Foreign subsidies regulation

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.