The European Commission may now investigate subsidies from third countries | In Principle

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The European Commission may now investigate subsidies from third countries

Starting 12 July 2023, the European Commission can initiate investigations into financial support granted to undertakings by countries outside the European Union, pursuant to the Foreign Subsidies Regulation (FSR). The purpose of the regulation is to combat distortions in the EU single market caused by foreign subsidies, while keeping the EU open to trade and investment.

Foreign subsidies and their beneficiaries

The Foreign Subsidies Regulation (2022/2560) is based on two main pillars: the existence of subsidies in foreign markets and the potential for distortion of competition in the EU.

The provisions deal with subsidies from the authorities from non-EU member states. Such subsidies are defined broadly to include all types of unjustified support from third countries. They include not only direct subsidies and capital contributions, but also tax relief and other tax incentives, loans, guarantees, concessions, compensation for public services, and supply of goods or services on preferential terms. This involves both aid intended for a particular undertaking (i.e. in the context of a specific procedure), as well as subsidies improving the company’s general financial condition, thereby indirectly facilitating its participation in a particular procedure within the EU.

Such contributions may come from the central government, but also from any public or private entity whose actions can be attributed to a non-EU member state.

The restrictions apply to private and public companies, including sovereign funds. They cover not only foreign companies operating in the EU, but also multinationals based in the EU that have obtained subsidies from third countries.

These foreign subsidies are subject to the FSR rules if they can distort competition. Generally speaking, a subsidy would be considered to distort competition if it improves an undertaking’s competitive position in the EU and, at the same time, negatively affects competition in the internal market. The FSR contains several legal presumptions for the purpose of establishing the existence or absence of such distortion.

Subsidies that can cause disruption include:

  • Supporting ailing undertakings (without a long-term restructuring plan)
  • Unlimited guarantees
  • Facilitation of concentrations
  • Export financing measures not in line with the OECD Arrangement on Officially Supported Export Credits
  • Enabling an undertaking to submit an unduly advantageous tender.

Subsidies unlikely to cause disruption are those:

  • Lower than EUR 4 million over the past three years, or
  • Aimed at making good for damage caused by natural disasters or exceptional occurrences.

Finally, non-distortive (de minimis) subsidies are those with a value lower than EUR 200,000 per third country over the previous three years.

In the event of distortion, the Commission will conduct a balancing test before deciding whether to block the transaction or award, impose compensatory measures or accept commitments. The Commission will take into account the positive impact of the subsidy on the development of the subsidised business activity in the internal market or in support of a broader EU policy objective, such as environmental protection, social standards, or promotion of R&D.

Powers of the Commission

The competences of the European Commission cover three spheres:

  • As of 12 October 2023, undertakings will be required to notify the Commission (ex ante) of concentrations involving a financial contribution from a third country if (i) the target company, one of the merging parties or the joint venture generates a turnover of at least EUR 500 million in the EU, and (ii) such foreign financial contribution amounts to at least EUR 50 million.
  • As of 12 October 2023, companies will be required to notify the Commission (ex ante) of their participation in public procurement procedures if (i) the estimated value of the contract is at least EUR 250 million and (ii) the foreign financial contribution involved is at least EUR 4 million per third country. The Commission may prohibit the award of a contract in such proceedings to undertakings benefiting from such market-distorting subsidies.
  • As of 12 July 2023, for all other market situations, the Commission may initiate investigations ex officio if it suspects the existence of distorting foreign subsidies, including requesting ad hoc notifications in the case of public procurement proceedings.

The Commission has broad procedural powers, including information injunctions, interviews, inspections, examination of books or access to any property (including outside the EU), as well as requests for information from both EU member states and third countries. Also, the Commission may rely on market information submitted by undertakings, member states, any natural or legal person, or an association of undertakings. The procedure itself involves an initial assessment, followed by a detailed analysis if necessary. The Commission is not bound by a deadline for completing ex officio investigations, although it must aim to complete them within 18 months.

Also in the case of concentrations or public procurements below the aforementioned thresholds, the Commission may request to be notified of foreign subsidies, or carry out post-completion inspections of such concentrations or public procurement.


In such cases, neither a concentration nor a public procurement agreement can be finalised until the Commission grants its approval. Also, the Commission may prohibit a subsidised concentration or award of a public contract to a subsidised bidder. If the Commission finds that foreign subsidies are distorting the internal market, it will expect the undertaking to offer appropriate commitments, which the Commission will make legally binding if it deems appropriate. Otherwise, the Commission will impose compensatory measures on the undertaking, which can take various forms, such as providing infrastructure or licensing the assets of the undertaking, as well as reducing its production capacity or market presence, or even an obligation to abandon certain investments, change the management structure, divest assets, dissolve concentrations or repay foreign subsidies with interest. Additionally, the Commission can impose financial sanctions, including fines of up to 10% of annual turnover and periodic fines, for violations (including attempts at circumvention) of the new rules, including failure to notify a concentration or tender, improper cooperation with the Commission, or violation of its decisions.

Affected entities

Entities that feel aggrieved by the effects of subsidies provided by third countries to particular undertakings or industries can file a complaint with the Commission to initiate an investigation, or alternatively file suit with a national court.

Undertakings alleged to have received subsidies from third countries distorting the internal market have a right to defend themselves, and have at their disposal a number of legal remedies to protect their interests, including in court proceedings.

Temporal issues

In the context of concentrations and notifiable public procurement proceedings, the Commission may examine foreign subsidies granted at most during the last three years prior to the transaction. Moreover, the regulation does not apply to concentrations and public procurement initiated before 12 July 2023. In all other situations, the Commission may analyse third-country subsidies granted in the past 10 years. However, the regulation applies to subsidies granted within five years before 12 July 2023 only if such subsidies distort the single market after that date. Transitional provisions also specify the cases where concentrations or tenders can be finalised without applying the new rules.

Dr Joanna Prokurat, attorney-at-law, tax adviser, Tax practice, Wardyński & Partners