Final EU foreign subsidies guidelines published

Competition law, public procurement and trade experts Dr. Totis Kotsonis and Andreas Haak of Pinsent Masons were commenting after the European Commission published its final guidelines under the Foreign Subsidies Regulation (FSR).

The FSR came into force in 2023 and allows the Commission to investigate financial contributions granted by non-EU countries – including EEA countries – to businesses operating in the EU. Under the FSR, there are mandatory prior notification and approval rules applicable to M&A deals and public procurement procedures involving the EU where they trigger certain jurisdictional thresholds, while the Commission also has additional powers to open its own investigations into foreign subsidies.

Until now, the FSR regime has operated without formal guidelines, with organisations having to rely on interim Q&A material and staff papers to understand how the regime applies in practice.

Kotsonis and Haak said that publication of the finalised guidelines means the FSR has now fully transitioned from a developing framework into a central pillar of the EU regulatory landscape. They said businesses can now expect the Commission to scrutinise foreign financial contributions more closely than before and so this requires them to adjust their deal and bidding strategies accordingly.

Kotsonis said: “The guidelines give businesses a clearer view of how the Commission will approach distortion analysis, but they don’t remove the burden of detailed self‑assessment. For M&A and procurement processes, it’s now essential that organisations understand the full history of foreign financial contributions. Overlooking even benign contributions could lead to delays or unexpected intervention.”

Haak said: “What stands out is the Commission’s willingness to use the flexibility built into the regime. Even transactions or tenders falling below the thresholds may now be examined more closely where the Commission sees potential distortive effects. Clients should expect a more inquisitive regulator and prepare accordingly.”

The Commission confirmed that a foreign subsidy is considered distortive if it is “liable to improve the competitive position of the undertaking in the internal market” and consequently results in actual or potential negative affects on competition in the EU’s internal market. The guidelines expand on when a foreign subsidy might be considered to provide a competitive advantage and whether that advantage negatively affects competition.

The Commission has also set out a broad, non-exhaustive, list of the types of foreign subsidies that are “most likely to distort the internal market”. Examples given include unlimited guarantees for debts or liabilities and export finance support that isn’t aligned with OECD standards, as well as subsidies “directly facilitating a concentration” and those “enabling an undertaking to submit an unduly advantageous tender on the basis of which the undertaking could be awarded the relevant contract”.

A foreign subsidy given to “ailing undertakings” where those companies do not also have a restructuring plan in place to secure their long-term viability and the company would be making a significant contribution of its own, will also be likely to be considered distortive, the Commission said.

Among other things, the Commission said it will examine actual or potential behaviour of businesses that receive foreign subsidies, to determine if those subsidies are distortive. Factors it will consider in that regard include the type and size of the subsidy granted and the type and size of the company receiving the subsidy. Sector-specific characteristics will also be considered.

“These [characteristics] include in particular its size and likely evolution, competitive conditions, barriers to entry or expansion, the impact on downstream or indirectly affected sectors, etc,” the Commission said, adding that it “may consider in particular the factors that drive competition in those sectors”.

“For example, in sectors where competition is mainly driven by price, the Commission may assess whether the foreign subsidy enables the subsidised undertaking to lower prices or to expand production to the detriment of rivals; in sectors characterised by capacity constraints, the Commission may assess whether the foreign subsidy enables the subsidised undertaking to invest in additional capacity to the detriment of rivals. Foreign subsidies in sectors characterised by overcapacity or that may lead to overcapacity by sustaining uneconomic assets or by encouraging investment in capacity expansions that would otherwise not have been built, may distort competition as they might exclude or marginalise more efficient actors,” it said.

According to Kotsonis and Haak, for companies pursuing EU‑connected M&A transactions, the guidelines reinforce the need to identify and document foreign financial contributions early in the deal process.

They also highlighted that the Commission’s ability to call-in transactions below the notification thresholds remains a significant factor, meaning that deal strategy, timelines and due diligence will increasingly need to incorporate FSR considerations.

In public procurement specifically, they said bidders can expect deeper scrutiny of pricing and bid structures, particularly where the Commission suspects that foreign subsidies may have influenced the terms of an offer.

Kotsonis said: “The guidelines reinforce what many businesses have already experienced – FSR compliance is becoming a standard part of major transactions and tenders. Companies should embed FSR considerations into their governance and deal processes rather than treating them as an afterthought.”