Foreign Subsidies Regulation (FSR): M&A and Procurement Scrutiny

The Foreign Subsidies Regulation (FSR) closes a regulatory gap. While EU Member States are strictly bound by EU State Aid rules limiting how they can support domestic companies, foreign governments could previously subsidize their companies to acquire EU targets or win EU public contracts with an unfair advantage. The FSR levels the playing field.

Three Pillars of Investigation

The European Commission has the exclusive power to investigate financial contributions granted by non-EU countries to companies engaging in economic activity in the EU through three tools:

1. M&A Notification Tool (Concentrations)

Companies must notify the Commission of mergers, acquisitions, or joint ventures if two thresholds are met:

• Turnover: At least one of the merging undertakings, the acquired undertaking, or the joint venture generates an EU turnover of at least €500 million.
• Financial Contribution: The undertakings involved received combined financial contributions from non-EU countries exceeding €50 million in the three preceding years.

Standstill Obligation: The transaction cannot be closed until the Commission grants clearance.

2. Public Procurement Notification Tool

Bidders in major EU public procurement procedures must notify financial contributions if:

• Contract Value: The estimated value of the public contract is at least €250 million.
• Financial Contribution: The bidder (and its main subcontractors/suppliers) received financial contributions of at least €4 million per non-EU country in the three preceding years.

3. Ex Officio Investigation Tool

The Commission can start investigations on its own initiative into any market situation (e.g., greenfield investments, pricing strategies) if it suspects a distortive foreign subsidy. It can request ad-hoc notifications for smaller M&A deals or procurement procedures.

Defining "Financial Contribution"

The definition is extremely broad and extends far beyond direct cash grants. It includes:

• Capital injections, loans, guarantees.
• Fiscal incentives, tax exemptions.
• Provision of goods or services below market terms.
• Contracts awarded by a foreign state without open tender.

The Balancing Test and Redressive Measures

If the Commission finds a distortive foreign subsidy, it conducts a balancing test: weighing the negative effects on the EU internal market against positive effects (e.g., environmental protection, R&D). If the negative effects outweigh the positive, the Commission can impose redressive measures (e.g., forcing divestments, requiring access to infrastructure) or prohibit the concentration/award of the contract.