Foreign Subsidies Regulation (FSR)

The EU's new Foreign Subsidies Regulation (FSR) took effect in July 2023, and gives the European Commission far-reaching powers to tackle any subsidies provided by non-EU countries that distort the EU's internal market. It is a unique new EU regulation based on aspects of trade, state aid, merger control & public procurement law. White & Case, as one of the world's leading practices in all of these areas, has a dedicated, multi-disciplinary FSR team that assists clients in navigating the uncharted waters of the FSR.

We are also the only law firm that has developed a one-of-a-kind FSR software toolkit to assist clients in collecting the relevant FFCs data in an automated and harmonized manner. Our global presence ensures that we can advise you on the FSR across a wide range of industries and geographies.

Enforcing the FSR

The Commission has three main tools at its disposal to enforce the FSR.

M&A oversight

The Commission requires an FSR filing prior to the implementation of M&A deals if the EU turnover of either the target, one of the merging parties, or the joint venture itself is at least €500 million in the prior financial year, and the combined foreign financial contributions (FFCs) from a non-EU country of the parties involved are at least €50 million in the three years prior to signing the deal.

Public tenders in the EU oversight

The Commission requires an FSR filing for public tenders in the EU, prior to their award, if the contract value is at least €250 million—or €125 million for lot-based tenders—and the combined FFCs of the bidding party and its main subcontractors or suppliers—on a group level—are at least €4 million in the three years prior to the FSR filing.

Broad market oversight

The FSR grants general powers to the Commission to investigate all market situations suspected of benefiting from distortive foreign subsidies, including M&A deals and public tenders that fall below the respective thresholds.

What does the FSR mean for the businesses?

The FSR affects all companies that are active in the EU and have received any form of direct or indirect FFCs, in particular those that engage in M&A or public tenders in the EU. This is because the FSR filing requirement is triggered by a company's FFCs, even if these do not constitute subsidies. The FFCs are defined very broadly and can include capital/equity injections, grants, loans, guarantees, tax exemptions as well as government contracts for the purchase or sale of goods or services, even if these are on market terms.

In order to assess the FSR exposure and its potential impact on business and future deals, companies need to identify the extent of their FFCs, and whether these amount to a "subsidy." For large multi-national companies, operating in hundreds of jurisdictions, this can be a challenging and burdensome task.

The Commission's review focuses on whether the company's FFCs constitute subsidies that distort the EU's internal market. The most contentious FFCs are those that support a failing business, give unlimited guarantees, directly facilitate a concentration, are an export financing measure not in line with the OECD Arrangement on officially supported export credits, or enable a company to submit an unduly advantageous tender. That said, the FSR filing forms require the provision of information regarding a number of other FFCs received by the notifying parties in the past three years. The Commission also has powers to investigate, on its own initiative, any company's FFCs, not limited to M&A deals and public tenders in the EU.

In the event of a subsidy finding, the Commission will assess if it has distortive effects on the EU's internal market. If there is a distortion, the Commission conducts a balancing test to assess if the distortive subsidy effects can be counterbalanced by the positive effects of the subsidy on the development of the subsidized economic activity on the EU's internal market. In this context, the Commission may consider if the subsidy supports broader policy objectives, in particular, those of the EU.

Based on the balancing test, the Commission will determine the FSR remedies, which can be wide-ranging, and, in the worst-case scenario, can include prohibiting the M&A deal or the awarding of the contract.

Navigating the FSR with White & Case

Clients choose us for our dedicated FSR team, which covers every aspect of the FSR and has unrivaled experience in navigating the unchartered waters of the FSR. We help you manage FSR risks and maximize opportunities along the way.

We advise a number of clients, across a wide range of industries, on general FSR issues, but also on ongoing FSR filings as well as putting in place internal systems for the collection of the relevant FFCs data. This information is key to determining the FSR exposure of companies, and for the execution of deals / tender awards in a smooth manner. As preparedness is a key tactic for dealing with the FSR, we have also developed a bespoke FSR software toolkit to assist clients in collecting the relevant FFCs data in an automated and harmonized manner.