United States: European Commission Adopts Final Version Of The FSR Implementing Regulation In Light Of FSR Start Of Application On 12 July 2023

The European Commission ("Commission") adopted on 10 July 2023 the final set of rules implementing the Foreign Subsidies Regulation ("FSR"), together with the forms required (i) for the notification of concentrations falling under the scope of the FSR, and (ii) for the notification or declaration of foreign financial contributions ("FFC") for public procurement procedures covered by the FSR.

The FSR creates a new regulatory framework for companies operating in the EU which receive financial contributions from non-EU countries. The FSR introduces mandatory notification obligations for:

• concentrations where the Target's turnover in the EU is at least EUR 500 million and the parties have received an aggregated amount of at least EUR 50 million of FFC in the past three years prior to the agreement.
• public procurement procedures meeting the relevant FSR thresholds.

The FSR also gives the Commission very broad powers to investigate foreign subsidies, including the power to launch investigations on its own initiative, and to rectify potential distortions of the internal market through a variety of redressive measures.

Overview of main provisions of the FSR Implementing Regulation

The FSR Implementing Regulation provides rules on:

• the procedure for notifying concentrations and public procurement procedures involving FFC to the Commission, including details on the notification process, the companies required to submit notifications and the effective date of notification,
• the procedural rules for the conduct of investigations and for the submission of commitments,
• the procedural rights of the parties including the treatment of confidential information, access to file and the formalities on the parties' right to submit observations,
• details on the calculation and suspension of time limits,
• the transmission and signature of documents by the notifying parties to the Commission.

The notification form for concentrations ("Form FS-CO") included in the FSR Implementing Regulation specifies the information that the notifying companies need to provide to the Commission. The nature and extent of the information and supporting documentation required to be included in the Form FS-CO resembles the requirements under the EU Merger Regulation as far as the descriptions of the transaction, the Parties activities and the jurisdictional thresholds are concerned.

Most importantly, notifying companies are required to disclose a detailed account of the FFC they have received, as well as information that may help the Commission assess whether such financial contributions qualify as foreign subsidies that distort competition within the EU. In particular, companies will have to report:

• detailed information for FFC of an individual amount of at least ?1 million granted to the parties to the transaction in the three years prior to the conclusion of the agreement and which are considered (pursuant to Article 5(1) of the FSR) as the most likely to distort the internal market (including foreign subsidies granted to ailing undertakings, those directly facilitating a concentration, foreign subsidies in the form of unlimited guarantees for debts of the company, or export financing measures not in line with the OECD rules and foreign subsidies enabling a company to submit an unduly advantageous tender), and
• for all other FFC, an overview of the financial contributions of an individual amount of a least ?1 million granted to the notifying parties in the three years preceding the agreement. In this regard, notifying companies will only need to include in their overview, countries where the total amount of FFC is at least ?45 million in the given three years period, subject to the exceptions listed in the respective Annex of the FSR Implementing Regulation.

In any case, notifying companies will need to take into account all FFC granted to the parties to the concentration in the three years prior to the conclusion of the agreement for the purposes of determining whether the notification threshold is met.

Finally, the notification form for public procurement ("Form FS-PP") clarifies the information that needs to be provided to the Commission when submitting notifications or declarations in the context of public procurements. With respect to FCC, companies will need to provide:

• detailed information on all FFC falling under Article 5(1) of the FSR of at least ?1 million individually granted to the notifying companies in the three years prior to the notification, and
• for all other FFC, an overview of the foreign contributions of an individual amount of a least ?1 million granted to the notifying companies in the three years prior to the notification. The overview should only include those countries that have granted to each of the notifying companies at least ?4 million in FFC over the given three years period.

If no notifiable FFC has been granted to the notifying companies in the last three years, the latter are required to submit only a limited amount of information in the form of a declaration.

Next steps and takeaways

The FSR will start to apply on 12 July 2023 and companies will be obliged to notify the transactions that meet the respective thresholds under the FSR as of 12 October 2023. Parties are required to suspend implementation of their transaction pending Commission approval. Notifiable transactions that were concluded on or after 12 July 2023 and have not been implemented by 12 October 2023 will also need to be notified and will be subject to the standstill obligation. Companies are encouraged to engage in prenotification discussions with the Commission ahead of 12 October 2023 to help facilitate the process.

In terms of further guidance, the Commission has already published a Q&A document that provides practical assistance on the notification process which will be updated regularly. Moreover, the Commission intends to adopt the Guidance prescribed under the FSR on the assessment of distortive foreign subsidies at the latest one year from the start of its application.

The adopted version of the FSR Implementing Regulation takes into account, to a certain extent, the feedback received from stakeholders focusing on the requirement for a more simplified process for the collection and disclosure of information related to financial contributions received by companies. In this vein, the Commission has increased the de minimis threshold for the FFC which need to be notified from EUR 200,000 to EUR 1,000,000 and has limited the request for detailed information only with regard to FFC falling under Article 5(1) of the FSR (financial contributions "likely" to distort the internal market). Nonetheless, as the definition of financial contributions under the FSR remains rather broad, the scope of the reporting obligations still creates a significant administrative burden for companies engaging in M&A or public procurement activities in the EU. In anticipation of the launch of the notification obligation on 12 October 2023, it is advisable for companies that have received FFC and which expect to engage in M&A activities or public procurement in the EU to start identifying and listing FFC they have received in (at least) the past three years, as well as to create internal tracking systems that might facilitate FSR notifications in the future.

Footnotes

1.https://competition-policy.ec.europa.eu/foreign-subsidies-regulation/questions-and-answers_en

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