Competition, antitrust and trade

Foreign Subsidies Regulation: new EU mandatory notification regime takes effect on 12 October 2023

Published on 12th Oct 2023

Notification to the Commission of qualifying M&A and public tenders are now required before completion

Business planning meeting, photo of people's hands holding pens and going over papers

The Foreign Subsidies Regulation (FSR), which came into force on 12 January 2023, aims to redress the distortive effect on competition in the EU caused by companies in receipt of substantial foreign subsidies within the EU internal market. The new mandatory notification regime, which will apply to companies who benefit from material state subsidies, takes effect from Thursday 12 October.  

The changes introduced by the FSR have been implemented in two stages:

  • New powers of investigation: As we reported in an earlier Insight, on 12 July 2023 the European Commission gained extensive new powers to investigate suspected instances of companies benefiting from foreign subsidies.
  • New mandatory notification regime: With effect from 12 October 2023, a new mandatory notification regime will require qualifying transactions or public tenders in the EU that are entered into by companies in receipt of substantial non-EU government subsidies or state support to be notified to and cleared by the European Commission.  

What are foreign subsidies under the FSR?

Foreign subsidies are widely defined to capture most forms of direct and indirect subsidies or financial contributions made by a non-EU public authority to a company.

This is a broad concept, encompassing direct cash and capital injections, and also interest-free loans, unlimited guarantees and state contracts on preferable terms.  

Companies in receipt of any state subsidy will need to put in place measures to identify, record and keep track of any state benefits that they may have received anywhere in the world.  For example, the FSR notification regime may potentially catch a private company that has benefited from non-EU state subsidies for constructing a factory in an economically deprived area or a state-owned business that is consequently able to borrow money on preferential terms.

What are the notification thresholds?

Qualifying M&A transactions (concentrations) that are signed on or after 12 October 2023 must be notified to and cleared by the European Commission prior to completion where:

  • at least one of the merging parties, the target or the joint venture must have group-wide turnover of at least500 million in the European Union; and
  • the total combined value of all foreign financial contributions received by the parties exceeds €50 million in the previous three years.

For companies intending to participate in public tender processes within the EU, there is a requirement to notify the European Commission prior to concluding a contract under a public tender where:

  • the estimated overall contract value is at least €250 million (or, if the contract is divided into lots, the value of the lot(s) that the tenderer competes for exceeds €125 million); and
  • the tenderer received foreign financial contributions of at least €4 million per third country over the previous three years.

In addition, the Commission has the power to call in concentrations and public procurements that do not meet the notification thresholds where it suspects the existence of distortive subsidies.

What is the process and timeframe for notifying foreign subsidies?

For concentrations, a qualifying transaction must be notified using a prescribed form – known as Form FS-CO – and submitted to the department for competition, DG-COMP.  The Commission has an initial 25 working day period from receipt of a complete notification in which to determine whether the transaction should be cleared.  If the Commission suspects that foreign subsidies are potentially causing distortive effects, the transaction will be referred for a 90 working day in-depth assessment. 

For public procurement processes, a qualifying procurement must be notified using Form FS-PP. The Commission has an initial 20 working day period to determine whether to clear the procurement or, if it suspects there may be distortive effects, refer it for an in-depth assessment.  As with concentrations, an in-depth assessment must be completed within 90 working days of initiation. 

In both cases, the Commission has the power to "stop the clock" if there is missing or incomplete information.

What does the substantive assessment entail?

On receipt of a completed notification, the Commission will carry out a preliminary evaluation of the notification to determine whether the financial contribution constitutes a foreign subsidy and whether it distorts the market.

If, after its preliminary review, the Commission has identified concerns regarding potential market distortions, it has the power to initiate a more extensive investigation lasting up to 90 working days. As with mergers, the Commission can accept undertakings in lieu of an in-depth investigation where it deems the commitments are "appropriate and sufficient to fully and effectively remedy the distortion".

If, following its in-depth review, the Commission establishes that a foreign subsidy exists and is distortive, it will balance the negative effects of the subsidy, in terms of the distortion, with its positive effects to determine appropriate redressive measures or to accept commitments from the notifying party.

What other powers of investigation does the European Commission have?

Since 12 July 2023, the European Commission has had the power under the FSR to open an investigation on its own initiative (whether or not prompted by third party complaints) regarding alleged foreign subsidies distorting fair competition in the internal market. 

Unlike the new mandatory notification regime, there are no minimum value thresholds that must be satisfied. This gives scope for aggrieved third parties to petition the European Commission to investigate subsidies received by their competitors from non-EU public authorities.

Foreign subsidies can be investigated up to 10 years after the date they were first given, subject to their being granted after 12 July 2018.

All companies competing in the EU that have knowingly received non-EU subsidies of any kind should therefore gather information on all such contributions received since 12 July 2018 and, from now on, keep detailed records of contributions received going back ten years or from 12 July 2018 (whichever is the later).

What are the European Commission's enforcement powers?

The European Commission can impose remedies if it determines, following an investigation, that a foreign subsidy risks distorting the EU internal market.

It may impose structural or non-structural redressive measures, such as divestment of assets, providing access to infrastructure or prohibition of market behaviour, or it may prohibit the transaction, the subsidised concentration or the award of a public contract to the subsidised bidder.

The European Commission may also impose fines on companies that fail to comply with the FSR regime, including:

  • fines of up to 10% of each party's aggregate worldwide turnover, in the event that a concentration is implemented prior to European Commission's approval being given;
  • fines of up to 1% of a party's aggregate turnover in the event that it supplies incomplete, incorrect or misleading information to the European Commission; and
  • periodic penalty payments of up to 5% of a party's daily aggregate turnover for each working day of delay, where that party has provided incorrect, incomplete or misleading information.

Osborne Clarke comment

Companies in receipt of foreign subsidies that are already active in the EU or are intending to enter the EU market through acquisition or tender need to determine if they may fall within the ambit of the FSR mandatory notification regime.

If not already done, a careful assessment and evaluation is needed to determine the value of any non-EU subsidies received in the last three years.

As well as the more obvious forms of direct financial contribution (such as grants, favourable loans or preferential tax rates), the wide ambit of what can constitute a foreign subsidy means that careful consideration must be given to any dealings with the state (or state-owned entities) which are on preferential terms or which otherwise confer financial benefits that would not otherwise exist (such as the ability to secure loans on more favourable terms as a result of benefiting from state guarantees).


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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