Regulation on foreign subsidies distorting the market (FSR)

The European Commission (EC) has said that foreign subsidies can distort the internal market. So it introduced a new protective tool – Foreign Subsidies Regulation (FSR). The Regulation on foreign subsidies distorting the market (FSR) has been in effect since 12 July 2023. 

The new rules allow the EC to combat distortions of competition caused by foreign subsidies. Provide fair opportunities on the markets (especially in M&A transactions or public procurement) without closing to foreign investment and trade. 

• operating or planning to operate in the EU, from any sector of the economy,

• planning investments, participation in EU public tenders or concentration,

• have benefited from financial contributions from non-EU countries.

Fill out a short questionnaire (5 questions) and find out if your company falls under the Foreign Subsidies Regulation (FSR)

Among other things, the new provisions require notification of concentrations and public procurement above certain thresholds.  This is particularly true of concentrations resulting in a change of control of EU companies and public procurement involving contractors that benefit from foreign financial contributions.

According to the Foreign Subsidies Regulation (FSR), foreign subsidies include any form of financial contribution from non-EU governments or public or private entities attributable to a third country. These contributions can distort competition if they confer an advantage not normally available on the EU market and targeted at certain companies or sectors.

The concept of financial contribution in the Foreign Subsidies Regulation (FSR) is extremely broad and takes various forms. These will include:

• direct subsidies;
• loans;
• tax incentives (e.g., exemptions / reliefs);
• R&D funding or government contracts;
• granting exclusive rights without adequate compensation.

The Foreign Subsidies Regulation (FSR) creates new challenges for companies – primarily the need to report concentrations and procurement above certain thresholds. 

Companies subject to the provisions must:

• implement systems for collecting information required for the FSR purposes;
• manage cost allocation, transfer pricing and governance issues;
• prepare justifications for foreign financial contributions that may distort competition in the EU.

FSR Compliance

• Development and implementation of procedures within the company’s structure to ensure compliance with the Foreign Subsidies Regulation (FSR).
• Support in collecting data on foreign financial contributions received by the company.
• Verification of compliance and completeness of collected data on foreign financial contributions with the requirements of the Foreign Subsidies Regulation (FSR).

Assessment of financial contributions compliance

• Conducting an analysis of whether foreign financial contributions received can be considered as distorting competition in the EU.
• Development of justifications and documentation to support compliance of contributions with the Foreign Subsidies Regulation (FSR).

M&A consulting

• Incorporating the provisions of the Foreign Subsidies Regulation (FSR) into standard due diligence procedures for M&A transactions.
• Analysis of potential risks associated with foreign financial contributions within the context of M&A transactions.
• Preparation of transaction documentation taking into account the Foreign Subsidies Regulation (FSR).
• Support in the prenotification / notification process.

Procurement support

• Support in the preparation of offers for public procurements taking into account the Foreign Subsidies Regulation (FSR).
• Advising on FSR compliance in tender documents and contract performance conditions.
• Support in the prenotification/notification process.

Legal and regulatory consultations

• Monitoring and interpreting new guidelines and regulations introduced as part of the Foreign Subsidies Regulation (FSR).
• Providing legal advice on, among other things, the consequences of not meeting notification requirements, potential sanctions.

Training and education

• Organising training for employees on the requirements introduced by the Foreign Subsidies Regulation (FSR) and its impact on company operations.
• Development of training and information materials on FSR procedures.

Preparation for inspection and investigation

• Supporting the company in preparation for possible ex officio inspections and investigations initiated by the European Commission.
• Development of a defence strategy and responses to inquiries from the European Commission.

Each of these consulting fields can be tailored to your specific needs and requirements, ensuring compliance with the Foreign Subsidies Regulation (FSR) and minimising the risks associated with foreign financial contributions.