EU foreign subsidies regulation review signals targeted reforms ahead

The review found that the FSR regime was generally “fit for purpose”, but also identified certain problematic areas, including concerns over the administrative burden of data collection and reporting on foreign financial contributions (FFC), as well as the length and complexity of certain procedures linked to FSR investigations.

It also highlighted some uncertainty over the Commission's ‘call-in’ powers for below-threshold concentrations, the need for greater clarity for reporting obligations, and greater transparency in how the regime was being enforced in practice.

The FSR was introduced to address a perceived gap in the EU's regulatory framework. While EU state aid rules allow the Commission to scrutinise financial support granted by EU member states to businesses, there was previously no equivalent mechanism to address subsidies granted by non-EU governments to businesses operating in the internal market.

The FSR seeks to address that imbalance by enabling the Commission to investigate and, where necessary, impose remedies where foreign subsidies are found to distort competition. In January this year the Commission published finalised guidelines which outlined a broad, non-exhaustive, list of the types of foreign subsidies that are “most likely to distort the internal market”.

The latest review was carried out in accordance with article 52(2) of the FSR, which obliges the Commission to review how it is implementing and enforcing the rules every three years. It was based on two consultations and an independent study conducted by an external party.

The Commission has said it now intends to publish and consult on draft, targeted procedural adjustments this autumn and adopt these adjustments in 2027. The proposed changes are expected to be a recalibration of the regime, not a fundamental redesign, but businesses are still encouraged to engage with the consultation and prepare for any consequential changes to their FSR compliance procedures ahead of the changes coming into force in 2027.

In the context of reviewing M&A transactions – referred to as “concentrations” – the proposed reforms include increasing the turnover notification threshold by delegated act, introducing simplified notification possibilities, moderately increasing reporting thresholds for foreign financial contributions (FFCs), and creating further exemptions for FFCs that are unlikely to be distortive.

For public procurement, the proposals include simplifying and clarifying forms, revising the waiver framework, clarifying and limiting reporting of lower-risk FFCs, as well as clarifying rights and obligations around access to file and confidential information.

Businesses engaged in EU-facing M&A, strategic investments, financial sponsor transactions, complex group structures, state-linked financing, and high-value public procurements should monitor the draft targeted adjustments this autumn, assess their FSR exposure early in their transaction and tender planning, continue to maintain reliable records of FFCs, and also build FSR timing, conditionality and data collection into relevant project timetables.

Totis Kotsonis, a competition law, public procurement and trade expert at Pinsent Masons, said: “Despite the controversy surrounding its introduction – including business concerns about the additional administrative burden and questions from some trading partners about its compatibility with WTO rules – the FSR has proved to be a useful addition to the EU’s regulatory toolkit. It fills an important gap by enabling the Commission to address distortions in the internal market caused by foreign subsidies that are not adequately captured by existing EU state aid and international trade rules.”

He said the review’s findings were encouraging. “The Commission’s conclusion that the FSR is fit for purpose, coupled with its focus on targeted simplification rather than fundamental reform, suggests that the basic framework is working broadly as intended,” he said. “That does not mean that implementation is beyond criticism: reducing unnecessary reporting burdens and improving legal certainty will remain important.”

However, he said there were still some overarching concerns about the regime’s future. “The longer-term question is whether the FSR will have a wider deterrent effect, not merely by influencing how subsidised businesses structure their acquisitions, investments and public procurement bids in the EU, but also by encouraging third-country governments to reconsider subsidies that may distort competition in the internal market,” he added. “It is still too early to know whether that broader behavioural change will materialise.”

Andreas Haak, a public procurement and trade expert with Pinsent Masons in Düsseldorf, said: “The review is notable not only for what it proposes, but also for what it does not propose. While there is little sign that the Commission intends to revisit the fundamental architecture of the regime, a broader debate is emerging, particularly in Germany, as to whether reducing administrative burdens and enhancing competitiveness may ultimately require a more comprehensive reassessment of the framework than the Commission is currently contemplating.”

Haak said while the proposed reforms may be viewed as an important first step, they should not be the end of the discussion. He cautioned that businesses should also not assume that “meaningful relief” would be imminent. “The consultation process and subsequent legislative steps will take time in any event, and the existing regime will remain fully applicable for the foreseeable future,” he added. “Companies involved in acquisitions, joint ventures or public procurement procedures should therefore continue to invest in robust FSR compliance processes, maintain comprehensive records of foreign financial contributions and factor FSR considerations into transaction and tender planning at an early stage."