This browser is not actively supported anymore. For the best passle experience, we strongly recommend you upgrade your browser.

Freshfields Transactions

| 7 minutes read
Reposted from Freshfields Risk & Compliance

EU’s foreign subsidies regime officially kicks off – a new chapter for M&A and public procurement in the EU

On 10 July 2023, the European Commission (Commission) published the much-awaited final version of the Implementing Regulation on proceedings pursuant to the Foreign Subsidies Regulation (FSR) (Implementing Regulation).

The FSR imposes on businesses a mandatory and suspensory prior notification obligation in relation to certain transactions and public procurement bids involving financial contributions from non-EU States (see our post here). These notification obligations apply to transactions signed (and public procurement procedures initiated) from 12 July 2023, if not already completed before 12 October 2023.

The FSR also enables the Commission – from 12 July 2023 – to investigate any other market distortions arising from foreign subsidies.

The Implementing Regulation lays down the procedural rules for notifications of transactions and public procurement bids. Back in February 2023, the Commission opened a public consultation process inviting comments from stakeholders on a first draft of the Implementing Regulation (see our post here), which attracted industry-wide criticism as being too burdensome and impractical. 

The final Implementing Regulation takes that feedback into account and now prioritises a sub-set of financial contributions deemed to be harmful, while introducing some simplifications for certain, normally unproblematic, financial contributions. Let’s have a look at the final Implementing Regulation.

1.    What must be included in the M&A and public procurement notifications?

1.1    Most likely distortive subsidies in the spotlight

The Commission has reduced the amount of information that must be provided regarding financial contributions for both M&A and public procurement filings. 

For both notification forms (called Form FS-CO and Form FS-PP), detailed information is now only required for financial contributions which may qualify as most likely distortive subsidies, provided that the individual amounts of those financial contributions are equal to or above EUR 1 million. These most likely distortive subsidies are listed in Article 5(1) FSR: 

  • subsidies to ailing companies; 
  • subsidies in the form of unlimited guarantees;
  • export financing measures not compliant with the OECD rules; 
  • subsidies directly facilitating a transaction (relevant for M&A notifications only); and 
  • subsidies enabling an undertaking to submit an unduly advantageous tender (relevant for public procurement notifications only).

Detailed information must be provided in relation to these financial contributions, including: (i) the form of the financial contribution; (ii) information on the granting authority; (iii) the amount, purpose, economic rationale, main elements, and characteristics of the financial contribution; (iv) conditions attached to the financial contribution; and (v) whether the financial contribution confers any selective advantage to the recipient.

1.2    Simplified reporting requirements for all other financial contributions

For all financial contributions other than the most likely distortive, details per financial contribution are not required – it is sufficient to fill in an overview table. The overview table merely requires a total estimate (in ranges) of financial contributions obtained in the three years prior to the notified transaction (or the public procurement bid) per type and per third country, with a high-level description of their purpose and source.

Further, the final forms FS-CO and FS-PP clarify that the following financial contributions do not have to be reported at all in this high-level overview table:

  • Financial contributions below the individual amount of EUR 1 million.
  • Certain tax measures of general application – such as deferrals of payment of taxes and social security contributions, tax amnesties and tax holidays, as well as normal depreciation and loss-carry forward rules.
  • Tax reliefs for avoidance of double taxation in line with international agreements.
  • Provision / purchase of goods or services at market terms in the ordinary course of business (except for financial services).
  • Financial contributions granted to investment funds managed by the same investment company but which do not have commercial or financial links with the investment funds involved in the notified transaction (relevant only for M&A – see below Section 3 for more on this). 
  • Financial contributions granted by a particular third country in the last three years whose aggregate amount is below (i) EUR 45 million in the M&A notifications; and (ii) EUR 4 million in the notification of public procurement bids. The financial contributions listed above should be disregarded also when calculating the aggregate values.

Notwithstanding these simplifications, the financial contributions that do not have to be reported in the overview table must still be taken into account for the purpose of assessing whether the jurisdictional threshold for an FSR notification is met. This materially reduces the positive impact of the simplifications.

1.3    Reduced scope of sensitive bidding process information in M&A notifications

Disclosure obligations regarding the bidding process (if applicable) have been narrowed down. Although a description of the bidding process is still required, the Commission no longer requires information on (i) the number and profiles of other bidders, or (ii) the number of letters of intent and non-binding offers. Instead, the Commission now requests a “description of the profiles of each of the other candidates” that the notifying party is aware of.

1.4    Reduced scope of supporting documents in M&A and public procurement notifications

The scope of the supporting documents regarding financial contributions has also been narrowed down to the most likely distortive subsidies. In addition, the scope of other M&A documents (i.e. due diligence documents, documents analysing the transaction etc.) will have to be submitted only if they were prepared by or for, or received by any member of the Board of Management, Directors or Supervisory Board as in merger-control reviews.

2.    Possibility to request waivers

The notification forms allow the notifying parties to request waivers from the Commission for information that is not reasonably available and not necessary for the examination of the case. 

The first drafts of the notification forms required the notifying party to provide best estimates for missing information to be able to request waivers from the Commission. The final notification forms state that estimates and alternative sources of information are only necessary “where appropriate and to the extent possible.”

The Commission also encourages companies to engage in pre-notification discussions in order to determine the precise amount of information required regarding financial contributions. However, the Commission also reserves the right to require more detailed information on any financial contribution on a case-by-case basis.

3.    Fund exemption for private equity firms in M&A notifications – too burdensome to request?

The final Form FS-CO introduces a reporting exemption which is of interest to investment funds that are managed by the same General Partner (GP) but do not have substantial commercial and financial links between them and who for the majority feature different investors. 

In these cases, financial contributions obtained by one fund do not normally travel across to other funds managed by the same GP. On this basis, the notifying party is not required to report, in the notification forms, the financial contributions obtained by those other funds (or by the portfolio companies of those funds) that are not involved in the notified transaction.

The following four conditions must be met cumulatively to benefit from this exemption:

  • the financial contributions must not fall into one of the most likely distortive subsidy categories listed in Article 5(1) FSR (otherwise they must be reported);
  • the majority of investors in the fund involved in the notified transaction and other unrelated funds must be different (which is measured according to their entitlement to profit);
  • the fund which controls the acquiring entity must be subject to Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers or to an equivalent third country legislation in terms of prudential, organisational and conduct rules, including requirements aimed to protect investors; and
  • the economic and commercial transactions between the fund which controls the acquiring entity and other unrelated funds (and the companies controlled by these funds) managed by the same investment company must be non-existent or limited. 

The benefits of this simplification may however be limited. To prove that cross-fund links are non-existent or limited, the Form FS-CO requires evidence of any economic and commercial transactions which may have taken place between the funds in the three years prior to the transaction – this will create additional screening and monitoring obligations for the notifying parties, which the notification form tried to reduce in the first place. Moreover, all financial contributions received by all funds under common control still count towards determining whether the notification threshold is met to begin with. In addition, regularly different funds under common control may not feature a different majority of investors.

Further, the so-called fund exemption does not include the most likely distortive subsidies – it applies only to other likely unproblematic financial contributions. Therefore, all funds managed by the same GP will in any event have to be screened for the existence of most likely distortive subsidies, which undermines the simplification efforts.

4.    Declaration requirement in public procurement bids below the notification threshold – more burdensome than notifications?

Unlike the M&A notifications tool, the public procurement tool imposes a declaration obligation even in cases where the bidders do not meet the financial contributions threshold of EUR 4 million. Article 29(1) FSR states that such declarations must list all foreign financial contributions received, and confirm that the EUR 4 million threshold has not been met – no such declaration is required in relation to M&A.

The declaration obligation is set forth directly in the FSR itself – as a result, it could not be simplified in the legislative process for the Implementing Regulation as was the case for the notification form. This now creates a dual system whereby the bidders that trigger the notification thresholds benefit from the simplifications listed above in relation to the reporting of financial contributions. However, the bidders that do not meet the notification thresholds must still declare a full list of the financial contributions they obtained – only simplification being the possibility to aggregate per third country the financial contributions with individual amounts of below EUR 1 million but above EUR 200,000 in the preceding three years.

5.    Next steps

The FSR starts to apply as from 12 July 2023. Deals signed or public procurement procedures initiated as from 12 July 2023 and not completed before 12 October 2023 will be subject to the mandatory and suspensory notification obligations if the relevant thresholds are triggered. All companies conducting business in the EU should consider taking the following steps:

  • conduct preliminary assessments if a FSR notification will be required for deals or public procurement bids in the pipeline;
  • screen group companies at regular intervals for financial contributions and set up an internal register to track future financial contributions to be ready for when a notification obligation is triggered, and 
  • consider additional cooperation and risk allocation clauses in transaction documents.


antitrust and competition, global financial investors, mergers and acquisitions, public procurement, state aid, europe, tax