Legal & Tax Alerts

New notification requirements with respect to non-EU foreign subsidies

The EU Foreign Subsidies Regulation 2022/2560 (the “Regulation“), which entered into force on 12 January 2023, is a new instrument to prevent the distortion of the EU internal markets by subsidies from outside the EU.

The Regulation creates an additional layer of conditionality for significant transactions involving subsidies granted by non-EU government, state authorities or entities in relation to any type of activity to companies operating in the EU, in addition to the foreign direct investment and merger control clearance.

The Regulation introduced three new control instruments, namely:
a notification-based instrument to investigate economic concentrations involving financial contributions from non-EU government, state authorities or entities where (i) the acquired company, (ii) at least one of the merging parties or (iii) the joint venture generates an EU turnover of at least EUR 500 million and the transaction involves foreign financial contributions of more than EUR 50 million;
a notification-based instrument for investigating bids in public procurement procedures involving financial contributions from non-EU government, state authorities or entities, where the estimated value of the contract is at least EUR 250 million and the bid involves a foreign financial contribution of at least EUR 4 million per every non-EU country involved; and
an instrument for investigating all other situations, whereby the European Commission (the “Commission”) can initiate an ex officio analysis of the foreign subsidies. The Commission usually initiates an ex officio investigation where it suspects that a foreign subsidy may distort the internal market.

As of 12 October 2023, the obligation to notify foreign subsidies covered by the Regulation to the European Commission enters into force. Therefore, all transactions that meet the thresholds set out in the Regulation, but have not been concluded by that date, will have to be notified to the Commission in accordance with the Regulation.

The parties obligated to notify, in the context of concentrations falling within the scope of the Regulation, are all the parties to the concentration or, in the case of an acquisition of (long lasting) control, all the parties acquiring control. The notifying parties in the context of public procurement are economic operators (including subsidiaries without commercial autonomy and holding companies), their consortia, as well as main subcontractors and suppliers.

The notification is mandatory and has suspensive effect for the transaction, which cannot be completed before obtaining the clearance from the Commission. If an entity fails to comply with the aforementioned notification obligation or standstill obligation, the Commission may impose severe fines and examine the transaction as if it had been notified.

If the Commission finds that the financial foreign contributions constitute subsidies that distort competition, it may impose measures to correct the distortive effects on internal markets or could even prohibit the transaction or the award of a public contract.

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