Foreign subsidies control creates a burdensome merger control 3.0


Foreign subsidies controls have the potential to create an additional burdensome clearance procedure for M&A transactions on top of merger and investment control procedures:  

  • High administrative burdens on larger undertakings and investment funds. Many additional notifications are to be expected, but prohibition decisions are unlikely.
  • Notification requirement concerning larger transactions (e.g. target at least EUR 500m in the EU) if the undertakings involved received financial contributions from foreign states worldwide exceeding a total of EUR 50m in the three preceding years (even if not linked to the transaction).
  • Failure to notify may result in high fines (up to 10% worldwide group turnover).
  • Notification thresholds are very complicated to calculate due to an unclear concept of ‘financial contribution’.
  • Concentrations are covered for which the agreement was not concluded before 12 July 2023. Notification obligations apply as from 12 October 2023.
  • The draft Implementing Regulation sheds first light on procedural aspects.

On February 6, 2023, the European Commission (COM) launched a public consultation on its draft Implementing Regulation to determine practical and procedural aspects of the application of the Foreign Subsidies Regulation. The draft Implementing Regulation clarifies the applicable rules and procedures related to the COM's review of concentrations, public procurement procedures, and investigative powers. It also includes draft standardised notification forms for mergers and public procurement procedures that specify what information stakeholders should submit. The draft, including its annexes, already contains some indications of how the COM will apply this new instrument in practice.

The new Foreign Subsidies Regulation will apply to all undertakings worldwide that intend to do business in the EU, including international groups and investments funds headquartered in the EU.


On 12 January 2023Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market  (“FSR”) entered into force. It will apply from 12 July 2023 while notification obligations apply from 12 October 2023.

The FSR will allow the COM to investigate financial contributions granted by non-EU governments worldwide to undertakings active in the EU (see here our article on the adoption and contents of the FSR). The new tool complements EU State aid rules, which deal with distortions in the internal market caused by Member State subsidies.

The COM will be the sole authority for this type of investigations in the EU.

The draft Implementing Regulation is the next step in the implementation process. Within the four-week public consultation (deadline 6 March 2023), economic operators may submit their feedback on the draft Implementing Regulation.

Future regulatory control of M&A transactions

The FSR introduces an additional merger control regime that complements the already existing Competition Merger Control regimes (the EC Merger Control Regulation and its national counterparts) and the Foreign Investment Control regimes (”FIC Regimes”, which exist in most EU Member States). In certain cases, undertakings will need to undergo all three types of investigations concerning their planned transactions.

While under the Competition Merger Control regimes authorities are entitled to investigate whether a proposed transaction would lead to a significant impediment to effective competition (SIEC-Test) on any market in the EU. Under the FIC Regimes, the authorities review investments on the grounds of security or public order concerns or essential interests of national security.

This toolbox will now be complemented by the FSR, which will enable the COM to investigate whether a foreign subsidy 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.

Notifications under the FSR

1. Mandatory notifications

All transactions meeting the criteria set by the FSR must be notified to the COM prior to their implementation. The COM may impose fines up to 10% of the aggregate turnover in the preceding financial year where undertakings, intentionally or negligently fail to notify a notifiable concentration.

The FSR does apply to all concentrations for which the agreement will not be concluded before 12 July 2023. The notification obligation for companies will be effective as of 12 October 2023.

2. Which transactions are covered?

A transaction qualifies as a concentration in the meaning of the FSR where a change of control on a lasting basis results from either of the following:

  • the merger of two or more previously independent undertakings or parts of undertakings (which in reality rarely happens);
  • the acquisition, by one or more persons already controlling at least one undertaking or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.
  • Which thresholds apply?

3. Which thresholds apply?

Concentrations are to be notified to the COM where the two following thresholds are met (cumulatively):

  • the target or at least one of the merging undertakings or the joint venture is established in the EU and generates an aggregate turnover in the EU of at least EUR 500 million; and
  • all undertakings involved in the concentration were granted from non-EU governments a combined aggregate financial contribution of at least EUR 50 million in the three calendar years prior to notification.

4. How to calculate? – Worldwide monitoring necessary

The thresholds are calculated based on two different concepts: ‘turnover’ and ‘financial contributions’.

While the concept of turnover is well established and already used in Competition Merger Control regimes, the concept of financial contribution is far less clear.

Financial contribution is any measure, which confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to one or more undertakings or industries. This concept is already used in EU State aid law (Art 101 para 1 TFEU). The FSR refers largely to the interpretation of aid under this regime including, e.g. the Private Investor Test (PIT). This means that the notion of financial contribution is (i) very wide, and (ii) often requires a detailed assessment of the commercial transactions involving state entities.

The notion of aid includes not only direct contributions (i.e. subsidies), which are more easy to identify, but also includes indirect advantages (e.g. all measures which confer a benefit on an undertaking if it could not have been obtained under normal market conditions). This could include all types of indirect support granted by state entities, such as to support the establishment or operation of a local plant (e.g. concerning taxes, energy costs, infrastructure, land sale, financial securities, loans). Moreover, the notion of aid also includes advantages granted by public companies (e.g. airport operators), if attributable to the State. 

To collect this type of information, larger companies and investment funds that are likely to acquire larger companies in the EU (because of the turnover threshold) will need to monitor and collect the financial contributions they receive globally. Collecting and assessing the relevant data can be very burdensome and will therefore take time. As a result, there is a risk that transactions will be significantly delayed if the relevant data is not yet available. 

5. How to notify?

According to the draft Implementing Regulation, notifications must be made by use of a standardised form. The notification must be made by the persons or undertakings, which are parties to the merger or acquire joint or sole control as a result of the concentration, as the case may be.

The draft standardised form is split into sections with a resemblance to the forms required for EU merger notifications under Regulation (EU) 139/2004. The notifying party needs to provide (a) basic information that is in principle necessary for the assessment of all concentrations, (b) information on foreign financial contributions received by the parties, (c) information to assess whether the foreign financial contributions in the concentration may distort the internal market, (d) information on possible positive effects of the foreign subsidy, and (e) supporting documentation.

Financial contributions

One of the most important elements is that the notifying party must submit a detailed list of all foreign financial contributions granted to the parties of the concentration in the three preceding years. However, a foreign financial contribution needs to be included in this list only if: (a) the individual amount of the contribution is at least EUR 200,000; and (b) the total amount of contributions per third country and per year is at least EUR 4 million. Hence, a type of de-minis exemption applies. Foreign financial contributions must be provided using the dedicated template available on the COM’s website.

For each financial contribution, it is necessary indicate whether it has a possible link with the concentration. It remains to be seen whether the COM will accept waivers if a notifying party would leave the amount of foreign contribution open, but only demonstrates that any such potential contribution had no link to the notified concentration (which however will still make it necessary to name the contribution as such).

Information for the substantive test

Another important element will be the information necessary for the COM to undertake the substantive test given that the test for a distortion by a foreign subsidy under the FSR is wide and vague (i.e. "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").

The draft form requests the notifying party to submit information, such as on (a) whether the concentration occurs in the context of a structured bidding process, (b) whether a bank, a consultancy company or equivalent assisted the notifying party and, if so, if there was any due diligence carried out and to provide a detailed description of the due diligence report, (c) all other undertakings that expressed an interest in the acquisition or the merger, (d) market and business data (i.e. for each of the business lines affected by the concentration, the percentage that the turnover achieved in the Union represents in relation to the overall turnover of the undertaking), and (e) for each of the financial contributions whether and how they are liable to improve, directly or indirectly, the competitive position in the internal market (as compared to the situation before the concentration).

In addition, notifying parties may demonstrate any possible positive effects on the development of the relevant subsidised economic activity on the internal market and/or any other positive effects of the foreign subsidy such as broader positive effects in relation to the relevant policy objectives, in particular those of the Union, and specify when and where those effects have or are expected to take place.


While the introduction of monetary thresholds in the standardised forms may limit the scope of reportable information to some extent, information required for a complete notification can still easily become burdensome. This is most notably the case with regard to the supporting documents. Moreover, the Commission can request additional information before or after notification.

On the upside, the information to be provided can be limited following waiver requests if certain information is "not reasonably available" or "not necessary for the Commission's examination".  Pre-notification contacts with the Commission are encouraged and deemed extremely valuable by the Commission in the notification forms and will also serve for aligning on the above waiver requests.

The draft Implementing Regulation also lays down procedural rules for the use of the COM’s investigative powers including conducting interviews and receiving information, in particular from oral statements or the submission of the parties. This includes the treatment of such information as confidential to safeguard the rights of the involved parties. There are also detailed rules for access to the COM's files.

6. Timelines

Under the FSR the following timelines will apply:

  • Phase 1: 25 working days from the date of a complete notification.
  • Phase 2: 90 working days if the COM 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 COM (e.g. repayment of a subsidy, access to infrastructure, etc.).

The draft Implementing Regulation also lays out rules on the calculation of the timelines, including expiry, suspensions and extensions.

Notably, the draft Implementing Regulation foresees that remedies must be submitted within 65 days in case of a notified concentration and 50 days in case of notified public procurement procedures in each case after the commission has launched an in-depth investigation.



Any interested party has until 6 March 2023 to submit its feedback on the draft Implementing Regulation.

Under Article 47 (4) FSR, the first Implementing Regulation will be adopted by 12 July 2023, which gives the COM sufficient time to further improve any deficiencies in the draft Implementing Regulation following the public consultations.

However, guidelines that EU operators anxiously await in order to receive useful clarifications on basic notions of the FSR (e.g. the notion of financial contribution and the substantive test) are not to be expected within this time frame. The COM apparently intends that the first guidance be based on case-law. Hence, publication of guidelines will only arrive after application of the FSR. Under Article 46 (1) FSR, the Commission will adopt guidelines by 12 January 2026.

For more information on the FSR or the draft Implementing Regulation, contact your CMS client partner or CMS experts.