New European regulatory regime: The Foreign Subsidies Regulation

With the power to block affected M&A and prevent certain public procurement awards in the EU together with the power to fine companies up to 10% of their turnover for a range of breaches, the European Commission is being given substantial new regulatory powers. 

This new EU regulatory legislation will have an impact on, but not limited to, larger-scale M&A deals in the EU.

In summary:   

  • The FSR deals with distortions in the EU’s internal market as a result of non-EU (i.e. “foreign”) subsidies granted by non-EU countries to all businesses operating in the EU.
  • The FSR will begin to apply on 12 July 2023, when the European Commission will be able to review on its own initiative situations where it suspects that a distortive foreign subsidy may be involved.
  • Commencing on 12 October 2023, the FSR introduces a new mandatory notification and suspensory regime to the European Commission.

This new mandatory notification and suspensory regime to the European Commission involves:

  • M&A where:
    • the acquired company, a merging party or the JV is established in the EU and generates EU turnover of at least €500m, and
    • where the parties to the transaction were granted combined aggregate foreign financial contributions of at least €50m over the past three years
  • Public procurement procedures where the estimated contract value is at least €250m  and the bid involves combined aggregate foreign financial contributions of at least €4m per third country over the past three years.

The European Commission has indicated that this will affect M&A signed on or after 12 July 2023 and which are not implemented before 12 October 2023.

  • “Below threshold” M&A and public tenders involving foreign subsidies may still be investigated by the European Commission from 12 July 2023 if there is a concern about distortive foreign subsides.
  • All companies, both non-EU and EU, entering M&A deals in the EU, or participating in EU public tenders, will need to:
    • determine if they have received “financial contributions” from non-EU governments (including government-related entities), and
    • become prepared for the new notification (and in some cases investigation) system under the FSR.

The way the FSR will be interpreted and applied by the European Commission is yet to be determined.

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For more information on these topics, please contact Alan McCarthy, Anna-Marie Curran, Vincent Power or any member of A&L Goodbody's EU, Competition & Procurement team.

Date published: 11 July 2023