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Freshfields Transactions

| 3 minutes read

EU foreign subsidy control – consultation on implementing rules

Yesterday the European Commission put out for consultation a draft Implementing Regulation on proceedings pursuant to the Foreign Subsidies Regulation (FSR). Businesses and other interested parties have until 6 March 2023 to feed in their views.

The FSR requires companies to notify the Commission of certain M&A transactions and public procurement bids which involve parties that have received financial contributions from non-EU States. It also gives the Commission powers to investigate on its own initiative other situations in which foreign subsidies may be distorting competition on EU markets (see our post here).

What is in the draft?

The draft just published sets out detailed procedural rules on points including:

  • submission of notifications (two Annexes provide standard forms that specify the information to be provided by the notifying party/parties when notifying the Commission in the context of M&A (Annex 1) and public procurement (Annex 2);
  • commitments and redressive measures;
  • deadlines and calculation of time limits;
  • rights of defence; and
  • the Commission’s investigatory powers when making own-initiative investigations.

What must notifications include?

Though the Commission tries to reduce the notification burden by focusing on financial contributions that ‘most likely’ distort the internal market, at the same time it still requests extensive information and document disclosure for financial contributions that fall outside the ‘most likely’ distortive category. This includes the imposition of continuous reporting obligations during the review procedure to capture foreign contributions received after formal notification.

Both draft forms further detail the required information on ‘foreign financial contributions’ in line-by-line table formats.  In addition, the form for M&A provides for an impact assessment by requiring information on bidding procedures (if applicable), including information on profiles of other bidders, how many letters of intent and non-binding offers were received and from whom, which bidders withdrew and at what stage, as well as detailed information about due diligence carried out and business conducted by each of the parties to the concentration. Some of that information, in particular on the bidding procedure, will be difficult to obtain for the notifying party, not normally available to bidders and often considered highly sensitive by sellers. In order to meet the information requirements imposed on notifying parties, query whether acquirers that fall in scope may need to contractually oblige sellers to provide such information, in the context of signing the transaction. And there are corresponding and far-reaching obligations on document production – including due diligence documentation, reports produced for the purposes of assessing the economic rationale of the transaction and business plans/market research underlying the decision to participate in the public procurement procedure. Finally, both forms provide the opportunity – but no obligation – to claim possible positive effects of a foreign subsidy or demonstrate that a tender is not unduly advantageous.

Must all financial contributions be included?

Very helpfully, the draft forms exclude small foreign financial contributions from the disclosure obligation. For M&A detailed information is only required if:

  • the individual amount of the contribution is or exceeds EUR 200,000; and
  • the total amount of contributions per third country and per year is or exceeds EUR 4 million.

For public procurement a similar provision restricts reporting obligations to where the financial contribution granted to any notifying party:

  • falls into certain listed categories considered ‘most likely to distort the internal market’ or relate to operating costs; and
  • its aggregate amount is or exceeds EUR 4 million per third country in the three years prior to notification.

Even though smaller or less ‘distortive’ financial contributions presumably still count towards the overall threshold, these provisions in any case reduce the obligation to provide details on financial contributions and accordingly make the notification process more manageable for undertakings. However, the thresholds do not appear to reduce the main burden for companies when internally monitoring all the financial contributions they receive.

Importantly, parties can also request waivers during pre-notification, regarding information that is not reasonably available or unnecessary for the examination of the case. This is helpful. It remains to be seen, however, how the Commission will handle such requests in practice.

How do FSR M&A notifications fit with EU merger notifications?

The information required under the M&A notification form is substantial. Even though the FSR M&A review process is aligned with the EU Merger Regulation in terms of pre-notification and timelines, this is about the only efficiency across the two regimes that notifying parties can rely on. The information required under the FSR on financial contributions and deal context, as well as potential positive effects of subsidies received, go well beyond what parties have to submit for merger control. It will therefore be crucial that the substantial additional resources required and the impact on timing be factored into deal planning.

To read more about the EU’s new Foreign Subsidies Regulation visit our Global antitrust in 2023: 10 key themes report. 


antitrust and competition, europe, investigations, merger control, mergers and acquisitions