The Foreign Subsidies Regulation (FSR) is a complex regulatory tool, but businesses can reduce its impact on their plans by preparing a system of information collection regarding financial contributions received from non-EU countries. Businesses should also ensure that their transaction planning accounts for the impact of the FSR across all transaction stages, from due diligence to conditions precedent and closing, while the planning of public procurement bids must also be amended to ensure that all the required information can be collected promptly and that deadlines will not be missed.

Businesses should closely monitor all financial contributions that they receive from non-EU states, as well as financial contributions from any entities that could be considered to be controlled by a foreign state. There might be arguments to exclude foreign financial contributions (FFCs) received from certain entities when it comes to the final notification, but the safest approach is to take these into account when preparing to report, and then to discuss individual cases with the European Commission (EC) during the pre-notification stage, where any arguments to exclude individual FFCs can be raised.

Through the FSR Implementing Regulation, the EC has reduced the onerous reporting burden that its earlier proposal had suggested. As such, the EC only requires detailed reporting for certain high risk FFCs, such as unlimited guarantees or FFCs granted to specifically facilitate an acquisition or a public procurement tender bid. Additionally, the Implementing Regulation has clarified that no reporting will be required for some types of FFCs that are unlikely to have any negative impact, such as FFCs taking the form of sales or purchases of products (except financial services) at fair market value.

However, the EC has clarified that the narrowing down of the scope of the reportable FFCs through the FSR Implementing Regulation has no effect on the calculation of whether an undertaking has reached the relevant notification threshold. Therefore, all FFCs, regardless of value or type, must be included in the calculation of whether the FFCs received reach:

• The €50 million aggregate notification threshold for concentrations; or
• The €4 million per third country notification threshold for public procurement.

As a result, businesses must keep records of all FFCs that they receive to better assess their exposure to the FSR regime and be prepared in case of a notifiable M&A deal or a public tender in the EU. Businesses should take good note of the dichotomy between what counts as an FFC for the purposes of the notification threshold and which FFCs must be reported once the notification thresholds are met.

Crucially, the EC has consistently stressed that it is available to discuss individual cases during pre-notification discussions with parties contemplating a potentially notifiable concentration or public procurement tender bid. During the pre-notification stage, the EC can provide guidance regarding the FFCs for which it will require additional information. Interested parties should make use of the ability to launch pre-notification discussions with the EC and adapt their envisaged timelines to account for such discussions.

The FSR adds another regulatory obstacle for international businesses operating in the EU, with extensive record-keeping procedures needed to ensure that all FFCs are monitored and tracked. However, a considerate and strategic approach to record-keeping will generally suffice to avoid any real impact on an enterprise’s business strategy, and the many uncertainties regarding the scope of the FSR will be resolved as the EC develops its case practice. The EC’s willingness to discuss with parties subject to a potential notification obligation is a valuable tool that should be used by businesses to clarify any outstanding questions. Reed Smith is closely monitoring the development of the EC’s FSR case practice, and our lawyers are available to discuss any questions you may have.

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.