present their views on a case as well as litigate before courts.

The FSR rules may apply to third country subsidies granted as far as from July 12, 2018 or, with respect to concentration or tender notifications, as from July 12, 2020. In addition, it also features various provisional rules specifying when pending concentrations or tenders can be completed before FSR fully kicks in.

Given the broad scope of FSR rules and gravity of respective risk and sanctions, businesses should:

• examine whether they are currently engaged or plan being engaged in concentrations or public tenders in the EU and received subsidies from non-EU countries after July 12, 2020;
• otherwise, assess whether they received subsidies from non-EU countries after July 12, 2018 and whether these subsidies can attract scrutiny and action of the Commission;
• reflect whether they incur detrimental effects of subsidies granted by non-EU countries to their competitors or other market participants, and consider actions under FSR rules accordingly;
• in case of businesses which received or are (plan to be) in receipt of subsidies from non-EU countries, ensure that they have proper internal mechanisms in place to monitor these subsidies and the entailing FSR risks.