As explained in our previous post, the Foreign Subsidies Regulation (FSR) contains two notification tools which are activated in the case of acquisitions or participations in public procurement tenders meeting certain thresholds in terms of turnover and foreign financial contributions (FFCs).

Under the FSR, the calculation of an undertaking’s turnover for the purposes of a notification of a concentration mirrors the methodology used under the EU’s Merger Control Regulation. Therefore, the relevant turnover is calculated by adding together the respective turnovers of the relevant undertaking, its subsidiaries, its holding companies, and the subsidiaries of its holding companies. If any of the aforementioned companies has joint control of another company alongside a third party, then only part of the jointly controlled company’s turnover should be included in the calculation of the undertaking’s turnover. The figure below illustrates which companies would be relevant when calculating the turnover of an undertaking. The full turnover of the companies marked (a), (b), (c), (d), and (e) would be relevant for the calculation of the turnover of an undertaking. Only 50 per cent of the turnover of (b3) would be included, while the turnover of (x) should be fully excluded.

Figure 1: Notion of the undertaking concerned and its group

The approach is similar when calculating the FFCs received by the relevant undertaking, requiring each notifying party to aggregate all the FFCs it has received, alongside those received by its subsidiaries, holding companies, and the subsidiaries of its holding companies. The FSR diverges from the EU Merger Control Regulation when it comes to the apportionment of FFCs to joint ventures. While the turnover of a joint venture is apportioned equally among the venture partners under both the Merger Control rules and the FSR, FFCs are instead fully allocated to the joint venture, without any apportionment to account for the partial control of the joint venture. Therefore, all FCCs received by (a), (b), (b3), (c), (d), and (e) would be relevant.

For a notification of a public procurement bid, the relevant parties are different. As such, the calculation of whether the FFC notification threshold was reached for a public procurement bid must account for the FFCs received by the economic operator (the entity submitting the bid), as well as its subsidiaries without commercial autonomy, and its holding companies. In addition, the FFCs received by the economic operator’s main subcontractors and suppliers may need to be included if their participation is known at the time of submission of the notification and their participation ensures key elements of the contract performance. Their participation will be key where the economic share of their contribution exceeds 20 per cent of the value of the submitted tender.

It is important to remember that for the purposes of ascertaining whether the notification thresholds are met, all FFCs received by the relevant parties must be included, regardless of their type or value.

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.