19 Jul 2022

EU regulation on foreign subsidies


Foreign public financing granted to companies operating in the EU has largely gone unchecked to date, by comparison to the rules governing State aid granted by EU Member States.  In an attempt to rectify this, on 5 May 2021, the European Commission ("Commission") adopted a proposal for a Regulation on foreign subsidies distorting the internal market ("Draft Regulation"). On 30 June 2022, the European Council issued a press release indicating that it had reached a provisional political agreement with the European Parliament on the Draft Regulation.

The Draft Regulation will introduce three tools: (i) a new mandatory, ex ante filing obligation with the Commission for concentrations where the EU turnover of the target company (or at least one of the merging entities) exceeds EUR 500 million, and the undertakings concerned received aggregate foreign subsidies exceeding EUR 50 million in the three calendar years prior to notification; (ii) the means for the Commission to scrutinise bids involving a financial contribution from a foreign entity in public procurement procedures worth EUR 250 million or more; and (iii) the ability for the Commission to investigate (on its own initiative) any other market situations, as well as smaller concentrations and public procurement procedures, if it suspects that foreign subsidies could lead to a distortion in the EU internal market. The Commission will be able to investigate foreign subsidies granted in the five years prior to the entry into force of the Draft Regulation, where such foreign subsidies distort the internal market after its entry into force.

The provisional agreement reached will be subject to approval by the European Council and the European Parliament. The Draft Regulation will enter into force on the 20th day following publication in the Official Journal of the European Union and, once adopted, will be directly applicable across the EU.

This briefing explores the key provisions of the Draft Regulation and review by the European Council and the European Parliament. The new regulation will undoubtedly place additional burdens on all parties involved in transactions triggering the relevant thresholds.

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