How to deal with foreign subsidies in the EU: a guide to the new implementing regulation
HomeKnowledge A comprehensive manual for managing international subsidies within the European Union: an overview of the updated implementing regulation
The European Commission ("EC") has released the official guidelines for enforcing the Foreign Subsidies Regulation EU 2022/256 ("FSR"). These rules give the EC the authority to investigate and address any unfair impacts caused by financial aids given to EU companies by third countries. The FSR came into effect on 12 January 2023 and was implemented on 12 July 2023. For more details, please refer to our earlier client alert titled "Commission simplifies and clarifies the process for reporting foreign subsidies."
The last Implementing Regulation (IR) of the FSR focuses on the practical elements of the FSR, such as how investigations are conducted, the rights of the people involved, and the procedures for notifying and submitting documents. You can locate the necessary forms for reporting mergers and public procurement processes in the attached annexes (Annexes 1 and 2).
The enactment rule comes after a period of gathering opinions from the public and engaging with interested parties. This occurred subsequent to the release of the preliminary enactment rule in February 2023. While the final enactment rule has taken into account many of the concerns raised regarding the preliminary version, such as lessening the anticipated administrative load during the notification process, financial institutions will still need to invest significant resources in gathering data on monetary contributions received and adhere to reporting obligations that, though reduced, are still burdensome.
Updates In The Final IR: What's New, Key Changes?
The important changes to the IR revolve around the criteria for reporting, the description of information that needs to be reported regarding financial contributions, the degree of detailed information needed, and the exceptions to reporting.
The Foreign Subsidy Regulation empowers the European Commission to tackle disruptions resulting from overseas financial support in the EU domestic market. This is achieved by implementing two recently introduced processes for alerting authorities and a tool for conducting investigations independently.
Since the IR is unable to modify the underlying FSR in spite of the strong criticism, the thresholds that initiate a requirement for notification for concentrations and public tenders (effective from October 12, 2023) stay the same. These thresholds are outlined below:
One of the merging parties, whether it be the target company or the joint venture, must have a presence in the European Union (EU) and generate an annual turnover in the EU of no less than €500 million.
The approximate contract worth is € 250 million or above, and the price of the individual lot or the combined price of all the lots to which a bidder is applying is minimum € 125 million (if the procurement is split into multiple lots).
The acquiring party and/or the target, the companies merging, or the partnership and/or its parent companies have been given a total of over €50 million in financial assistance from foreign nations within the past three years.
The "economic entity" (which includes the bidder, main subcontractors, and main suppliers) has obtained total financial support of € 4 million or higher for each foreign nation within the past three years.
When participating in public tenders, if the contract is worth at least € 250 million but doesn't meet the financial contribution requirement, companies are still obligated to provide a declaration. This declaration should confirm that the company did not receive any significant financial contributions and also include a summary of smaller financial contributions received in the past three years.
Nevertheless, the IR endeavors to alleviate companies' workload by employing innovative approaches in creating reporting frameworks, such as incorporating playroom elements.
Companies must consider all financial contributions when determining if they meet the relevant notification threshold, including the exchange of goods or services at fair market value. However, not every financial contribution must be disclosed in the notification forms (refer to the information below).
Which Donations Need To Be Reported?
After carefully considering the opinions received during the public discussion, the EC has implemented important modifications to the IR by placing restrictions on the kinds of "financial contributions" that need to be disclosed upon submission. Additionally, they have made a clear distinction between the possibly more detrimental contributions mentioned in Article 5 of the FSR and all other contributions that are not covered by Article 5.
In accordance with the IR, any monetary donations must now be disclosed and comprehensive data must be provided (refer to the information below) solely if they satisfy two criteria:
This section consists of entries that (a) assist a business in trouble, (b) offer boundless assurances, (c) involve export funding methods that do not align with the Organisation for Economic Co-operation and Development ("OECD") Agreement on officially backed export credit, (d) actively aid in consolidating power, or (e) allow a company to submit an unfairly advantageous bid.
Further forms of contributions need to be documented solely in the event that they are
How Much Info Do Forms Need?
The level and extent of reporting necessary depend on the nature of the input:
Please note that the EC has the option to ask for additional information, even if the set limits are not reached.
Reporting Exemptions For Special Cases
The IR included exceptions to the reporting requirements for certain kinds of monetary donations.
The automatic tool gives the EC the authority to examine foreign subsidies that may be distorting economic activities in the EU. The real question is whether the EC has enough staff to handle this task.
The FSR will not apply to deals that were made, bids that were announced, or control that was gained before July 12, 2023. It also won't apply to government contracts that were already awarded or started before July 12, 2023.
Company Outlook: Key Takeaways
The revisions made to the last IR are a positive step forward from the highly criticized initial version. However, even though the new regulation eases the reporting requirements, companies should begin regular and thorough monitoring to ensure compliance with FSR, if they haven't already. Our main recommendation to executives is:
