The new EU foreign subsidies regime will impact all multinational companies regardless of their country of origin. As of October 12, companies engaging in large transactions and bidding for large public procurement contracts in the EU are obliged to seek prior clearance from the European Commission. Implementing rules provide some welcome reporting relief, but the notification process requires that companies put in place mechanisms to track in real time a wide range of foreign financial contributions granted directly or indirectly from non-EU state funding.

Being prepared will avoid negatively impacting your ability to bid for large tenders or having a transaction held up because the review deadlines do not start running unless the foreign subsidies' notification is complete. Upfront preparation will also allow you to engage early in prenotification contacts with the Commission to obtain waivers where appropriate to further reduce the notification reporting burden.

This Starter Kit provides a high-level summary of the new regime and some tips on how to approach setting up a system that will allow you to gather the information you will be required to report on should you trigger a notification. If you are interested in learning more, including having access to our FSR Reporting Tool and related Q&A, please reach out to your usual Baker McKenzie contact or one of our FSR experts.

1. INTRODUCTION

The EU Foreign Subsidies Regulation ("FSR")1 means that:

  • As of 12 July 2023, the Commission is able to examine on its own initiative any economic activity in the EU benefitting from a third country subsidy that may have distortive effects, including in relation to concentrations and public tenders that do not meet the notification thresholds.
  • As of 12 October 2023, concentrations2 and large public tenders above certain monetary thresholds have to be notified to the European Commission for prior approval where the companies involved have benefitted from financial contributions from non-EU third countries.3
  • "In-between": Concentrations for which the agreement was concluded, the public bid was announced, or a controlling interest was acquired on or after 12 July but that have not closed before 12 October 2023, are subject to FSR notification.

The Regulation and its implementing rules impose reporting obligations that are disproportionately burdensome. Not only because the notification thresholds are set at a low level, but also because the information to be reported is not readily available at any company. In essence, the FSR is based on a very far-reaching concept of "foreign financial contribution" and requires notifying companies to identify and report all foreign financial contributions (with some limited exceptions), regardless of whether such contributions constitute a foreign subsidy liable to distort competition within the EU internal market.

This Starter Kit does not address the heightened risk of ex officio investigations that might be expected in certain "strategic" industries or sectors (tech, energy, innovation are some obvious potential candidates) based on the perceived availability of significant foreign subsidies in a complex and rapidly evolving geopolitical environment. Nor does it focus on the specific challenges that the FSR poses for third-country State-owned enterprises. It is designed to assist the majority of multinationals that will trigger mandatory filings that are unlikely to raise any material substantive issues.

We aim to:

1. help you understand what is included in the concept of foreign financial contributions, and

2. guide you on how to prioritise identifying what are likely to be the most pertinent foreign financial contributions for any notification you may face in the short-term.

This guidance does not assure that you are in full FSR compliance. It is the minimum required for you to be able to demonstrate a good faith effort to gather the most relevant information. It will help you prepare when seeking reporting waivers during pre-notification discussions should you find yourself in a position of having to notify in the uncertain early months/years of the new regime.

Compared to draft rules published earlier this year, the final Implementing Regulation4 includes some significant carve outs from the foreign financial contribution reporting obligations that will make compliance more manageable by introducing different reporting levels.

Section 2 below is a reminder of the notification thresholds. Section 3 explains the broad notion of "foreign financial contributions". Section 4 sets out the different reporting levels.

Section 5 provides a suggested roadmap on how to start identifying and tracking those financial contributions that the Commission is most likely to be interested in substantively examining as foreign subsidies capable of distorting competition in the EU internal market.

For more details on the substantive FSR rules, please click here.

To view the full article please click here.

Footnotes

1 Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market, OJ 23.12.2022, L 330/1.

2 A concentration refers to any change of control on a lasting basis resulting from either: (i) the merger of two or more previously independent undertakings or parts of undertakings; (ii) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings; or (iii) the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.

3 A third country is any country that is not an EU Member State. The FSR covers any non-EU country government (central, regional or local), public authority, or public or private entity whose actions can be attributed to the state.

4 Commission Implementing Regulation (EU) 2023/1441 on detailed arrangements for the conduct of proceedings by the Commission pursuant to Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market, OJ 10.07.2023, L 177/1.

Originally published October 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.