Foreign subsidy

EU companies are subject to the existing EU State aid regime, whereas non-EU companies are not. In preparation since 2020, Regulation 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market (FSR) was adopted to ensure a level playing field between EU and non-EU companies by empowering the European Commission to investigate and redress foreign subsidies that could distort the internal market. The FSR is particularly focused on large public procurement procedures and M&A transactions. The FSR complements the International Procurement Instrument (IPI), which aims at improving access for EU tenderers to public procurement markets outside the EU.

The FSR defines a foreign subsidy as a financial contribution from a third country, that benefits an undertaking within the EU Internal Market, and which is specifically granted to one or more undertakings or industries. What constitutes a financial contribution is not exhaustively defined but it includes at least:

  • The transfer of funds or liabilities, such as capital injections, grants, loans, loan guarantees, fiscal incentives, the setting off of operating losses, compensation for financial burdens imposed by public authorities, debt forgiveness, debt to equity swaps or rescheduling
  • Tax exemptions and the granting of special and exclusive rights without adequate remuneration,
  • The provision or purchase of goods and services.

A foreign subsidy is considered distortive to the internal market if it could improve the recipient's competitive position and potentially negatively affect competition. In public procurement, foreign subsidies are distortive if they enable a tenderer to submit an ‘unduly advantageous tender’.

The European Commission (“the Commission”) may perform a 'balancing test' to weigh the subsidy's positive effects against its distortive impact. Positive effects primarily concern the development of the relevant subsidised economic activity on the internal market.

Notification requirements

A participant in a public procurement procedure launched after 12 July 2023 must notify its foreign financial contributions to the contracting authority with its tender (or request to participate) when:

  • It is tendering for a works, supply or services contract or a concession estimated to be worth at least EUR 250 million, and
  • It was granted foreign financial contributions of at least EUR 4 million per third country over the three preceding years.

Although the threshold of EUR 250 million seems high, it will affect a lot of large public infrastructure projects in the EU.

The notification must list the aggregate foreign financial contributions received over the three preceding years by:

  • the tenderer or candidate itself, i.e. each member of a consortium
  • subsidiaries without commercial autonomy
  • holding companies
  • main subcontractors and suppliers involved in the tender (where applicable).

Even when foreign financial contributions are below the threshold of EUR 4 million, tenderers must list their foreign financial contributions in a declaration.

The Commission will assess the presence of distortive foreign subsidies. Pending its assessment, the contract may not be awarded to the recipient of the subsidies (“standstill”). If distortive foreign subsidies are identified, the Commission will either allow the award subject to the implementation of redressive measures as proposed by the concerned tenderer or candidate or prohibit the award of the contract to this tenderer. Non-compliant companies may face fines or periodic payments of up to 10% of their aggregate turnover in the preceding year.

As for M&A transactions, a notification to the European Commission is required where the target company, one of the merging parties or the joint ventures has a turnover within the EU of at least EUR 500 million and involves foreign subsidies of at least EUR 50 million.

The European Commission can initiate investigations of other “market situations” and make ad hoc requests for notifications in public procurement procedures and M&A transactions below the thresholds if it suspects the presence of distortive foreign subsidies.

More red tape for tenderers

Tenderers affected by the FSR are likely to face a considerable administrative burden and should prepare accordingly before the Regulation becomes applicable. Companies will have to gather information internally on the foreign financial contributions they have received during the past three years. In addition, they will need tools to monitor the data in relation to foreign contributions on a global scale. Notifiable foreign financial contributions cover the three preceding years, which might entail significant retroactive collection for the first tenderers confronted with the notification requirement.

The difficulty, especially for global companies, is that a wide range of advantages are captured under the notion of ‘financial contribution’ (e.g. loan guarantees or fiscal incentives). It is therefore hard not to see the FSR as bringing more red tape for participating in high-value tender procedures in the EU.

Unduly advantageous tenders and abnormally low tenders

Those familiar with the EU Public Procurement Directives may know that these rules already include mechanisms for contracting authorities to identify tenders with abnormal pricing and exclude them from the tender procedure.  The interaction of these rules with the new provisions of the FSR may lead to inconsistencies.

Under the FSR, the general test consists in assessing whether the foreign subsidies received by an undertaking improve its competitive position in the internal market and thereby (potentially) distort competition in the internal market. In the context of a public procurement procedure, the test performed by the Commission also entails assessing whether the foreign subsidies enable a company or undertaking to submit an unduly advantageous tender, for example as reflected in its price.

Under the EU Public Procurement Directives, contracting authorities already have an obligation to verify whether tenderers’ prices are abnormally low. If a price appears abnormally low, being the recipient of State aid from an EU Member State is one of the relevant facts a tenderer can invoke to justify a lower price. Contracting authorities are not prevented from also considering foreign subsidies in this context.

With the introduction of the FSR, contracting authorities are now prevented from initiating an investigation into abnormally low prices based only on the suspected presence of foreign subsidies. It is not yet clear how the FSR is going to affect contracting authorities’ price verifications. How the Commission will assess whether foreign subsidies could have an advantageous effect on the tender based on the notified foreign financial contributions, and not the tender itself (assessed by contracting authorities) is also unclear.


The Foreign Subsidies Directive marks a notable incursion of EU competition rules into public procurement without amending the EU Public Procurement Directives. The new requirement to notify or declare foreign financial contributions when tendering for contracts worth over EUR 250 million will likely require substantial efforts from companies tendering for large infrastructure projects.

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