Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (FSR) entered into force on 12 January 2023 and will start to apply as of 12 July 2023.

The FSR creates a brand new instrument to fill a regulatory gap, by preventing foreign subsidies from distorting the European Union (EU) internal market. Whereas companies receiving public support in the EU are subject to strict State aid rules, companies obtaining public support outside the EU are generally not. This was perceived as putting companies in the EU at a disadvantage compared to companies that obtained subsidies outside the EU, but that also engaged in economic activity in the Union.

The FSR’s scope extends far beyond the obvious State support, to cover common types of benefits that are granted all over the world, including in countries driven by a market economy. Its obligations will inevitably place an additional administrative burden on companies engaging in an economic activity in the EU. Acceptance of a foreign subsidy distorting the EU internal market may have far-reaching consequences for the company. The FSR places additional compliance obligations on companies, and for many will entail a thorough assessment to identify and justify foreign subsidies received. For companies considering transactions in the EU, the FSR effectively creates a third layer of deal conditionality, besides merger control and Foreign Direct Investment laws. This is adding a further unique set of thresholds, timings and factual considerations, to be included in companies’ strategies to invest in the EU. This will require expertise in EU antitrust and State aid law, and a good understanding of the details of the FSR.

Key things you need to know:

  • As under EU State aid law, a foreign subsidy includes any form of public support granted by a third country, e.g., direct grants, capital injections, interest-free or low-interest loans, etc., but also support such as tax exemptions or reductions, and exclusive rights without proper remuneration.
  • From 12 October 2023, when acquiring control of a company in the EU or participating in a public tender in the EU, companies will have to notify the European Commission (Commission) of foreign subsidies received, if the relevant thresholds are met, or if the Commission so requests. Notifications have suspensive effect. Failure to notify may lead to severe sanctions.
  • The Commission may launch ex officio investigations into other market situations that are not already caught by other legislation.
  • If the Commission deems that a foreign subsidy distorts the internal market, the beneficiary may need to apply remedies, such as reducing its market presence. If these remedies are not effective, the Commission may prohibit a concentration or the award of a public procurement contract that is not yet closed.

What is a foreign subsidy?

A foreign subsidy is:

  1. a financial contribution, e.g., direct grants, interest-free or low-interest loans, loan guarantees, capital injections, compensation of operating losses, debt rescheduling, fiscal incentives, and also preferential tax treatment, granting of special or exclusive rights without adequate remuneration, etc.;
  2. that is granted directly or indirectly by a non-EU country (including public and private entities whose actions are attributable to that country);
  3. that confers a benefit that is not normally available on the market to a company engaged in an economic activity in the EU; and
  4. that is “selective”, i.e., limited to one or more companies or industries (as opposed to a measure available to any company).

When must foreign subsidies be notified for prior review?

As of 12 October 2023, companies will have to notify foreign subsidies they have received when they intend to participate in:

  • a concentration, if: (i) at least one of the merging companies, the target, or the joint venture, generates a turnover of at least €500 million in the EU and is established in the EU; and (ii) the companies involved in the concentration received combined aggregate financial contributions of at least €50 million from third countries in the three years preceding the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest; or
  • a public procurement procedure in the EU (including for concessions), if: (i) the estimated contract value amounts to at least €250 million (with an additional threshold where the procurement is divided into lots of at least €125 million per lot); and (ii) the tenderer (including its subsidiaries without commercial autonomy, its holding companies, and, possibly, main subcontractors and suppliers) was granted aggregate financial contributions of at least €4 million per third country in the three years prior to notification. Below these thresholds, tenderers must nevertheless declare all foreign financial contributions received.

The Commission may also request the notification of concentrations or public procurements where these thresholds are not met.

Notification has suspensive effect. This means that the notified concentration may not be implemented, or the notified public procurement may not be awarded to the beneficiary of the foreign subsidy, until the time limits for the Commission to review the foreign subsidy have elapsed.

Failure to comply with these obligations may lead the Commission to impose fines of up to 10% of the aggregate turnover, or to request the dissolution of a concentration.

An implementing regulation, to be adopted by 12 July 2023, will set out the procedural details underpinning the submission of notifications to the Commission.

When will a foreign subsidy be reviewed by the Commission in the absence of a notification?

The Commission has the ability to start ex officio investigations into foreign subsidies allegedly distorting the internal market granted in the preceding 10 years (but not longer than five years prior to the application of the FSR). It will examine information from any source, including Member States, natural or legal persons, or associations. Although there is no formal procedure for complaints in the FSR, this tool will allow competitors to denounce potential foreign subsidies affecting the internal market.

The ex officio investigations can be conducted in market situations other than the ones targeted by the notification obligations.

When would foreign subsidies be subject to remedies?

During its investigation, the Commission will determine if the qualification of a foreign subsidy is correct and if so, if it has a distortive effect on the EU internal market. To do so, it will consider, amongst other factors, the amount and nature of the subsidy, the situation of the company (size, markets, sectors, etc.), the level and evolution of the company’s economic activity in the EU, and the purpose and conditions of the foreign subsidy. The foreign subsidy will be deemed to distort the internal market where it improves the competitive position of the company in the internal market and it actually or potentially affects competition in the internal market. There are some presumptions of distortion (e.g., subsidies to ailing companies, in the form of unlimited guarantees or subsidies directly granted to facilitate a concentration), and also presumptions of no distortion (e.g., subsidies of less than €4 million over three years, or those granted to make good the damage caused by natural disaster or exceptional occurrences). If a distortion is found, the Commission may conduct a balancing test, weighing the positive effects of the subsidy against the negative ones to determine the need for — or level of — a remedy.

If the negative effects outweigh the positive ones, the company may propose commitments to remedy the distortion on the internal market. This might include offering to reduce its capacity or market presence, divest assets, repay the foreign subsidy to the foreign country, refrain from certain investments in the EU, or to provide a license on FRAND terms for those assets developed with foreign subsidies. If these remedies are ineffective, the Commission may prohibit the concentration or the award of the public contract to the beneficiary of the foreign subsidy. When acting ex officio, the Commission may also impose redressive measures to remedy the distortion.

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Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics has developed a cutting-edge expertise in State aid law, with a strong background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public…

Carole Maczkovics has developed a cutting-edge expertise in State aid law, with a strong background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public and private entities, which she successfully represents in administrative and judicial proceedings on complex State aid and regulatory matters before the European Commission as well as before the Belgian and European courts. She also assists clients with the application of the new EU Foreign Subsidy Regulation and UK subsidy control regime.

Carole has published many articles on State aid law and on regulated network industries, and contributes to conferences and seminars on a regular basis. She is a visiting lecturer at King’s College London and at the Brussels School of Competition on the application of regulation and competition law (including State aid) in the railway sector. Carole gives trainings on State aid law at EFE, in Paris. She has been recently appointed as Academic Director of the European State aid Law Institute (EStALI).

Photo of Johan Ysewyn Johan Ysewyn

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner…

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner of the Brussels office.

Clients turn to Johan when they need cutting-edge competition and regulatory advice. He has been advising some of the world’s leading companies for over 30 years on their most complex competition issues. Johan is “an exceptional lawyer who is solution-oriented, has a remarkable ability to rapidly understand our business and has excellent reactivity.” (Chambers Global) Johan “attracts considerable praise for his reliable practice, as well as his great energy and insight into cartel proceedings.” (Who’s Who Legal)

Johan represents clients from around the world in dealings with competition authorities as well as in court litigation. He has in-depth knowledge of regulatory procedures and best practices as well as longstanding relationships with key regulators, in particular at the European Commission. He has also an active advisory practice covering a range of areas of interest to corporates, including the interplay between ESG goals and competition law, the impact of competition law enforcement on digital markets and broad strategic compliance issues.

Johan’s experience spans many industry sectors, with recent experience in telecoms and information technology, media, healthcare, consumer goods, retail, energy and transport. He has advised on several of the most major merger investigations in recent years. In addition, he has represented clients in many conduct investigations.

Johan’s practice also has a strong focus on global and European cartel investigations. He has acted for the immunity applicants in the bitumen and marine hose cartels, and acted for defendants in alleged cartels in financial services, consumer goods, pharmaceuticals, chemicals, consumer electronics and price benchmarking in the oil sector. He has acted for the European Payments Council in the first European Commission investigation into standardisation agreements in the e-payments sector. Johan has written and lectured extensively on international cartel and leniency-related issues. He co-authors the loose-leaf European Cartel Digest and lectures on cartel law and economics at the Brussels School of Competition.

Johan is also one of the leading experts on EU State aid issues, working both for beneficiaries and governments. He has advised a number of leading banks and governments, as well as represented major European airlines. From the cases that can be publicly disclosed, he has been involved in the Fortis, KBC, Dexia, Arco, Citadele, airBaltic and Riga Airport State aid cases.

Photo of Christian Ahlborn Christian Ahlborn

For more than 20 years Christian Ahlborn has been advising multinational corporates, banks and other institutions on all aspects of global competition law, combining an in-depth understanding of the subject with a pragmatic approach.

Christian is qualified in England & Wales and in…

For more than 20 years Christian Ahlborn has been advising multinational corporates, banks and other institutions on all aspects of global competition law, combining an in-depth understanding of the subject with a pragmatic approach.

Christian is qualified in England & Wales and in Germany and is widely recognized as a market-leading competition lawyer. He is also a trained economist. Christian belongs to a small group of antitrust practitioners who can bring both a legal and economic perspective to a case.

Christian advises major corporates, banks and institutions on all areas of global competition law. He has a broad range of experience in EU competition law, particularly in relation to complex M&A, behavioral antitrust work, control of dominance issues and State aid control. He is well-known for extensive work on high-profile matters.

Christian’s experience spans many industry sectors, with particular experience in financial services, IT, fast-moving consumer goods and mining.

During his career Christian has been seconded to the European Commission’s Directorate-General for Competition and to the Bundeskartellamt. He is also well known on the Brussels market.

Photo of Sibel Yilmaz Sibel Yilmaz

Sibel Yilmaz advises on all aspects of competition law and foreign investment within the EU, the Nordics and internationally, with a focus on life sciences, technology and private equity.

Sibel has particular expertise in the life sciences sector and has been involved in…

Sibel Yilmaz advises on all aspects of competition law and foreign investment within the EU, the Nordics and internationally, with a focus on life sciences, technology and private equity.

Sibel has particular expertise in the life sciences sector and has been involved in some of the industry’s most high profile matters in recent years, including representing Novartis on its $30 billion acquisition of GSK’s oncology business, advising Takeda on its sale of certain respiratory products to AstraZeneca and representing clients in several investigations relating to alleged excessive prices and other non-competitive practices in the life science sector.

Sibel is ranked among the world’s top antitrust practitioners by Global Competition Review, who included her in their most recent 40 Under 40 survey, as well as Chambers Global. She is described as “a brilliant and promising lawyer, who is highly recommended for complex merger work” and “an exceptional talent”, “absolutely a tip for the top.”

Sibel received her LL.M. in Law and Economics from the University of Rotterdam and Master of Law from Stockholm University and is admitted to practice in Belgium and Sweden.