18 April 2024

Foreign Subsidies

Foreign subsidies regulation: increased monitoring of large public tenders and mergers and acquisitions.
Netherlands Corporate/Commercial Law
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Foreign subsidies regulation: increased monitoring of large public tenders and mergers and acquisitions.

On July 12, the main provisions of the EU Regulation 2022/2560 on Foreign Subsidies Distorting the Internal Market (hereinafter "The Regulation") entered into force. The Regulation provides the European Commission ("the Commission") with the necessary tools to take action against subsidies received by companies from non-EU governments that may have a negative impact on the European internal market.

Definition of a foreign subsidy

First, it is important to explain how an "foreign subsidy" and a "financial contribution" are defined in the Regulation, because these definitions are used to determine when the monitoring instruments apply that have been made available to the Commission. Under the Regulation, a foreign subsidy exists if the following four conditions are met:

  • A financial contribution granted for activities of an undertaking;
  • which contribution is provided directly or indirectly by a third country (from outside the EU);
  • through that contribution a benefit is conferred to the undertaking;
  • and that benefit should be selective.

These conditions largely mirror to a large extent the conditions applied by the Commission in state aid law, through which the Commission monitors state aid granted by EU member states. These conditions should be interpreted broadly and therefore have a wide scope of application to prevent circumvention tactics. The definition of financial contributions covers not only all kinds of transfers of financial resources including capital injections, grants and loans, but also debt forgiveness and tax exemptions and the supply or purchase of goods or services. Even if the financial contribution comes from a private entity, there can still be a contribution made by a third country, as long as the actions of that entity are attributable to the government of a third country. The contribution must confer an advantage in the sense that the undertaking in question would not have obtained that advantage under normal market conditions. Finally, the measure must be selective, i.e. the contribution is not available to any undertaking but is limited in law or in fact to one or more undertakings or industries.

Monitoring methods

The purpose of the Regulation is to prevent distortions of the internal market caused by foreign subsidies. How does the Commission decide whether to scrutinize an undertaking to determine whether such distortions exist? Within the framework of the Regulation the Commission possesses three monitoring tools

  • concentrations of a certain size between undertakings that have received a certain amount of foreign financial contributions need to be reported to the Commission;
  • bids for tenders of a certain size, where the tenderer has received a certain amount of foreign financial contributions must be reported to the contracting authority;
  • so-called ex officio monitoring: investigation of grants that are not notifiable in the context of the first two categories.

The first two instruments force companies to file a notification before a concentration is implemented or at the time of bidding for a tender, so-called ex ante supervision. It is important to note that the reporting obligation is triggered on the basis of the amount of foreign financial contributions. It is irrelevant whether the contribution has been selective or has conferred an advantage to the relevant undertaking. This makes the scope of the reporting obligations of the Regulation significant. The final surveillance instrument can be used by the Commission at its own discretion if it suspects a distortion of the internal market by foreign subsidies; that includes mergers and procurement that do not meet the size requirements described below, but can also cover other situations.


The Regulation requires undertakings to notify a concentration (competition law term for mergers and acquisitions and other forms of acquiring control over an undertaking) if:

  • one of the merging undertakings (in the case of a merger) or the target company (in the case of an acquisition) or the joint venture (in the case of a so-called full-function joint venture) is located in the EU and has a total turnover in the EU of at least €500 million;
  • and the buyer (in the case of an acquisition), the merging companies (in the case of a merger) or the joint venture (in the case of the full-function joint venture) have received more than €50 million in foreign financial contributions.

The Commission can also independently order an undertaking to notify a non-notifiable concentration anyway if the Commission suspects that foreign subsidies have been granted to the undertakings concerned. This means that, in theory, the Commission can retrospectively investigate any concentration, just as the Commission can now do in competition law under Article 22 of the Merger Regulation Illumina – Grail video.


Bidders for tenders are required to report to the contracting authority if:

  • the estimated value of the public contract or framework agreement is equal to or greater than €250 million;
  • the undertaking including its subsidiaries and participation companies as well as its main subcontractors and suppliers involved in the tender have received more than €4 million in foreign financial contributions per third country in the previous three years.

In any case, if a tenderer bidding for a tender with a size as described in criterion (i), that tenderer will have to verify the amount of foreign financial amounts received, as this has to be reported at the time of bidding (even if the amount of financial contributions does not exceed the threshold of €4 million per country). In the case of tenders that are not of the magnitude described above, the Commission may determine that it deems an investigation necessary because it suspects that benefits were obtained by the undertaking from foreign subsidies in the three years preceding the tender or the request to participate in the tender.

Effective date of notification requirement and penalties

The reporting obligations arise as of Oct. 12, 2023. However, for transactions already agreed on or after July 12, but not yet completed before October 12, 2023, this reporting obligation applies in full. For non-compliance with the reporting obligation, the Commission can impose a fine of up to 10% of the turnover of the previous fiscal year of the undertaking concerned (which usually includes the entire group).

Ex officio supervision and substantive test internal market distortion

In addition to the above notification procedures, the Commission has an ex officio power to open an investigation on its own initiative with regards to any situation where it suspects that foreign subsidies are distorting the market. Both in the context of notified mergers and tender bids and in "ex officio" cases, the Commission investigates whether the relevant situation causes distortions of the internal market. The Commission assesses whether a foreign subsidy may lead to such a distortion it based on the amount and nature of the foreign subsidy; the situation of the undertaking, including its size and the markets or sectors involved; and finally, the level and development of the undertaking's economic activities in the internal market.

The Regulation identifies a number of categories of subsidies that are unlikely to distort the internal market: if the total amount of subsidies received by a undertaking does not exceed €4 million in the past three years; if the undertaking has not received more than €200,000 in subsidies per third country in the past three years; and subsidies intended to make good the damage caused by natural disasters or extraordinary events. The Regulation also identifies a number of categories for which it is likely that those subsidies do, in fact, cause distortion: subsidies to distressed companies; unlimited guarantees for a company's debts or liabilities; an export credit scheme that is not compliant with the OECD/OECD framework; subsidies that facilitate a concentration; subsidies that enable a undertaking to submit an illegally advantageous tender.

If the Commission finds that foreign subsidies granted lead to a distortion of the internal market, it can impose remedial measures on the undertaking that received the subsidy. Before the Commission imposes such measures the undertaking may also on its own initiative propose commitments to eliminate the market distortion, which is very similar to commitment decisions used in competition law. Examples of commitments and remedies are also listed in the Regulation and are far-reaching. Among other things, the Commission can order that: a merger be reversed; prohibit a public contract from being awarded to a particular party; a subsidy be repaid to the grantor; assets be divested. And the list of examples is not exhaustive.

The obligations arising from the Regulation impose significant administrative burdens on companies, contracting authorities and the Commission alike. The Commission has therefore received a lot of criticism of the Regulation, which has led it to somewhat simplify the method of notification in the so-called Implementing Regulation. The Commission also states that it will only use its powers to deal with the biggest disruptions to the internal market, even though those powers are broadly defined. The first high profile case has already presented itself to the Commission: the top Spanish football league La Liga filed a complaint with the Commission on the 12th of August against French soccer club Paris-Saint Germain, due to considerable financial ties with Qatar. The handling of this case will hopefully shed more light on how the Commission conducts its FSR investigations and the extent to which it is serious about enforcing the Regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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