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| 3 minutes read

Foreign Subsidies Regulation: What triggers the FSR?

The Foreign Subsidies Regulation (FSR) includes three different triggers to tackle foreign subsidies: the carrying out of an M&A deal to acquire a target with substantial EU revenues, participating in a public procurement bid in the EU, and being the target of a discretionary investigation by the European Commission (EC).

Notification-based procedure to investigate concentrations

Under the FSR, concentrations meeting certain thresholds regarding turnover and foreign financial contributions (FFCs) received by the relevant parties need to be notified to the European Commission (EC). Please see Reed Smith’s Roadmap to the Foreign Subsidies Regulation for more information on what FFCs are and how they are calculated.

A concentration is defined in the same way as under the EU’s Merger Control Regulation, covering a change of control on a lasting basis resulting from any of the following:

(a) The merger of two or more previously independent undertakings or parts of undertakings
(b) The acquisition, either individually or jointly, whether by purchase of shares or assets, by contract or by other means, of direct control of the whole or parts of another undertaking
(c) The creation of a joint venture performing on a lasting basis all the functions of an autonomous business.

The obligation to notify a concentration under the FSR arises when:

(a) At least one of the merging undertakings, the target of an acquisition, or the joint venture is established in the EU and generates at least €500 million turnover in the EU; and
(b) The relevant undertakings, as the case may be, received combined aggregate foreign financial contributions (FFCs) exceeding €50 million in the three years preceding the concentration, where the relevant undertakings are:

i. In the case of a merger, the merging undertakings
ii. In the case of an acquisition, the acquirer and the target
iii. In the case of a joint venture, the undertakings creating the joint venture and the joint venture itself.

Concentrations that are subject to a notification obligation are subject to a standstill obligation, requiring that the parties do not complete their transaction until the EC grants clearance or the relevant deadline has passed.

Notification-based procedure to investigate bids in public procurement

In the case of public procurement bids, the notification obligation arises where:

(a) An economic operator submits a bid during a public procurement procedure whose estimated value exceeds €250 million; and
(b) The economic operator (and its related parties) received aggregate FFCs in the three years prior to the notification equal to or greater than €4 million per third country.

Additionally, a notification will be required where the thresholds above are met, but the public procurement procedure is divided into lots, and the value of the lot or the aggregate value of all the lots for which the economic operator submits a bid is equal to or greater than €125 million.

A standstill obligation arises in notifiable public procurement bids as well, requiring that the economic operator who submitted the notification cannot be awarded the contract prior to receiving the EC’s clearance.

However, the public procurement tool under the FSR differs from the concentration tool, in that even if the economic operator did not reach the FFC threshold, it will be required to sign a declaration that it received no notifiable FFCs, and it is still obligated to disclose, in a list, all FFCs it received in the last three years preceding the declaration.

Ex officio procedure to investigate all other market situations

The ex officio powers of the EC allow it to review distortions arising due to foreign subsidies granted to companies active in the EU and include the power to examine concentrations and public procurement bids that do not meet the thresholds of the notification-based tools. The EC can use its investigative powers to request detailed information regarding the foreign subsidies and conduct inspections both within and outside the EU.

Interested third parties, such as a competitor, could attempt to use the EC’s new FSR investigation toolbox as a sword to oppose deals or public procurement bids that are not in their interest. Accordingly, the EC has already received several complaints against companies who have reportedly received foreign subsidies, with a lot of publicity specifically centred around the potential use of the FSR against state-owned football clubs.

However, the EC is unlikely to currently have the required workforce to make extensive use of its ex officio powers, with most of the FSR case handlers likely focusing on reviewing the mandatory notifications due to the strict deadlines included within the FSR notification regime. The decision to open an ex officio investigation is inherently a political one, and it will be interesting to see where the EC chooses to make use of these powers.

Figure 1 below summarises how all three triggers work in practice.

Figure 1: FSR triggering events and respective cumulative thresholds

For more information on the FSR and to find out how your business can navigate its way through this new regulatory tool, please check Reed Smith’s Roadmap to the Foreign Subsidies Regulation.


antitrust, competition, regulatory, european commission, fsr