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What Does The New EU Foreign Subsidies Regulation (FSR) Mean For Companies Doing Business In The EU?

 |  September 11, 2023

By: (Covington Competition)

In December of 2022, the EU introduced the Foreign Subsidies Regulation (FSR), ushering in a novel mechanism designed to safeguard the integrity of the European Union’s (EU) internal market against the potential distortions caused by foreign subsidies. The FSR was enacted to address what was perceived as a regulatory void, as the existing EU State aid rules primarily governed subsidies provided by EU member states, leaving subsidies from foreign nations unregulated. Its implementation officially commenced on the 12th of July 2023, with mandatory notification requirements coming into effect on the 12th of October 2023.

Crucial points to bear in mind regarding the FSR and its accompanying Implementing Regulation (IR) include:

  • The FSR creates an additional layer of deal conditionality for sizeable transactions besides potential foreign direct investment (FDI) and merger control clearance.
  • From 12 October 2023, when acquiring (including jointly) control of a company in the EU or participating in a public tender in the EU, companies – including EU ones – will have to notify the European Commission (Commission) of foreign financial contributions (FFCs) received from non-EU states if the relevant thresholds are met or if the Commission so requests. Notification is compulsory and suspensory. Failure to notify or to suspend closing pending clearance may lead to severe sanctions. Information requirements are far-reaching as they comprise FFCs irrespective of whether they have a link with the notified transaction or public procurement procedure.
  • Beyond notified transactions and public procurement procedures, the Commission may launch ex officio investigations where it suspects that a foreign subsidy may distort the internal market. The FSR can relate to any type of activity unless already governed by other legislation.
  • Where following an investigation (initiated either in relation to a notification or on an ex officio basis) the Commission determines that a foreign subsidy risks distorting the EU internal market, remedies could apply, and the Commission could even prohibit the transaction or the award of a public contract…