EC closes first investigation in Bulgaria under new EU Foreign Subsidies Regulation


On 16 February 2024, the European Commission (EC) opened its first investigation under the Foreign Subsidiaries Regulation (FSR) in relation to a BGN 1.2 billion (EUR 610 million) public procurement initiated by Bulgaria's Ministry of Transport and Communications on 4 January 2024 for the tender of 20 electric “push-pull” trains, including their maintenance over 15 years and the education of staff. The investigation was initiated following notification from a Chinese company participating in the public procurement procedure.

Following the EC's announcement of an in-depth FSR investigation, the Chinese company voluntarily withdrew from the public procurement tender organised by the Bulgarian Ministry. As a result of the withdrawal, the EC announced that it was closing its in-depth investigation.

The FSR came into effect on 12 July 2023 with a new set of rules to address violations caused by foreign subsidies and the aim of maintaining the EU's openness to trade and investment while ensuring fair competition for all companies operating in the single market. Under the new rules, the EC is empowered to investigate financial aid provided by non-EU governments to companies operating in the EU and correct any distortive effects that such aids may have.

As of 12 October 2023, the FSR required companies to notify the EC of mergers and any participation in public procurement procedures that meet specified thresholds. Specifically, under the FSR, companies must notify the EC of their participation in any public procurement tenders in the EU worth more than EUR 250 million if the relevant company was granted at least EUR 4 million in foreign financial contributions during the previous three years. The FSR applies to foreign financial contributions granted for three years prior to 12 July 2023 where the contributions were granted to an undertaking regarding a concentration or a public procurement procedure. The FSR is also applicable to foreign subsidies granted five years prior to 12 July 2023 where the foreign subsidies have led to a distortion of the internal market.

The FSR grants the EC extensive investigative powers, including the ability to request information from companies, conduct on-site inspections, and initiate market studies. It also allows the EC to compare the negative impact of a foreign subsidy on the internal market with its positive effects on the subsidised economic activity and impose appropriate measures to remedy competition distortions.

In cases where companies fail to comply with the notification requirements, the EC can impose fines of up to 10% of the company's total annual turnover. The EC can also prohibit companies benefiting from distortive subsidies from conducting subsidised mergers and receiving awards of contracts in public procurement procedures. In addition, the EC can start investigations on its own initiative (i.e. ex-officio) if it suspects that distortive foreign subsidies may be involved. This includes the possibility to request ad-hoc notifications for public procurement procedures and smaller concentrations.

For further information on the applications of the FSR, contact your CMS client partner or local CMS experts Nevena Radlova, Gabriela Karaivanova and Nikola Naydenov.