On 4 May 2022, the Council of the EU (the “Council”) formally adopted its position on the proposal of the European Commission (the “Commission”) for a Regulation on foreign subsidies distorting the internal market (the “Foreign Subsidies Regulation”) (see our alert on the proposal). On the same day, the European Parliament (the “Parliament”) also adopted its position on the Foreign Subsidies Regulation (see our blog post). The Council’s adoption confirms the Commission’s initial proposal of the regulation while seeking to limit the Commission’s power to investigate foreign subsidies.
The three most important things for you to know about the recent amendments to the Foreign Subsidies Regulation:
- The thresholds above which companies are obliged to inform the Commission about their foreign subsidies have been increased, reducing the scope of the new rules to a narrower set of acquisitions, mergers and public procurements. In addition, foreign subsidies of less than EUR 5 million would not be subject to notification and foreign subsidies of less than EUR 200,000 would escape any scrutiny.
- The time period in which the Commission has to investigate foreign subsidies in large public procurements has been reduced. Furthermore, the “retroactive” application of the Foreign Subsidy Regulation is limited to foreign subsidies granted in the five years prior to the application of the regulation.
- The application of some concepts (e.g., the power to request prior notification) will be subject to further guidance by the Commission.
The Council introduces a distinction between (i) foreign subsidies below EUR 5 million and are unlikely to distort the internal market and (ii) foreign subsidies below EUR 200,000 and do not distort the internal market. It would be possible for the Commission to rebut the first assumption, but not the latter. In a similar vein, where a foreign subsidy falls within a category that is considered most likely to distort the internal market, an undertaking shall have the opportunity to disprove the assumption.
Furthermore, the Council intends to circumscribe the Commission’s power to scrutinise foreign subsidies granted to companies involved in EU transactions, by raising the thresholds above which a foreign subsidy must be notified for Commission’s review. The notification thresholds are: (a) EUR 600 million turnover of the EU target for notifiable concentrations (raised from EUR 500 million) and (b) EUR 300 million contract value for a notifiable public procurement (raised from EUR 250 million). Where the foreign subsidy received does not exceed EUR 5 million over the past three years, it does not need to be notified.
In addition, the Council adds a specific threshold for notifiable public procurement when, as is often the case, they are divided into lots, depending on the value of the tender. There will be no need to notify a foreign subsidy when the estimated value of each lot for which the economic operator is tendering, does not exceed EUR 50 million. However, where the aggregate value of all the lots to which the tenderer applies equals or exceeds EUR 150 million, foreign subsidies in excess of EUR 5 million in any given lot will have to be notified.
The Council also provides an anti-circumvention clause which prohibits undertakings from arranging their operations to circumvent the notification requirements on pain of sanctions.
Reduced time limits
Similar to the Parliament, to address concerns that the Foreign Subsidy Regulation involves a lot of red tape, the Council also reduces the deadlines for investigating the subsidy. The time limit to complete a preliminary review of a foreign subsidy in a notified public procurement is reduced from 60 to 20 days from the notification, and the time limit to close an in-depth investigation has been lowered from 200 to 110 days from the notification.
The initial 10-year time limit to review foreign subsidies granted before the application of the Foreign Subsidy Regulation has also been reduced. Under the amended text, only foreign subsidies granted five years prior to the date of the application of the Regulation may be investigated.
The Commission will have to provide, after consultation with Member States, guidance on its power to request prior notification of non-notifiable deals (e.g., foreign subsidies of less than EUR 5 million) where it suspects that foreign subsidies may have been granted to the companies concerned in the three years prior to the concentration, on the assessment of distortions on the internal market and on the test to balance the market-distorting effects of foreign subsidies against their potential wider benefits.
When a concentration is notified under merger control rules, the Council further specifies that undertakings will be able to use the same form to provide information that is relevant both for the EU Merger Regulation and the Foreign Subsidies Regulation.
With this position, the Council chose to reduce the Commission’s scrutiny of foreign subsidies. It does so by adding granularity to the regime that may reveal more complex to apply.
Overall, the Parliament and the Council agree on the necessity to address the distortive effects of foreign subsidies, but present a diverging approach on the scope of scrutiny, with the Parliament taking a stricter stance. On 5 May 2022, the Parliament and the Council opened trilogue negotiations with the Commission to reach a common ground. The parties intend to adopt a final version of the Foreign Subsidy Regulation by the end of June 2022.