The recently enacted EU Foreign Subsidies Regulation (FSR) grants the European Commission investigative powers on foreign subsidies that may distort competition in the EU internal market. The FSR imposes suspensory filing requirements on parties to reportable transactions, potentially leading to lengthy reviews and remedial actions on top of existing competition law and national security review processes.
The FSR Implementing Regulation (FSRIR) was published on July 10, 2023, and provides detailed rules on the procedure for notifications of concentrations to the Commission, including regarding the information that must be reported.
Paul Hastings has prepared FAQs and a Toolbox to help clients navigate this new burdensome European regulatory constraint.
An FSR Filing Requirement is Triggered Where
- At least one of the merging companies, the target, or a JV (i) is established in the EU and (ii) generates an aggregate EU-wide turnover of at least EUR 500 million; and
- The parties to the transaction were granted combined aggregate financial contributions of more than EUR 50 million from non-EU governments in the previous three years.
FSRIR in a Nutshell
The FSRIR sets out the information on foreign financial contributions (FFCs) to be reported as part of a notification.
- The FSRIR identifies high-risk FFCs that any party to the transaction must report if above €1m, and granted in the past 3 years.
- For other FFCs, the notifying party(ies) (buyer in an acquisition; merging parties in a merger; parent companies in a JV) must report all individual financial contributions above €1m if granted by a non-EU country that granted financial contributions of at least €45m in the aggregate in the past 3 years.
- The FSRIR excludes certain FFCs from reporting: (a) deferred taxes and social security contributions, tax amnesties, tax holidays, and normal depreciation and loss-carry forward rules, to the extent they are of general application and not limited to certain sectors, regions, or undertakings; (b) tax reliefs for avoidance of double taxation; (c) provision / purchase of goods / services (except financial services) at market terms in the ordinary course of business; and (d) financial contributions below €1 million.
- A scorecard that helps our clients map FFCs across their groups. Initial mapping exercise is very burdensome and should be prepared early;
- A table categorizing FFCs that are distortive;
- A due diligence request list that includes specific FSR requests on top of merger control requests;
- FSR-tailored CP clauses for deal documentation; springing conditions for FSR call-in risks; FSR HOHW clauses, etc.
 The FSRIR also includes requirements for public procurement procedures and ad hoc cases, which will be dealt with in another alert.