European Union - Foreign subsidies regulation now in effect, with upcoming reporting obligation for affected companies

New rules apply in the EU as from 12 July 2023 to tackle the distortive effects of financial subsidies granted by non-EU member states to companies engaging in economic activities in the EU. The EU Foreign Subsidies Regulation (FSR) entered into force on 12 January 2023, followed by publication of the final Implementing Regulation (IR) on 12 July.

The FSR grants broad authority to the European Commission to investigate whether financial subsidies granted by a non-EU government is “distortive” and to take remedial action if deemed necessary. The FSR also requires companies that benefit from such financial aid to inform the Commission of the existence of the aid before the relevant transaction is finalized. The newly released IR clarifies and provides more detail on the applicable procedures for notifications (including the form to be used, information required), the process for investigations conducted by the European Commission and the procedural rights of the parties.

The Commission’s screening authority under the FSR applies as from 12 July 2023 and the two notification-based tools for concentrations and public procurement procedures will apply as from 12 October 2023.


The EU operates a sophisticated and effective system of state aid control aiming at ensuring fair conditions for all companies engaging in an economic activity in the internal market and preventing member states from granting state aid that unduly distorts competition in the internal market. At the same time, however, companies may receive subsidies from countries outside the EU that are used to finance economic activities in the EU, such as the acquisition of companies and participation in public procurement procedures. The EU state aid rules do not extend to foreign subsidies, which has given rise to a situation where companies that receive financial aid from an EU member state are subject to the EU state aid rules, but companies that obtain financial contributions from outside the EU are not subject to any EU regulation in this area.

The FSR addresses these distortions and closes the regulatory gap by introducing new tools to tackle foreign subsidies that cause distortions and undermine the level playing field in the internal market, while at the same time aiming to attract new clean tech investment from within and outside the EU.

Scope of the FSR and IR

The FSR covers all economic activities conducted in the EU, such as concentrations (e.g., mergers), public procurement procedures and other market situations, and grants exclusive authority to the European Commission to screen financial contributions made by non-EU member states to companies engaging in an economic activity in the EU and, if necessary, to redress the distortive effects of the financial aid. To this end, the FSR provides three tools to determine whether a distortive effect is present:

  1. A notification obligation applies to concentrations where the annual EU revenue of the target company is at least EUR 500 million and the aggregate foreign financial contribution exceeds EUR 50 million in the three-year period before the transaction agreement was concluded;
  2. A notification obligation applies to public procurement procedures where the

estimated contract value is at least EUR 250 million and the bid involves a foreign financial contribution of at least EUR 4 million per non-EU country; and

  1. With respect to all other market situations, the Commission can launch an investigation on its own initiative, including where concentrations and public procurement procedures do not meet the above thresholds.

The concept of a “financial contribution” within the meaning of the FSR is broad and covers all direct or indirect financial aid granted by a non-EU member state to a company carrying out economic activities in the EU. Examples of a foreign subsidies caught by the FSR include zero-interest loans or other preferential financing, unlimited guarantees, the foregoing of tax otherwise due (e.g., tax exemptions) and even intragroup transactions if the parent company receives a financial contribution from a third country and the subsidiary in the EU benefits from it. A financial contribution provided by a third country includes a contribution provided by the central government and public authorities at all other levels or by a foreign public or private entity whose actions can be attributed to the third country. A “distortion” in the internal market will be deemed to exist where a foreign subsidy likely will improve the competitive position of a company operating in the EU and using that subsidy actually or potentially negatively affects competition in the EU.

The FSR distinguishes between foreign contributions that are:

  • Most likely to distort the internal market (e.g., subsidies granted to ailing undertakings, the provision of unlimited guarantees or export financing credits or subsidies directly facilitating a concentration or an unduly advantageous tender);
  • Unlikely distortive foreign subsidies (e.g., where the total amount of the subsidy does not exceed EUR 4 million in three consecutive financial years and the total amount does not exceed de minimis state aid in three consecutive financial years, and disaster subsidies); and
  • Foreign subsidies that could be distortive based on a case-by-case assessment.

Using Form FS-CO (which is included in the IR), the acquirer or bidder must “notify” the European Commission of the financial contributions received from non-EU governments and public authorities where the relevant thresholds have been met. More detailed information will have to be reported when the financial contribution falls within the scope of the first bullet above; for other financial contributions, only an overview will be required. Information that should be included on Form FS-CO includes:

  • Basic and supporting information about the parties;
  • Detailed information on all foreign financial contributions that amount to EUR 1 million or more in the three years before the agreement was concluded, the public bid announced, etc. (the Commission can request additional information it deems necessary);
  • Information to enable the Commission to determine whether the foreign financial contribution distorts the internal market; and
  • Information on the positive effects of the foreign financial contribution.

Pending a review by the Commission, the concentration cannot be completed, nor can an investigated bidder be awarded a public procurement contract. It may be possible in certain circumstances to obtain a waiver from the disclosure requirement. The IR encourages notifying parties to engage in pre-notification discussions with the European Commission, particularly with respect to the information to be included on Form FS-CO.

The European Commission has the exclusive authority to investigate financial contributions granted by non-EU governments to companies active in the EU and it can make both a preliminary review and an in-depth investigation. Based on its general investigatory authority, the Commission can initiate investigations on other types of market situations (e.g., greenfields investments) on its own initiative. The IR provides detailed timelines for preliminary reviews and in-depth investigations.

If the Commission finds that a financial contribution constitutes a distortive subsidy or if a party fails to comply with the notification requirement, the Commission can impose measures to redress the distortive effects, such as:

  • Requiring the company to repay the subsidy;
  • Requiring the company to divest of certain assets;
  • Reducing the company’s capacity or market presence;
  • Requiring the company to refrain from making certain investments; and
  • Imposing fines or penalties up to 10% of the aggregate turnover or 5% of the average daily aggregate turnover.

The Commission has indicated that it will provide ongoing clarifications and guidelines for the concepts in the FSR/IR, such as how a distortion is determined, how the “balancing test” is used to determine whether a distortive subsidy leads to certain positive effects that outweigh its negative effects and criteria the Commission will consider when evaluating whether to request the notification of concentrations/public procurement procedures that fall below the notification thresholds.


The FSR/IR impose significant administrative burdens on affected companies. With the notification requirement starting to apply in October 2023, companies should begin now to assess whether any financial contributions they receive fall within the scope of the FSR and, if so, to begin collecting the relevant information. Affected companies also may wish to engage in early discussions with the European Commission, particularly with respect to the information that needs to be communicated.

Marcell Tatai-Szabó 
Miklós Bencze 
BDO in Hungary

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