Foreign subsidies draft implementing regulation published by European Commission

On 6 February 2023, the European Commission issued the draft implementing regulation for the Foreign Subsidies Regulation (FSR), clarifying the practical and procedural aspects related to the application of the new EU rules to address distortions caused by foreign subsidies in the Single Market. The Commission is seeking feedback on the draft regulation by 6 March 2023.

Background

The FSR entered into force on 12 January 2023 and empowers the European Commission, as from 12 July 2023, to investigate any foreign subsidies (e.g., grants; tax incentives; preferential loans, guarantees, capital increases) and apply far-reaching measures to prevent any company operating in the EU from receiving unfair foreign benefits.

Further, the Commission will have the right to investigate “ex officio” any other market situations where potentially distortive foreign subsidies facilitate the operations of certain companies in the EU. 

The new rules are applicable to companies active in all sectors, regardless of their ownership or nationality, and to all subsidies granted in the five years prior to the adoption of the FSR.

Draft implementing regulation

The draft implementing regulation sets out the procedural rules for the notification and review of subsidies granted by non-EU jurisdictions to companies operating in the Single Market. The rules clarify the scope of foreign contributions which need to be reported by companies taking part in concentrations and public procurement procedures, and introduce exemptions and thresholds intended to ensure that the focus of the review is on what is considered the most distortive support.

Under the FSR, as from 12 July 2023, the European Commission will have the power to investigate foreign financial contributions granted to companies operating in the EU and, where necessary, to address any distortive effects these contributions may have on the Single Market. As from 12 October 2023, firms planning concentrations with an EU dimension and participating in largescale public tenders will have to disclose to the Commission information about foreign contributions received in the previous three years.

How can Deloitte help?

It is critical for companies benefiting from incentives and entering into or involved in transactions with public entities in jurisdictions outside the EU to assess:  

• Whether the incentives or transactions are within the scope of the FSR;

• What the impact on their business will be; and

• What further actions, if any, are required.

This requires establishing the required internal processes, identifying and quantifying the relevant incentives, assessing their impact on the EU market, defining a strategy, and initiating and following the necessary procedures (such as the required notification to the European Commission). 

Deloitte has set up a global multidisciplinary team of legal experts, economists, and specialist business and tax consultants, led by the EU Law & State Aid Center of Excellence based in Brussels, which can carry out these types of assessment, provide advice on how to proceed, and guide companies through the necessary internal and external processes.