In November 2022, the EU adopted a new Foreign Subsidies Regulation (FSR). The FSR applies to transactions with an EU nexus signing on or after 12 July 2023, with the notification obligations commencing from 12 October 2023.
The FSR is intended to level the playing field between EU operators and their competitors from non-EU Member States which are not subject to the same kind of strict subsidies disciplines as EU Member States are under the EU State Aid rules.
It seeks to do this by creating new subsidy control tools for the European Commission to address foreign subsidies, including a notification-based tool in relation to potentially subsidised mergers and acquisitions, "concentrations". Concentrations need to be notified to the European Commission where: (i) the undertaking to be acquired, one of the merging undertakings, or the joint venture, is established in the EU and has aggregate EU turnover of €500 million or more; and (ii) the aggregate amount of the foreign "financial contributions" received by the undertakings concerned is more than €50 million over the three years prior to notification.
Although the aim of the FSR is to address foreign subsidies that distort competition in the EU, the notification obligations are triggered by foreign financial contributions, a much wider concept. A foreign "financial contribution" may include any transfer of financial resources from non-EU public authorities to the undertakings concerned, including, for example, payment by a non-EU public authority or state-owned enterprise for goods and services (even where those payments were made on arm's length market terms so there is therefore no subsidy).
Failure to notify when required could result in significant fines being imposed on companies by the European Commission, as well as a risk that the transaction could subsequently be subject to investigation and ultimately unwound if the Commission concludes that foreign subsidies in the concentration distort the EU internal market.
Read more about the new EU foreign subsidies regime on our competition team's blog here.
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