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Entry into force of the EU Regulation on foreign subsidies distorting the internal market: what impact on M&A transactions?

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The EU Regulation 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (FSR or the Regulation) enters into force today. It grants broad powers to the European Commission (the Commission) to review the impact of financial contributions from non-EU States on the EU internal market. The framework purports to examine foreign subsidies which may distort the internal market and undermine the level playing field, with a specific focus on M&A transactions as well as public procurement procedures. This Regulation is distinct from and comes on top of the Regulation of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union which has been implemented in Belgian law and came into effect on 1 July 2023 (FDI). [1] 


The Regulation defines a foreign subsidy as any direct or indirect financial contribution made by a third country which confers a benefit on one or more undertakings engaging in an economic activity in the internal market. A third country would consist of either the government or public authorities of such country, or a foreign public or private entity whose actions can be attributed to the third country, taking into account all relevant circumstances.
The Regulation provides a broad non-exhaustive list of what could be deemed a ‘financial contribution’ in this context. The list includes:

  • Transfers of funds and liabilities such as capital injections, grants, loans, loan guarantees, fiscal incentives, debt forgiveness, etc;
  • Tax exemptions or benefits; and
  • The provision or purchase of goods and services.

Once the foreign subsidy identified, the next step is for the Commission to evaluate whether such foreign subsidy distorts the fair competition on the internal market. For reference purposes, the Regulation lists foreign subsidies that are likely to distort the market including:

  • Subsidies granted in the form of unlimited guarantees;
  • Subsidies aimed at directly facilitating a concentration;
  • Subsidies aimed at giving an undue advantage to an undertaking’s tender; and
  • Export financing credits.


Companies involved in M&A transactions with any foreign financial contribution will have to notify the Commission when the target, one of the merging parties or the joint venture, generates an EU turnover of at least €500 million and the foreign contribution amounts to at least €50 million over the three years prior to the transaction.

For public procurement procedures, participating companies will have to notify the Commission when the estimated contract value is at least €250 million, and the foreign contribution involved amounts to at least €4 million per third country.

The Regulation also introduces an ex officio instrument which gives the Commission powers to request ad hoc notifications of any smaller M&A transaction or public procurement procedure. These investigative powers include:

  • Information requests;
  • Fact-finding missions; and
  • Market investigations of specific industries.


The most important characteristic of this framework is that it introduces a standstill obligation: notified transactions and tenders remain suspended until clearance from the Commission is provided. The examination timeline of the Commission includes an initial assessment and the subsequent possibility of opening an in-depth investigation.

Once notified to the Commission, the transaction may not be implemented for a period of 25 working days after receipt of the complete notification. If the Commission decides to initiate an in-depth investigation no later than 25 working days after receipt of the complete notification, the transaction may not be implemented for a period of 90 working days after the opening of the in-depth investigation. That period may be extended by 15 working days where the parties to the concerned transaction offer commitments to remedy the distortion of the internal market.

The Regulation does not provide a fixed timeline of review for ex officio investigations. However, the Commission is expected to try and complete the investigation within 18 months.

The transaction may only be implemented once the Commission adopts a formal ‘decision of no objection’ or a ‘decision with commitments’.


Before granting any approval, the Commission will examine whether the financial contributions constitute a subsidy, and whether it distorts the internal market. The Commission will do so through a balancing test which aims at considering both positive and negative effects that the foreign subsidy would have in terms of the market distortion. 

As possible outcomes of the test, the Commission:

  • Either considers that the positive effects outweigh the negative ones: it then does not pronounce any redressive measures;
  • Or considers that the positive impact does not outweigh the negative effects on the market: the Commission then pronounces redressive measures (repayment or divestment) in which the positive impact of the subsidy is taken into account.


The regime entered into force on 12 January 2023 and starts applying as of 12 July 2023. The ex officio instrument also starts applying on 12 July 2023 whereas the notification obligation for M&A transactions and public procurement procedures applies as of 12 October 2023.

In terms of retroactive effect, the Commission can examine distortive foreign subsidies granted in the three years prior to 12 July 2023. However, it cannot exercise its powers on M&A transactions and public contracts which were closed or awarded before 12 July 2023. As to ex officio investigations, the Commission can examine foreign subsidies awarded up to ten years prior to the start of the investigation if they still distort the market after 12 July 2023. However, it cannot review foreign subsidies granted before 12 July 2018.


Last Monday (10 July 2023), the Commission adopted an Implementation Regulation in relation to the FSR. It provides detailed information on procedural and reporting obligations of notifying parties, including the Commission’s investigation process and the procedural rights of parties in terms of protection of confidential information, access to files and submission of observations. 

Notification forms are included, specifying the required information to be included in relation to M&A transactions or public procurement procedures. The Implementation Regulation also elaborates on the calculation and suspension of procedural timelines for the transmission of information and submission of commitments, as well as the digital provision and signature of documentation by notifying parties.


Where a company fails to comply with its obligation to notify, the Commission can impose fines up to 10% of the company’s annual aggregated turnover.

If a company does not cooperate with the investigative work of the Commission, it may impose a fine of up to 1% of the total turnover of the concerned company as well as periodic penalty payments.


  • Extensive disclosure requirements may entail an important burden of collecting information relating to the potential subsidy for a period of three years prior to the transaction. Parties should therefore prepare for this exercise  well in advance of a contemplated transaction
  • The standstill obligation may lead to a suspension of the transaction until the investigation is complete: the notification of an in-scope transaction to the Commission has a suspensory effect. The transaction will thus be put on hold until it is cleared by the Commission which will significantly increase the usual transaction timetable of the deal.
  • The wide-ranging scope of a ‘financial contribution’ combined with the very low thresholds for notification suggests this framework will apply to most financial investors outside the EU. It is therefore very likely that notifications will become the norm and a recurring task for M&A practitioners.
  • Difficulty to access financial information relating to public authorities: State aid does not always appear in the accounts, may be classified or belong to a different KYC system than private financing. Beyond that, it may also be difficult to even identify whether a company is dealing with a State-owned entity as it is usually interacting with seemingly independently managed commercial entities.
  • Very extensive ex officio powers of the Commission: Not only can the ex officio instrument apply to any transaction below the thresholds, it also has a far-reaching retroactive scope of five years. Moreover, in its examination, the Commission can request any type of information disproving that there was a foreign subsidy and has very far-reaching investigating powers and discretion.


Due to the wide-ranging scope of application of this framework and its implications for M&A, it is crucial that investors as well as parties to in-scope transactions prepare in due time.

The first suggestion would be to create a process (whether systematic or not) which identifies potential financial contributions within your company or group. This to anticipate on potential M&A transactions and avoid any delay once it is kicked off but also to tackle any potential ex officio investigation by the Commission.

To evaluate whether a contemplated transaction involves a foreign subsidy once it is already ongoing would probably be too late due to the administrative hurdle that comes with the notification requirements. The deal might therefore be delayed. Preparing actual notifications ahead of any contemplated transaction is a further step to tackle potential delays.

Moreover, extra attention to transactions expected to sign on or after 12 July 2023 is advised in order to make sure no notification to the Commission remains to be done.

Finally, being prepared to notify the Commission of any deal expected to sign on or later than 12 October 2023 is a must. The ideal way to go would be to include that step in the deal timeline as well as in the conditions precedent to closing.

[1] See our recent e-zine on the topic.

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