The Foreign Subsidies Regulation.

On 9 January 2026, the European Commission (Commission) published detailed Guidelines (the Guidelines) on how it will apply key provisions of the Foreign Subsidies Regulation (EU) 2022/2560 (FSR). This is in line with the Commission’s obligations under Article 46 to publish Guidelines by 14 July 2026 and follows on from a call for evidence and stakeholder engagement during 2025 and a public consultation on the draft Guidelines between July and September 2025.

The Guidelines provide greater clarity for companies operating, investing or bidding for public contracts in the EU who are in receipt of support from non‑EU countries.

The Guidelines are not a mechanical checklist but set out principles and examples intended to be applied on a case-by-case basis by the Commission to determine whether a foreign subsidy distorts the EU’s internal market and what steps may then follow by the Commission.

The Guidelines are structured around three pillars:

(a) assessment of distortions,

(b) application of the Article 6 FSR balancing test, and

(c) use of the “call‑in powers” for concentrations and public procurement bids.

1. Background to the FSR

The FSR lays down rules and procedures for investigating foreign subsidies that distort the internal market and for redressing such distortions, with the objective of safeguarding a level playing field and the EU’s open strategic autonomy.

The purpose of the FSR is to contribute to the proper functioning of the internal market by establishing a harmonised framework to address distortions caused, directly or indirectly, by foreign subsidies, with a view to ensuring a level playing field.

The Guidelines reiterate that a foreign subsidy exists where a third country provides a financial contribution conferring a benefit on an undertaking engaging in economic activity in the internal market and limited to certain undertakings or industries, and that foreign subsidies are not generally prohibited.

The Commission will conduct its assessment on a case-by-case basis to determine whether a foreign subsidy distorts the internal market.

It is worth noting that under the FSR, a foreign subsidy distorts the internal market where it is “liable to improve the competitive position of an undertaking in the internal market and where, in doing so, that foreign subsidy actually or potentially negatively affects competition in the internal market.”

2. Some key points from the Guidelines

(a) The Commission’s two‑step “distortion test”

The Guidelines confirm a two‑step cumulative distortion test under Article 4(1) FSR: i.e.

(i) whether the foreign subsidy is liable to improve the undertaking’s competitive position in the internal market; and

(ii) whether, in doing so, the foreign subsidy actually or potentially negatively affects competition in the internal market.

Where categories of subsidies listed in Article 5(1) FSR are present (e.g., unlimited guarantees, subsidies to ailing firms, export financing not in line with the OECD Arrangement on officially supported export credits, subsidies directly facilitating a concentration, or enabling an unduly advantageous tender), a detailed indicator‑based assessment is not necessary, given their inherent propensity to distort.

The Guidelines clarify that an undertaking “engages in an economic activity in the Union” not only when it offers goods or services in the EU, but also when it purchases inputs in the EU for offerings anywhere, acquires control of or merges with an EU undertaking, or participates in an EU public procurement procedure.

(b) Targeted versus non‑targeted subsidies

The Commission distinguishes between “targeted” foreign subsidies, which directly or indirectly support economic activities in the internal market, and “non‑targeted” subsidies, which may still be distortive by freeing up resources that can be channelled into EU‑linked activities through cross‑subsidisation.

(i) Targeted subsidies

Targeted subsidies include, for example, subsidies directly supporting EU operations, conditional subsidies linked to EU investments or acquisitions, support for extra‑EU R&D that benefits EU activities and guarantees that cover EU activities and lower financing costs or increase risk‑taking in the EU. Targeted subsidies that directly or indirectly support an undertaking’s activities in the internal market will be considered to improve its competitive position in the internal market without further assessment.

(ii) Non-targeted subsidies

Non‑targeted subsidies include general‑purpose support or support for activities outside the Union that “free up” resources for EU activities. For non-targeted subsidies, the Commission will assess whether the undertaking is liable to cross‑subsidise its EU activities, considering factors such as shareholding structures, subsidy design and conditions, binding agreements with third parties, applicable laws (e.g., unbundling rules, prudential requirements), and the undertaking’s economic situation.

(iii) Examples of foreign subsidies not liable to improve a competitive position

The Guidelines also provide examples of foreign subsidies that are not liable to improve an undertaking’s competitive position in the internal market, including:

(i) support addressing a market failure outside the Union designed to crowd‑in private investment,

(ii) purely social or non‑economic objectives,

(iii) compensation for natural disasters or exceptional occurrences under Article 4(4), and

(iv) amounts that do not exceed the de minimis thresholds in Article 4(2) and (3) or are otherwise insignificant relative to the undertaking’s EU activities.

3. Assessing negative effects on competition

Once a subsidy is found liable to improve an undertaking’s EU competitive position, the Commission assesses whether it actually or potentially negatively affects competition by altering or interfering with competitive dynamics to the detriment of other economic actors, including in related or downstream markets.

The negative effect need not be the result solely of the subsidy but instead it is sufficient that the subsidy contributes to the negative impact, and potential effects can suffice, without proof of actual harm, provided the impact is appreciable. Beyond the thresholds contained in Articles 4(2) - (3), there is no general de minimis rule for distortion.

The Commission follows a two‑step approach:

(a) assessing the impact of the subsidy on the beneficiary’s behaviour (e.g., pricing, output, investment, risk‑taking) and then,

(b) evaluating how that behaviour alters competitive dynamics (e.g., crowding out rivals, deterring entry or bids, affecting value chains).

Indicators considered include, among others,

(i) the subsidy’s scope,

(ii) purpose and conditions,

(iii) its amount and form,

(iv) the size and position of the undertaking,

(v) sector characteristics (including capacity constraints or overcapacity risks), and

(vi) the legal context.

The Guidelines illustrate distortions in acquisitions (e.g. outbidding/deterring rival investors via lowered cost of capital) and in operating behaviour (e.g. aggressive pricing, capacity expansion supported by subsidised inputs, guarantees facilitating risk‑taking), and the types of evidence the Commission may use.

4. Public procurement: “unduly advantageous tenders”

In public procurement, a distortion arises where a foreign subsidy enables an economic operator to submit an unduly advantageous tender. The assessment of the foreign subsidy will be limited to the public procurement procedure in question.

To determine whether a tender is advantageous, the Commission may,

(i) benchmark against other tenders (excluding those themselves benefitting from foreign subsidies),

(ii) compare with the contracting authority’s estimates and preparatory documents, or

(iii) assess counterfactual scenarios, particularly where guarantees or other specific subsidies plausibly affect offer terms.

An advantage is “undue” if it stems to an appreciable extent from a foreign subsidy.

The operator may justify an advantage by legitimate factors (e.g. innovations or exceptionally favourable conditions) consistent with the public procurement Directives, but if not, the Commission will consider whether foreign subsidies appreciably impacted the tender terms, with large subsidies relative to the estimated contract value being highly likely to do so.

The Commission will also consider actual or potential negative effects such as award outcomes, influence in negotiated procedures, or deterrence of participation where rivals anticipate competing against subsidised operators.

5. The Article 6 FSR balancing test: narrow and evidence‑driven

The Commission may balance negative effects in terms of distortion against positive effects specific to the subsidy on the development of the relevant subsidised economic activity in the internal market and, as appropriate, broader policy objectives (e.g. environment, social standards, R&D), including the availability of alternative sources of supply in procurement.

The positive effects must be specific to the subsidy. These are generally shown via a credible counterfactual and supported by cogent, verifiable evidence.

Vague or theoretical claims will not suffice, and the burden of proof lies with the party invoking the positive effects.

The more distortive the measure (notably those in Article 5(1) FSR), the less likely positive effects will outweigh negative effects.

Where negative effects prevail, the balancing helps calibrate appropriate commitments or redressive measures.

The Guidelines include an illustrative example showing how the Commission would weigh innovation and social benefits against crowding‑out and competition harms, including proportionality considerations where less distortive means could achieve similar positives.

6. Call‑in powers for non‑notifiable cases: concentrations and procurement

(i) Concentrations

The Commission may request prior notification of concentrations that do not meet the Article 20(3) FSR thresholds and of foreign financial contributions in public procurement that are not notifiable under Article 28(1) or fall under Article 30(4) FSR if the Commission suspects foreign subsidies were granted in the prior three years.

Suspicion may extend to subsidies granted to main subcontractors or suppliers in the same tender, and “impact in the Union” covers actual or potential channels such as production, services, access to technology, or availability of services. Factors for ex ante review include the strategic importance of the activity, supply chain considerations, targets with significance not reflected in turnover, and patterns of investment or bidding activity.

(ii) Public procurement

In public procurement, once a call‑in decision is issued under Article 29(8) FSR, the identified foreign financial contributions become notifiable and subject to the FSR’s Chapter 4 procedural framework (without the usual thresholds), with notifications to the contracting authority using Implementing Regulation (EU) 2023/1441 forms.

Conclusions

The Guidelines provide welcome clarity on the Commission’s current interpretation and application of the FSR’s core concepts, while underscoring a case-by-case assessment rather than a formulaic checklist.

In summary, they provide a structured framework for assessment of foreign subsidies under the FSR, including how to analyse targeted and non‑targeted subsidies, what indicators and evidence the Commission will rely upon to infer negative effects on competition, and how to prepare robust, specific evidence for the balancing test. In this regard, they provide a helpful roadmap for businesses on the information that should be maintained when receiving foreign financial contributions and the risk factors that might trigger an ex officio investigation or call-in by the Commission.

The Guidelines also underline enforcement priorities in public procurement, with detailed benchmarking methods for identifying unduly advantageous tenders and a clear division of roles between the Commission and contracting authorities under the procurement Directives.

The ALG EU, Competition & Procurement team is acting for clients on a range of FSR matters as well as on the full range of EU and Irish competition law, public procurement and Irish FDI screening matters. For further information, please contact any member of the ALG EU, Competition & Procurement team.

Date published: 14 January 2026