EU markets: the Regulation on foreign subsidies comes into force

Commissione europea

The European regulation on foreign subsidies came into force yesterday. The new rules to combat distortions caused by foreign subsidies will allow the EU to remain open to trade and investment, while ensuring a level playing field for all companies operating in the single market.

The regulation applies to all economic activities in the EU: mergers (mergers and acquisitions), public procurements and all other market situations. The new rules give the Commission the power to investigate financial contributions from non-EU countries to businesses engaged in economic activity in the EU and, if necessary, to correct their distortive effects.

The new legislation includes three instruments for the Commission to apply:

  • the obligation for companies to notify the Commission of concentrations involving a financial contribution from a non-EU government: the acquired company; one of the parties to the concentration or the joint venture generates a turnover in the EU of at least 500 million euros and if the foreign financial contribution in question is at least 50 million euros;
  • the obligation for companies to notify the Commission of their participation in public procurement procedures, where the estimated value of the contract is at least 250 million euros and the foreign financial contribution is at least 4 million euros per non-EU country; the Commission may prohibit the award of contracts under such procedures to companies receiving distortive subsidies;
  • for all other market situations, the Commission may open investigations on its own initiative if it considers that distortive foreign subsidies may be involved. This includes the possibility to request ad hoc notifications for public procurement procedures and smaller concentrations.

A notified concentration cannot be completed, and a suspected tenderer cannot obtain the award of the public procurement contract for the duration of the Commission’s investigations. In the event of a breach of this obligation, the Commission may impose fines of up to 10% of the company’s aggregate annual turnover. The Commission may also prohibit the completion of a subsidised concentration or the award of a public contract to a subsidised tenderer.

The Regulation gives the Commission a wide range of investigative powers to collect the necessary information.

If the Commission finds that there is a foreign subsidy distorting the single market, it shall weigh up the negative distortive effects and the positive development effects of the subsidised economic activity. If the negative effects prevail, the Commission may impose structural or non-structural remedial measures on companies or accept them as commitments to remedy the distortion.

As a general rule, it is considered "unlikely" that grants of less than 4 million euros over three years will distort, while grants below the "de minimis" threshold for State aid applicable in the EU are considered "non-disclosure".

For notifiable mergers and public procurement procedures, the Commission may examine foreign grants awarded up to three years before the transaction. However, the Regulation does not apply to mergers concluded and public contracts launched before 12 July 2023.

In all other situations, the Commission may examine grants awarded over the last 10 years. However, the Regulation only applies to grants granted in the five years preceding 12 July 2023, the date of its application, if they distort the single market after that date.

With the entry into force, the regulation will move to the crucial phase of implementation. Effective implementation will begin in six months' time, starting on 12 July 2023: after that date, the Commission will be able to open investigations on its own initiative. The notification requirement for companies will take effect from 12 October 2023.