December 15, 2022

The EU Paves the Way for New Regulatory Regime: The Council adopts the Regulation on Foreign Subsidies Distorting the Internal Market


On 28 November 2022, the European Council approved the Regulation on Foreign Subsidies Distorting the Internal Market (“Regulation”).1 This ends the legislative process following the EU Commission proposal of 5 May 2021 (which we covered in a previous Legal Update).2 The Regulation will enter into force 20 days after its publication in the Official Journal of the European Union, in early 2023. Once in force, the Regulation will provide the EU Commission (“Commission”) with powerful tools to tackle foreign subsidies, that is, subsidies granted by non-EU states, which distort competition in the EU. 

The Regulation aims to ensure a level playing field for all companies active in the EU. It closes a regulatory gap by introducing notification obligations for companies that engage in commercial activities in the EU, receive foreign subsidies and satisfy certain criteria. The Regulation provides the Commission with investigatory powers and the right to implement measures to ensure compliance. 

It will have a significant impact on businesses active in the EU. Companies are expected to face increased compliance obligations as well as potential delays in M&A deals and public procurement procedures.

The Regulation complements the existing state aid rules, which regulate the subsidies provided by the EU member states, and the rules on anti-subsidy investigations, which allow the Commission to impose countervailing duties on foreign subsidized imports.

Foreign subsidies covered by the Regulation

The Regulation applies to companies which engage in economic activities in the EU and are recipients of foreign subsidies that meet the following criteria:

  • The recipient obtains a direct or indirect financial contribution (subsidy);
  • That subsidy is made by a non-EU state;3
  • The recipient of the subsidy engages in economic activities in the EU; and
  • The subsidy is limited to specific companies or industries, i.e., do not generally apply to all companies or industries without differentiation.4

Similar to the concept of ‘subsidy’ under the EU state aid rules, the concept of ‘financial contribution’ is broad. It covers various aspects of the transfer of value, including direct capital injections; the supply of goods, services or loans or tax exemptions; and debt-to-equity swaps. The list of potential forms of a financial contribution covered in the Regulation is not exhaustive. The Commission will analyse the substance of a contribution rather than its form. 

The financial contribution must yield a benefit for the recipient which, according to the Regulation, will be determined “on the basis of comparative benchmarks, such as the investment practice of private investors, financing rates obtainable on the market, a comparable tax treatment, or the adequate remuneration for a given good or service”.5

A financial contribution by a non-EU state is not limited to direct state-to-entity transfers. Transfer of value from a private entity might be considered as a subsidy on a case-by-case basis, depending on the market conditions in the relevant non-EU state and the engagement of the government in the economy. This approach aims to discover state contributions disguised as private ones. It resembles the Commission approach’s in anti-subsidy investigations where contributions from private entities (e.g., loans from commercial banks) are considered to be governmental contributions if the private entities act under the entrustment or direction of a government.

Providing financial contribution for the benefit of non-economic activities of an undertaking does not constitute a foreign subsidy.6 However, if that contribution is used to cross-subsidize economic activities, it will be covered by the Regulation.

Distortion of competition in the EU 

A foreign subsidy is considered to distort competition in the EU if it negatively affects competition. The Regulation stipulates thresholds for when a subsidy is likely to distort competition:

  • A subsidy that does not exceed EUR 200,000 per third country over any consecutive period of three years is considered de minimis and therefore not distortive.
  • A subsidy that does not exceed EUR 4 million per undertaking over any consecutive period of three years is unlikely to cause distortions.
  • A subsidy that exceeds EUR 4 million is likely to cause distortions if it negatively affects competition in the EU.

In assessing whether competition is distorted, the Commission will take into account additional criteria, including the purpose and conditions of the subsidy, its nature, market situation, etc. For example, a subsidy to eliminate the damage caused by natural disasters or exceptional occurrences is not considered to be distortive. Overall, deciding whether a subsidy distorts the market is more a balancing exercise than a straightforward approach. The Commission has certain discretionary powers to recognize that the positive effects of a subsidy outreach its negative effects in terms of the EU’s policy objectives.

The Regulation considers certain subsidies as distortive, for example:

  • A subsidy provided to a company which will likely go out of business in the short or medium term in the absence of the financial contribution.
  • Unlimited guarantee for debts or liabilities.
  • An export financing measure that is not in line with the OECD Arrangement on Officially Supported Export Credits.7
  • A foreign subsidy directly facilitating a concentration, for example, a merger.
  • A foreign subsidy enabling a company to submit an unduly advantageous tender.

Notification requirements and the Commission’s investigative powers

The Regulation requires that transactions and public procurement contracts that may benefit from a foreign subsidy be notified with the Commission. However, those two types of transactions are not the only instances of foreign subsidies covered by the Regulation. The Commission may initiate inquiries and start investigations into other forms of subsidies.

M&A transactions

Parties to an M&A deal must notify the transaction to the Commission if the following criteria are satisfied:

  • At least one of the parties is established in the EU and generates a turnover of at least EUR 500 million; and
  • The parties were granted combined aggregate financial contributions of more than EUR 50 million from third countries in the three years preceding the deal.

The parties must notify and the Commission must clear the deal before completion. Under the Regulation, review in:

  • Phase 1 takes 25 working days from the date of notification.
  • Phase 2 takes 90 working days if the Commission decides to initiate an in-depth investigation. The review may be extended by another 15 working days if the investigated company offers commitments to the Commission (e.g., repayment of a subsidy, access to infrastructure, etc).8

If no measures follow the in-depth investigation within the above periods, the parties are allowed to close the transaction.

Public procurement 

Public procurement procedures must be notified with the Commission if:

  • The value of the public procurement is at least EUR 250 million; and
  • The company participating in the public procurement or its affiliates received a financial contribution of at least EUR 4 million per third country in the three years prior to notification.

Irrespective of the notification requirements, the companies participating in public procurement must list the received financial contributions in a declaration to be attached to the tender. 

The Commission has 20 working days to review a public procurement. The review period may be extended by an additional 10 working days. Within this period, the Commission must either start an in-depth investigation (which itself must not exceed 110 working days with a maximum extension of 20 days) or give green light to the notified public procurement.

Powers for the Commission

Ex-officio and preliminary reviews

On its own initiative, the Commission may review a transaction or a public procurement on the basis of information received from any source, including from legal persons, associations or notifications of potentially subsidized M&A transactions or public procurement bids (ex-officio review). If the Commission finds that this information contains sufficient evidence of the existence of a distortive subsidy, it carries out a preliminary review. At this stage, the Commission has the procedural rights to request information and conduct inspections. However, it shall not take redressive measures or accept commitments from the companies before initiation of an in-depth investigation.

In-depth investigations

If the Commission receives enough evidence of the foreign distortive subsidy during a preliminary investigation, it may initiate an in-depth investigation. In such a case, the Commission shall notify the entity under investigation and the EU member states, and the relevant notice shall be published in the EU Official Journal. The Commission has the procedural rights to request information and hold dawn raids and inspections. The Commission may also impose redressive measures or accept commitments based on the result of an in-depth investigation.

Market investigations

A separate mechanism of market investigations allows the Commission to investigate a particular sector, type of economic activity or a subsidy if there is a reasonable suspicion that subsidies distort the domestic market. The Commission may request information and hold inspections during market investigations and use the results of these market investigations for other procedures under the Regulation.

Requests for information

The Commission may request that entities or their associations provide certain information, irrespective of whether they are subject to an investigation. The Commission has the right to interview. Refusal to provide information may mean that the Commission will base its analysis on the facts available to it and draw conclusions on the facts received from independent sources. The consequences of non-cooperation are similar to those envisaged by the Anti-Subsidy Regulation, which is that conclusions will be drawn on the basis of these facts available which may be detrimental to the entities concerned.


Within the EU territory, the Commission may hold dawn raids. As is the case in antitrust proceedings but unlike in anti-subsidy investigations under the EU Anti-Subsidy Regulation, the Commission may enter any premises, land or business transport; inspect books and business records; ask staff questions; or seal business premises, books or records. These rights are not available to the Commission under the Anti-Subsidy Regulation.

Outside of the EU territory, the Commission might conduct inspections unless the government of the third state or the investigated company raises an objection. This is inspired by the Anti-Subsidy Regulation, which allows the Commission to hold verifications at companies outside of the EU unless the government or the company objects.

Measures implemented by the Commission

Redressive measures

If the Commission finds that a foreign subsidy under investigation distorts competition in the EU, it may impose redressive measures. The list of possible measures includes reducing capacity or market presence of the subsidized entity, offering third parties access to certain subsidized facilities or infrastructure on fair conditions, divestments or refraining from certain investments, and repayment of the foreign subsidy. The list of such measures is not exhaustive and will depend on the facts of each individual case.

A redressive measure may also consist of the Commission prohibiting an M&A transaction notified to it. If the M&A has already been implemented, the Commission may require the undertaking to dissolve it and restore the situation prior to completion.

In public procurement procedures where a company received a foreign subsidy distorting competition in the EU, the Commission must issue a decision prohibiting the award of the contract. Exceptions apply if the company offered sufficient commitments.

Interim measures

The Commission may impose interim measures if the foreign distortive subsidy poses a risk of serious and irreparable damage to competition in the internal market. The list of interim measures in the Regulation is non-exhaustive and may include, for example, refraining from certain investments, offering third parties non-discriminatory access to subsidized infrastructure or licenses, etc. Interim measures cannot be taken for public procurement procedures.

Decision with commitments

If a foreign subsidy distorts competition in the EU, the recipient of the subsidy may offer commitments to the Commission and, for example, repay the subsidy. The Commission may accept commitments if they fully and effectively remedy the distortion. In such a case, the decision with commitments is binding on the recipient. 

Commitment decisions may be adopted for both transactions and public procurement procedures. 

These commitment decisions resemble the mechanism of undertakings contemplated under the Anti-Subsidy Regulation whereby no countervailing duties are applied provided the exporter raises the export prices of the goods concerned to the level of the subsidy or the injury caused by it. In such an event, no countervailing duties are imposed at importation into the EU. The difference is that breach of price undertakings will entail their withdrawal and trigger the levying of countervailing duties at importation in the EU while breach of a commitment decision might not only result in revocation of the commitments but also entail fines against the violating entity. 

No objection decision

In transactions and public procurement proceedings, the Commission may adopt a decision establishing that a foreign subsidy was not granted or did not distort competition following the balancing of the various interests at stake.


As under the EU Merger Regulation, the Commission is authorized to impose fines on the entities for breaching certain procedural requirements, for example, supplying incorrect or failing to supply information. The fines for infringements of procedural requirements might reach 1% of the aggregate turnover in the preceding year or 5% of the average daily aggregate turnover in the preceding year for each day of the violation. 

Fines of up to 10% of the preceding financial year’s turnover apply for companies that fail to notify a transaction or subsidy granted during a public procurement procedure, implement a notified concentration before the lapse of the review periods, or try to circumvent the notification requirements. Breaches of commitments may also be fined with fines up to 10 % of the aggregate turnover or 5% of the daily turnover.9

Next steps for business

The Regulation will enter into force 20 days after its publication in the Official Journal of the European Union and will apply six months after this date. Companies are advised to identify any financial contributions from non-EU countries and their value that might be qualified as subsidies. This step will help establish whether the business falls under the quantitative thresholds for a distortive subsidy.

Companies are also advised to implement a system to monitor subsidies that may fall within the scope of the Regulation. This will help comply with potential notification obligations in M&A transactions and public procurement procedures and enable a company to promptly provide answers in case of requests from the Commission.

The Commission shall publish guidelines on the implementation of the Regulation at latest three years after its entry into force. It is expected, however, that draft implementation acts and notification forms will be published at the beginning of 2023, including initial clarifications during the first year of implementation of the Regulation. These clarifications, together with timely compliance measures undertaken by the companies, will help companies mitigate potential risks arising out of the Regulation.

1 Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market, 16 November 2022, available at

2 Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market, 5 May 2021, available at:

3 In cases where the contribution is provided by an EU government, the EU state aid rules apply.

4 The criterion which requires the financial contribution to be limited to several undertakings or industries resembles the concept of specificity in the WTO Agreement on Safeguards and the EU Anti-subsidy Regulation. (Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union, OJ L 176, 30.6.2016, p. 55–91, available at

5 Recital 13 of the Regulation.

6 Recital 16 of the Regulation.

7 See:

8 Similar review periods apply under the EU Merger Regulation.

9 Fines are not provided for under the Anti-Subsidy Regulation, which, as mentioned before, provides that findings can be drawn on facts available when no information is provided.

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