What is it?

The FSR grants the European Commission powers to address distortive effects of non-EU subsidies on the EU market. The key aim is to ensure a level playing field by considering the impact that such foreign subsidies may have on competition in the EU. To achieve this, the FSR introduces three tools:

• M&A: A mandatory notification for deals where the EU turnover of the target (for acquisitions), the joint venture or one of the merging parties (for mergers) is €500m or more and the companies involved have received at least €50m in combined financial contributions from non-EU countries.

• Public procurement: A mandatory notification for tenders where the estimated contract value is €250m or more and the bid involves financial contributions of at least €4m per non-EU country.

• A catch-all tool: A general power for the Commission to investigate all other market situations (including M&A and public tenders falling below the thresholds) where there may have been foreign subsidies from non-EU countries.

Companies and businesses with operations outside the EU need to understand the extent of “financial contributions” they have received from non-EU countries, and whether these could amount to a “subsidy”. This will be critical to determine: (i) whether a notification will be required; and (ii) whether those filings will be of a technical nature (if no element of subsidy is involved) or will require an assessment of the impact of the subsidy on the EU internal market. This could lead to delayed deal timetables, additional red tape and reduced deal certainty. The FSR is also likely to affect the attractiveness of certain bidders.

What does this mean for business?

The FSR affects any company – including EU-based companies – that has received financial contributions from non-EU countries. Identifying and quantifying such contributions in a large organisation can be a challenge, but is necessary to determine whether the notification thresholds are met. In fact, a notification requirement can arise even if the financial contributions do not contain any subsidies (e.g. because they are made on market terms). The concept of “financial contribution” is broad and can include, for example, capital injections, grants, loans, guarantees, tax reliefs, and the sale or purchase of goods or services.

Once a notification is made, the Commission will assess whether the financial contributions entail a “subsidy”. If so, it will assess the negative effects of the subsidy against its positive effects. This will be a balancing test similar to the Commission’s assessment under EU State aid rules.

The catch-all tool gives the Commission broad powers to investigate any other market situation in which foreign subsidies may be distortive. The Commission also has the possibility to ‘call-in’ M&A transactions and public procurements that fall below the thresholds and do not require up-front notification. Companies therefore need to bear in mind this residual enforcement risk.

Should the Commission ultimately determine that a foreign subsidy distorts the EU internal market under the FSR it has wide-ranging powers to seek redressive measures. These include ordering repayment of subsidies, imposing behavioural commitments (e.g. changes in governance) or, in cases with significant concerns, unwinding a transaction.

Foreign Subsidies Regulation at Linklaters

• Pragmatic strategies: Preparedness is the best tactic for dealing with the FSR. We deliver you the “tip” to ensure ready-ness, while understanding the “entire iceberg” to provide context and identify future risk areas.
• Wealth of experience: The FSR builds on elements of State aid, merger control, foreign investment, public procurement, and trade defence. Our global team is one of the world’s leading practices across the spectrum of these matters.
• Practical and focussed information gathering: Collecting the data required as part of any FSR notification will be a challenge, and an efficient data collection process will be key to control deal timetables, long-stop dates and execution risk. We offer different solutions, including an online platform that offers a single joint data collection process.
• Efficient approach: We offer clients a one stop shop for handling foreign subsidies, foreign investment and merger control filings: a single, central point of contact, providing efficiencies and transparency.