Introductory note
Regulation 2022/2560 on foreign subsidies distorting the internal market was adopted on 23 December 2022 and entered into force on 12 July 2023 (the "Regulation"). Nonetheless, certain of its provisions, relating, in particular, to the involvement of national officials in inspection procedures led by the European Commission apply from 12 January 2024. It is therefore timely to provide a brief recap of the aims and structure of the Regulation.
Policy purposes
The EU system of state aid control ensures fair conditions for all enterprises engaging in economic activities on the internal market, thereby preventing Member States from granting aid which would unduly distort competition in the common market. Nonetheless, private and public enterprises may receive subsidies from third countries to, inter alia, strengthen their position in the common market, in particular by launching concentration initiatives and participating in public procurement procedures, often relating to strategic assets such as critical infrastructure and innovative technologies. As such, the Regulation essentially provides EU institutions with the means to control the impact of foreign subsidies, which are not subject to EU state aid rules, on the common market.
Foreign subsidies and the distortion of competition
For the purpose of the application of the Regulation, foreign subsidies would exist if a third country provides, directly or indirectly, financial contributions conferring benefits on a limited basis to one or more enterprises engaging in economic activities on the common market. Foreign subsidies can consist in the transfer of funds or liabilities (such as grants, loans, capital injections, guarantees, etc.) as well as tax exemptions or the granting of special or exclusive rights without adequate remuneration.
Notification obligations and powers of the European Commission
As from 12 October 2023, companies are under an obligation to notify the European Commission of the foreign subsidies they have received, in case they intend to participate in a concentration operation or a public procurement procedure.
A concentration shall be notified if:
- At least one of the merging enterprises, the acquired enterprise or a joint venture is established in the EU and generates an aggregate turnover in the EU of at least EUR 500,000,000 and
- The merging undertakings, or the acquirer(s) and the acquired enterprise, or the enterprise creating the joint venture and the joint venture itself were granted combined aggregate financial contributions of more than EUR 50,000,000 from third countries in the three years preceding the conclusion of the announcement of the public bid, or the acquisition of a controlling interest, or the agreement.
The participation in a public procurement procedure shall be notified if:
- The estimated value of that public procurement is at least equal to EUR 250,000,000, and
- During the three years prior to notification, the economic operator – including subsidiaries without commercial autonomy, holding companies, and, where applicable, main subcontractors and suppliers involved in the same tender – was granted aggregate financial contributions of at least EUR 4,000,000 million per third country.
The Commission enjoys vast powers of investigation, so that any enterprise and Member State can lodge a complaint against (potential) foreign subsidies triggering an ex officio investigation.
Assessment of the foreign subsidies and balancing test
In line with the functioning of state aid rules, foreign subsidies would be illegal if, by boosting the competitive position of an enterprise, they distorted competition on the common market. Aid granted to ailing companies, unlimited guarantees for debts of certain enterprises or facilitating acquisitions or advantaging in procurement procedures would be presumed to distort the common market. Subsidies in lower amounts than EUR 4,000,000 over a three-year period would be considered de minimis.
After establishing that a foreign subsidy distorts competition, the European Commission shall assess whether such distortion may be counterbalanced by benefits entailed for the subsidised economic activity and EU objectives at large. If the distortive effects prevail, in line with EU rules on competition and merger control, subsided enterprises may negotiate commitments (such as asset divestment and restitution of aid). However if the European Commission finds these to be insufficient or ineffective, it may prohibit the concentration operation or the participation in tender procedures.
The way forward
The enactment of the Regulation is to be welcomed as it introduces a long-awaited means to protect EU markets against third-country subsidised competitors, thereby adding to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings and Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union to control the potential influence of the penetration of foreign capital in Europe.
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