Foreign subsidies regulation

 

SUMMARY OF:

Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market

WHAT IS THE AIM OF THE REGULATION?

It allows the European Commission to investigate subsidies given by non-European Union (EU) countries to companies active in the EU and address their negative effects on the EU single market.

It lays down rules and procedures allowing the Commission to assess any foreign subsidy from a non-EU country that directly or indirectly benefits an economic activity in the EU and to redress any distortions caused by these foreign subsidies. This is to ensure a level playing field and fair competition between all companies active in the EU.

KEY POINTS

A foreign subsidy is a financial contribution provided directly or indirectly by a non-EU country that confers a benefit and which is limited to one or more companies or industries.

In this context, a financial contribution can be, among other things:

• the transfer of funds or liabilities, fiscal incentives and debt arrangements;
• the foregoing of revenue due, such as tax exemptions;
• the supply or purchase of goods and services.

Such a financial contribution is foreign if it stems from a non-EU country’s central government, public authorities at all levels and public and private entities, whose actions can be attributed to the non-EU country.

Foreign subsidies:

• distort the internal market if they improve a company’s competitive position and negatively affect competition in the internal market, which can be determined using indicators such as:
  • the amount and nature of the subsidy,
  • the situation of the company, including its size and level and evolution of economic activity, and the markets or sectors concerned,
  • the purpose and conditions attached to the subsidy;
• are unlikely to distort the internal market when the total subsidy to a company over 3 consecutive years is below €4 million;
• do not distort the internal market when:
  • the total subsidy to a company over 3 consecutive years is below the EU State aid de minimis threshold (€200,000),
  • the aid is used to help recover from damage caused by natural disasters or exceptional events;
• are most likely to distort the internal market if they:
  • go to an ailing company without a restructuring plan,
  • take the form of an unlimited guarantee for debts or liabilities,
  • provide export financing not in line with Organisation for Economic Co-operation and Development rules,
  • directly facilitate a concentration (i.e. merger or acquisition),
  • allow a company to submit an unduly advantageous tender.

The Commission:

• may:
  • assess the negative and positive effects of a subsidy when deciding what action to take,
  • impose redressive measures on a company to remedy the actual or potential distortions,
  • accept a company’s commitments to remedy the distortions and make them binding,
  • in the event of notified transactions, prohibit the subsidised concentration or the award of the tender to a subsidised bidder;
• ensures commitments or redressive measures are proportionate and fully and effectively remedy the distortion these measures may include, for example reducing capacity, divesting certain assets, dissolving a merger or repaying the subsidy with an appropriate interest;
• imposes, where appropriate, reporting and transparency requirements or information requirements on future concentrations or public procurement procedures.

The Commission, when reviewing subsidies, may:

• request and examine information from any source;
• conduct inspections inside and outside the EU (provided the country’s government has no objection);
• initiate an in-depth investigation if a preliminary review shows sufficient indications of a distortive foreign subsidy – in such situations, it will also:
  • inform the company concerned, EU Member States and, in the case of public procurements, the contracting authority,
  • publish a summary notice in the Official Journal of the European Union inviting written submissions;
• close a preliminary review if it concludes there are insufficient indications of a distortive foreign subsidy;
• apply interim measures to preserve competition and prevent irreparable damage until a final decision is made;
• impose fines or periodic penalty payments on one or more companies that, intentionally or negligently, supply incorrect information or fail to cooperate – fines should not exceed 1% of aggregate annual turnover and periodic penalties should not exceed 5% of average daily aggregate turnover;
• apply fines of up to 10% of aggregate turnover on a company that does not comply with the commitments it has made.

Rules on large concentrations (mergers and acquisitions) and participation in large public procurement projects:

• require companies to notify the Commission if:
  • the EU turnover of the target to be acquired, one of the merging parties or the joint venture is at least €500 million and the foreign financial contribution is more than €50 million in the 3 previous years (concentrations),
  • the value of the contract, net of value added tax, is at least €250 million and the foreign financial contribution in the 3 previous years is at least €4 million (public procurement);
• allow the Commission to carry out a preliminary review or in-depth investigation and decide whether to:
  • allow the concentration or the award of a public procurement contract, with or without commitments from the company concerned,
  • prohibit the subsidised concentration or the award of a public procurement contract to the subsidised bidder,
  • apply fines and periodic penalties on companies that do not respect the rules.

The Commission:

• may:
  • receive information from Member States and any natural or legal persons about suspected foreign subsidies distorting the internal market,
  • conduct market investigations into particular sectors’ economic activities or the use of a particular subsidy instrument,
  • engage in a dialogue with non-EU countries in the event of repeated foreign subsidies distorting the internal market or several enforcement actions against subsidies granted by the same non-EU country;
• will provide companies an opportunity to respond before adopting its final decision;
• has the power to adopt implementing and delegated acts;
• will publish, by 12 January 2026, and regularly update guidelines on how it assesses and applies certain key concepts of the regulation;
• will present an annual report on the legislation to the European Parliament and the Council of the European Union;
• will review, by 13 July 2026, and every 3 years thereafter, how it implements and enforces the regulation – it will submit this to the Parliament and the Council, along with any proposals to revise the legislation.

Transitional arrangements state that the regulation:

• applies to foreign subsidies given in the 5 years prior to 12 July 2023 that distort the internal market after this date;
• does not apply to:
  • concentrations agreed, public bids announced or controlling interests acquired before 12 July 2023,
  • public procurement contracts awarded or procedures initiated before 12 July 2023.

FROM WHEN DOES THE REGULATION APPLY?

The regulation entered into force on 12 January 2023 and applies from 12 July 2023. The notification obligation for large concentrations and public procurement procedures applies from 12 October 2023.

BACKGROUND

State aid granted by Member States is subject to close scrutiny under EU legislation. However, previously, this did not cover subsidies given by non-EU countries. The regulation closes this gap.

MAIN DOCUMENT

Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (OJ L 330, 23.12.2022, pp. 1–45).

RELATED DOCUMENTS

Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I, 21.3.2019, pp. 1–14).

Successive amendments to Regulation (EU) 2019/452 have been incorporated into the original text. This consolidated version is of documentary value only.

Consolidated version of the Treaty on the Functioning of the European Union – Part Three – Union policies and internal actions – Title VII – Common rules on competition, taxation and approximation of laws – Chapter 3 – Approximation of laws – Article 114 (ex Article 95 TEC) (OJ C 202, 7.6.2016, pp. 94–95).

Consolidated version of the Treaty on the Functioning of the European Union – Part Five – The Union’s external action – Title II – Common commercial policy – Article 207 (ex Article 133 TEC) (OJ C 202, 7.6.2016, pp. 140–141).

Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts (OJ L 94, 28.3.2014, pp. 1–64).

See consolidated version.

Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (OJ L 94, 28.3.2014, pp. 65–242).

See consolidated version.

Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (OJ L 94, 28.3.2014, pp. 243–374).

See consolidated version.

Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 24.12.2013, pp. 1–8).

See consolidated version.

Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (OJ L 24, 29.1.2004, pp. 1–22).

last update 21.03.2023