Subsidies and State Aid

M&A Deals Under the New EU Foreign Subsidies Regime – A Taste of What to Expect

The EU Foreign Subsidies Regulation (FSR; available here: EUR-Lex - 32022R2560 - EN - EUR-Lex ( came into force on 12 January 2023, and will apply from 12 July 2023 onwards. Under the new regime, the EU Commission will be able to scrutinize subsidies granted by third (non-EU) countries to players which are active in the EU.

The FSR is a mix of state aid rules and merger control. It is supposed to close a “regulatory gap” resulting from the fact that the EU State Aid rules limit the extent to which EU Member States can subsidize “their” companies, whereas no similar limitation and control mechanism exists for subsidies granted by third countries.

Spoiler alert!

This week, the EU Commission invited stakeholders to give feedback on the draft Implementing Regulation which complements the FSR (available here: Distortive foreign subsidies – procedural rules for assessing them ( Interested parties can submit their comments by 6 March 2023.

With the new package, which consists of roughly 60 pages, the EU Commission presented the legal community with a limited preview of what is going to unfold. The draft provides insight into how the application of the FSR will look like in practice. The message seems pretty clear: it might not be pleasant – neither for the parties nor for their advisors.

A short recap

From 12 October 2023, the new notification obligations for M&A deals is going to apply. The scope of the new rules is extremely broad. Parties of a transaction are under an obligation to notify M&A-deals, i.e. acquisitions of joint or sole control and the creation of full-function joint ventures (“concentrations”) where

  1. the target/joint venture (or one of its subsidiaries) is established in the EU and generated in the last financial year an aggregate turnover in the EU of at least EUR 500 million; and
  2. the undertakings (i.e. corporate groups) involved in the concentration were granted from third countries combined aggregate financial contributions in the three financial years prior to the conclusion of the agreement of more than EUR 50 million.

Notifiable M&A transactions cannot be closed before clearance is granted by the EU Commission (“stand-still obligation”). A failure to notify or to respect the standstill obligation (“gun jumping”) can be sanctioned with substantial fines.

Despite the instrument’s focus on third countries, both non-EU and EU companies will be caught by the new rules. Needless to say, the new system comes on top of other regulatory work streams, such as traditional merger control, FDI and export control. For more details see A new form of merger control – EU Foreign Subsidies Regulation formally adopted | Gleiss Lutz and Entry into force of new EU-Foreign Subsidies Legislation – impact on upcoming M&A Transactions | Gleiss Lutz

More red tape: “EU Merger Control II”

First, the draft Implementing Regulation contains some procedural details (investigation tools, time limits, procedure for commitments, submissions of observations, access to the file, confidentiality etc.). As expected, the EU Commission has heavily relied on the EU merger control rules (EUMR), in particular on the Implementing Regulation 802/2004.

The centerpiece of the package is the forms for the notifications with some introductory explanations. Again, the EU Commission has drawn a lot of inspiration from the (notorious) Form CO which applies in EU merger control. It seems clear that the new FSR quasi-merger review will place significant burden on the parties in international M&A transactions. Some highlights:

  • As a principle, companies will have to disclose all “foreign financial contributions” received from non-EU countries over the last three years. This can become a monumental task, given that the notion of “financial contributions” is extremely broad and includes many types of measures that ultimately may not qualify as “subsidies” at all. The form provides a detailed template (table) with information to be filled in about receiving entity, granting authority, type of financial contribution, award procedure, amount, date, conditions, rationale of measures in question, sector concerned, etc.
  • The new draft form provides for some (limited) exceptions from notification. Financial contributions below EUR 200,000 do not have to be notified. The same applies if “the total amount of contributions per third country and per year” remains below EUR 4 million. This exception is however of limited help. It only relieves the parties from including such (smaller) amounts in the list, but not from the internal compliance check, i.e. whether the notification thresholds are met. Given the substantive fines for non-compliance under the FSR for failure to notify or supply of incorrect information, a diligent party would always closely verify all possible state support in order to ensure that the FSR rules are fully respected.
  • The general spirit of the draft forms is very much in line with the EU Commission’s established model under the EUMR. Parties will have to provide vast amounts of paper and data, such as transactional documents, legal and economic details of the measures in question, financial data on the recipient, turnover figures in all variations, contact details of other players, “analyses, reports, studies, surveys, presentations and any comparable documents discussing the purpose and economic rationale of the foreign financial contribution”, recent annual accounts or reports, etc. If these documents are not in an official EU language, they have to be translated.
  • The EU Commission’s hunger for facts is extensive and occasionally appears somewhat bizarre. As an example, in case the “concentration occurs in the context of a structured bidding process”, the parties have to provide, inter alia, details on how many other candidates were contacted, which candidates expressed an interest or submitted an offer, the profile of each candidate, which bidders withdrew at what stage of the process, whether an advisor assisted the notifying party, copies of all due diligence reports, the contact details of all other candidates, etc. This is usually impossible. A bidder does not have this kind of information because these procedures are, also for reasons of competition law, highly confidential.  
  • Parties may request a waiver, i.e. ask the EU Commission to dispense a requesting notifying party with the obligation to provide certain information when the EU Commission considers that this “is not necessary for the examination of the notification.” The same applies concerning information that is not “reasonably available” to them.
  • Although the draft form is based on the EU merger control rules (Form CO), which ensures convergence as far as jurisdictional questions are concerned (notion of concentration, control, ownership, notifying parties, etc.), potential synergies between the two tracks seem to be rather limited. Both regimes have different objectives and the questions are also quite different in terms of substance.
  • As under the EUMR, the parties are “encouraged” to have pre-notification discussions on the basis of a draft notification. It is to be expected that this will become the de facto rule. Such contacts will always take some extra time – at least a few months – which has to be added to the timeline.  

What the package does not tell us

In terms of substance, the package gives only little guidance about the future application of the FSR:

  • Since it is a purely procedural document, the draft does not deal with the key concepts of the FSR, such as “subsidy”, “distortion on the internal market” and the application of the “balancing test”. Since these notions are very similar to those under Article 107 TFEU, they are likely to be interpreted in line with the case law and the EU Commission’s decision-making practice on EU State Aid law. 
  • Unlike the section on “financial contributions” the section on “possible positive effects” is extremely short. The draft does not give any concrete example as to which effects could be taken into account. The EU Commission seems to take the view that this is left to the imagination of the parties and that the burden of proof lies entirely with them.  
  • A missed opportunity: The draft does not deal with the relationship between the FSR and free trade agreements concluded with non-EU countries (FTAs). Article 44 (9) FSR, however, provides that the FSR tools shall not be applied where this would be contrary to the EU’s obligations under international law. It would therefore have seemed obvious to set up a “safe harbor list” excluding the FSR application vis-à-vis those third countries which have entered into a comprehensive FTA with some substantive provisions on state aid. The EU Commission however did not provide such a “white list”.

Next steps: How to prepare yourself 

The new draft regulation confirms what many observers had already expected: The new system will have a major impact on M&A transactions and will significantly increase the costs and the administrative burden for many EU and non-EU companies. There are several steps that potential dealmakers can take now to prepare themselves for the new regime:

  • Take part in the consultation process: Stakeholders can submit comments on the draft until 6 March 2023. All interested parties should, possibly via trade associations, take advantage of this opportunity. Without any meaningful feedback, the EU Commission is likely to adopt the draft in its current form.
  • Monitoring and compliance: Establish an internal monitoring process to systematically collect and review information regarding financial contributions (who, what, when, who from, amount, conditions, type?) on a group-wide basis for the last three years.
  • Preparation of transactional documents: In addition to the usual closing conditions, the SPA/APA should include an FSR clause which could be modelled on the customary language used for merger control (condition precedent, obligation for purchaser to prepare and file notification in consultation with the seller, offer commitments, hell-and-high-water clause, etc.).  
  • Work out the timeline: FSR procedures take time, e.g. preliminary investigation of 25 working days, potentially followed by an in-depth probe of additional 90 working days, with possible extensions. In addition, the parties have to factor in the need for pre-notification contacts, which can take a few months.
  • Prepare your case: Finally, parties should prepare their substantive arguments. This should be done on three levels:
    • First, the parties can argue that the financial contributions in question do not amount to a “subsidy”. In many cases they will be able to show that the measures in question do not entail any economic benefit. Such a line of argumentation should be based on the case law of the EU Courts in the field of EU State aid and the EU Commission’s own decision-making practice. In addition, it could be corroborated with economic expertise (consultants, etc.).  
    • Second, even if the measures qualify as “subsidies”, the parties can prepare potential arguments as to why they are not distortive. Again, such a reasoning could be supported by the existing rich body of EU State aid law, in particular the EU Court’s case law, the EU Commission’s own decision-making practice and economic arguments.
    • Third, one could argue that the potential benefits of the subsidies outweigh any distortions. In this regard, the EU Commission’s own “soft law” (guidelines, frameworks, communications, block exemption regulations, etc.) which exists for multiple types of State aid (energy, environment, R&D&I, risk finance, guarantees, semiconductors, airports, transport, broadband, etc.) can play a key role.


If you are interested in participating in our webinar on M&A DEALS AND THE EU FOREIGN SUBSIDIES REGULATION (FSR) - GETTING READY FOR THE NEW REGULATORY CHALLENGE on February 14, 2023, please see: M&A deals and the EU Foreign Subsidies Regulation (FSR) | Gleiss Lutz