On 9 January 2026, the Commission adopted its Guidelines on the application of certain provisions of Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market (the “FSR Guidelines”). The FSR Guidelines explain how the Commission assesses whether foreign subsidies distort the internal market, and, if so, whether their potential positive effects outweigh their potential negative impacts. They also explain how the Commission may exercise its call-in powers to request the prior notification of any concentration or any foreign financial contributions (“FFCs”) in the context of a public procurement procedure that falls below the notification thresholds.

This blogpost describes the FSR Guidelines. The FSR Guidelines were adopted after a little more than two years of application of the FSR, on which the Commission will report in July 2026, potentially leading to its revision. While they crystallize the Commission’s practice thus far, they do not address the frequently voiced concern that they are overbroad and, consequently, too many unproblematic concentrations or tenders must undergo a cumbersome reporting process. For more details on the FSR, please see our previous blogpost.

Key takeaways

• The FSR Guidelines offer detailed guidance on how the Commission will conduct its assessment of distortions. While the responsibility for this assessment lies with the Commission, companies under investigation may need to demonstrate that the foreign subsidies they have received are not linked to their economic activities in the EU. If they are unable to do this successfully, they must then provide a comprehensive analysis of the impact those foreign subsidies have on the internal market.  
• In balancing the potential negative impact of foreign subsidies with their potential positive effects, the FSR Guidelines rely on an approach similar to State aid assessment. However, unlike in State aid, they do not provide any presumption that certain categories of subsidies are on balance positive when defined conditions are met. Instead, they require a case-by-case assessment.  
• Regarding the Commission’s approach to requesting notification of concentrations or FFCs in the context of a public procurement procedure, the FSR Guidelines leave the Commission broad discretion when it determines that those activities merit prior review given their impact on the EU. As a result, companies may need to consider their FSR risks even if they do not engage in large concentrations or public procurement procedures in the EU.   

Assessment of distortions

Under the FSR, a foreign subsidy is distortive if: (i) it is liable to improve the competitive position of its beneficiary in the internal market; and (ii) as a result, it actually or potentially affects competition in the internal market negatively. The FSR Guidelines explain this two-step approach and its specificities depending on whether the Commission examines FFCs granted under a notifiable public procurement procedure or in other situations. In any case, the foreign subsidy does not need to be the sole reason for the negative impact on competition; it suffices that it contributes to it.  

In concentrations or other market situations than notifiable public procurement procedures

(i) Liable to improve the competitive position of a company in the internal market

The FSR Guidelines distinguish three categories of subsidies:

• “Targeted foreign subsidies”, supporting the company’s economic activities in the internal market (e.g., subsidies for manufacturing or distribution activities in the EU). These subsidies are deemed liable to improve the company’s competitive position.
• “Non-targeted foreign subsidies”, not supporting economic activities in the internal market and whose use is unclear (e.g., subsidies for general purposes that could be used in the EU). The Commission examines whether credible legal or economic factors make cross-subsidizations or use in the EU unlikely. These factors include shareholding structures, loose functional, economic or organic links, or the design and conditions of the subsidy.
• Foreign subsidies “not liable to improve the competitive position”, those not liable to free up transferable resources or where the potential for cross-subsidization is low or insignificant. This category includes subsidies addressing market failures and crowding in private investment, subsidies for non-economic activities or social objectives, subsidies below EUR 4 million or amounts insignificant compared to the beneficiary’s EU activity.

This approach broadly reflects the assessment we typically provide to the Commission to demonstrate that foreign subsidies are not linked to the internal market and therefore not of concern. Although it is for the Commission to assess the existence of a link, investigated companies should demonstrate that foreign subsidies received are not used to cross-subsidize their activity in the internal market.

(ii) Negative effects

If a subsidy is liable to distort competition, the Commission examines:

• How the subsidy affects the company’s behaviour in the EU (e.g., pricing): A subsidy may encourage specific behaviours due to its scope, purpose or conditions. In other instances, the Commission will assess whether the subsidy is linked to the behaviour because of its nature, frequency or characteristics. For example, the FSR Guidelines suggest that changes in pricing are more likely to result from subsidies related to the company’s operating or variable costs.
• Whether it is likely to alter competitive dynamics to the detriment of other operators (including downstream, upstream, or related sectors): Alterations can manifest in various forms, such as reinforcing the company’s financial strength, facilitating a more aggressive commercial policy, reducing output or investment costs, or maintaining operations at the expense of rivals. In the context of concentrations, alterations may occur when the subsidy influences the outcome of the acquisition process. This might be the case if the subsidy allows the company to offer more attractive terms than it otherwise could under normal market conditions. To assess the extent of these alterations, the Commission may consider indicators like the amount of the subsidy relative to the price offered for acquiring a target or the subsidised company’s ability to invest in additional capacity in a sector characterised by capacity constrains.

The approach may require companies to develop a counterfactual scenario to isolate or exclude the effects of a foreign subsidy. The FSR Guidelines require an examination of any activity in the EU and related sectors. This requirement increases the burden on companies, which may need to gather and submit information and analysis beyond their transaction and potentially beyond their sector.

Public procurement

(i) Liable to improve the competitive position of a company in the internal market

Improvement of the competitive position due to foreign subsidies is assessed through the ability of the recipient to submit an unduly advantageous tender that cannot plausibly be explained by factors other than the subsidy. Although not reportable, foreign subsidies granted to a group entity – although one that is not in the vertical chain of control of the economic operator participating in the tender, its main subcontractors or suppliers – may also improve the tenderer’s competitive position.

(ii) Negative effects

In public procurement, a subsidy has actual or potential negative effects if it influences the outcome of the procedure.

Balancing distortions with positive effects

According to the FSR, the Commission may balance the distortion caused by a foreign subsidy against its positive effects. Positive effects may reduce or eliminate the need for remedies.

If the company submits evidence of positive effects, the FSR Guidelines stipulate that the Commission should consider these effects during the balancing test. The FSR Guidelines acknowledge that positive effects may pertain either to the development of the subsidised economic activity in the internal market (e.g., addressing market failure) or to relevant policy objectives, particularly those of the Union (e.g., environmental protection, EU’s economic security or defence, etc). In public procurement, the absence of alternative sources of supply may be considered a positive effect, provided the tender procedure is not designed in a way that makes non-subsidised bids unlikely to succeed.

As in State aid control, the FSR Guidelines entrust the Commission with the responsibility to consider the potential benefits of foreign subsidies, while accepting some distortions. However, unlike State aid law, the FSR Guidelines do not establish categories of subsidies deemed positive on balance. Instead, positive effects are assessed case-by-case.

The Commission call-in powers

The Commission may request the notification of a concentration before its implementation or of foreign subsidies in the context of a public procurement procedure before the contract award, even where the notification thresholds are not met.

The FSR Guidelines specify that the Commission may request notification only where the concentration or FFCs in a public procurement procedure would merit prior review given their impact in the Union. Impact may arise from, for example, the importance of the target in concentrations, or previous FSR decisions finding indications of distortive subsidies. While the Commission must provide evidence justifying the use of call-in powers, the FSR Guidelines allow significant discretion.

The FSR Guidelines introduce limited safe harbours for concentrations or public procurement procedures that cannot be called in, where the foreign subsidies involved:

(i) remain below EUR 4 million over the past three years,

(ii) are aimed at making good the damage caused by natural disasters or exceptional occurrences; or

(iii) are granted in relation to procurement procedures below thresholds set by Directive 2014/24/EU.

The Commission considers that it may call in a public procurement procedure falling below the notification thresholds until the legally binding conclusion of the contract, acknowledging that this moment may occur later than the award decision due to potential challenges. If implemented, this interpretation may impose a de facto suspensory effect on contract conclusion in addition to standard procurement litigation. The Commission reportedly exercised this power for the first time in November 2025 and has indicated that more call-ins can be expected. The FSR Guidelines therefore call on companies operating in the EU to assess their FSR risks even outside large concentrations or tenders.