On 4 May 2022, the European Parliament (the “Parliament”) 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). It confirms the Commission’s powers to investigate and remedy the potential negative effects of foreign subsidies. It further approves a number of amendments adopted by the committee on international trade “to make the tool more effective and improve legal certainty”, according to the Committee’s press release.
The five most important things for you to know about the recent amendments to the Foreign Subsidies Regulation:
- The possibility for the Commission to consider an equivalence for a third country regime.
- The thresholds above which companies are obliged to inform the Commission about their foreign subsidies have been reduced, extending the scope of the new rules to a larger number of acquisitions, mergers and public procurements.
- The period in which the Commission has to investigate foreign subsidies in large public procurements is reduced.
- The list of remedies to distortive foreign subsidies is further expanded and made open.
- Some concepts are clarified or made more explicit and their application, made subject to further guidance by Commission.
Equivalence consideration for third countries’ subsidies regimes
The Commission may consider in its assessment of a distortion the existence of an equivalent subsidy control mechanism in the third country. Such equivalence would make subsidies granted by the third country less likely to distort the internal market.
Reduction of thresholds
The Parliament reduced from 5 to EUR 4 million the level of “de minimis” foreign subsidies that are considered unlikely to distort the internal market and therefore escape the Commission’s scrutiny.
With its amendments, the Parliament further intends to extend the Commission’s power to scrutinize foreign subsidies granted to companies involved in EU transactions, by equally lowering the thresholds above which a foreign subsidy must be notified to the Commission for review. The thresholds are lowered from EUR 500 million turnover of the EU target to EUR 400 million for notifiable concentrations and from EUR 250 million contract value to EUR 200 million for notifiable public procurements.
Reduced time limits
Following concerns expressed that the Commission’s proposal involves a lot of red tape, the Parliament reduced 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 40 days from the notification, and the indicative time limit to close an in-depth investigation has been lowered from 200 to 120 days from the notification.
The initial 10 years review time limit of foreign subsidies has also been reduced. Under the amended text, only foreign subsidies distorting the internal market granted seven years prior to the date of application of the Regulation may be investigated.
The Parliament further makes the list of remedies that can be imposed by the Commission or proposed by the foreign subsidy recipient, open-ended. Remedies may also consist of subjecting future public procurements to Commission scrutiny for a certain period of time (even for contracts with values below the notification thresholds) or adapting the governance structure of the foreign subsidy recipient.
Within 24 months from the entry into force of the Regulation, the Commission will have to provide guidelines on the criteria for opening an investigation on its own motion, 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.
In this latter respect, the Parliament specifies now that only the positive effects on the internal market may be taken into account. Some terms are further clarified or made more explicit in the articles of the Foreign Subsidies Regulation. That is the case for instance of “financial contributions” amounting to a foreign subsidy that covers now also explicitly tax exemptions or transfer pricing.
As we anticipated when the Commission issued its proposal, the regime has not been materially modified. The Foreign Subsidies Regulation is endorsed and the amendments of the Parliament are relatively limited compared to some more radical proposals submitted during the legislative process.
The Council of the EU has also adopted its position on 4 May. With these positions adopted, the inter-institutional talks (“trilogue”) between the European institutions will start and with it, the final stage of the adoption process.