A new European regulatory regime, the Foreign Subsidies Regulation (FSR), will be fully operational shortly. The FSR is intended to allow the EU to minimise distortions in the EU’s internal market as a result of non-EU subsidies granted to businesses operating in the EU. The FSR begins to apply from 12 July 2023.
From this date, where the European Commission suspects that a distortive foreign subsidy may be involved it will be able, on its own initiative, to intervene. The FSR enables the Commission to scrutinise companies making certain acquisitions, engaging in public procurement, or otherwise carrying out economic activities in the EU, which have benefited from non-EU subsidies.
From 12 October 2023, the FSR introduces a new mandatory notification regime involving foreign subsidies for certain high-value M&A deals (including joint ventures) and public tenders above specified financial thresholds. Notifications will be to the Commission.
With the power to block affected M&A and prevent certain public procurement awards in the EU alongside the power to fine companies up to 10% of their turnover for a range of breaches, the European Commission is being given substantial powers.
The FSR when fully operational is expected to have an impact primarily on larger-scale M&A deals in the EU, although as ‘below threshold’ deals can be investigated by the Commission, other deals may also be affected.
All M&A and public tenders involving investments into the EU by companies which may have received financial contributions from non-EU governments, or government related entities, should be reviewed for compliance with the FSR. Having said that, the manner in which the FSR will be interpreted and applied is yet to be fully determined at this time.
For more detail on the FSR including information on its main features and practical steps to be implemented by parties to M&A transactions, please visit the following link or contact Michelle McLoughlin, Knowledge Consultant, Liam Murphy, Senior Knowledge Lawyer or any other member of ALG’s Corporate and M&A team.