Regulation on Foreign Subsidies Distorting the Internal Market Implemented

The Regulation on Foreign Subsidies Distorting the Internal Market (Regulation), which was published in the Official Journal of the European Union (EU) dated 23.12.2022 and numbered L/330 entered into force on 12.01.2023, and became applicable as of 12.07.2023.

The Regulation introduces a notification obligation to the European Commission for merger and acquisition (M&A) transactions involving undertakings that directly or indirectly receive financial contributions from third states that are not EU members.

The concept of financial contribution refers to capital injections, grants, loans, loan guarantees, financial incentives, set-off of operating losses, relief of financial obligations imposed by public authorities, write-offs, equity-swap or restructuring of debts, tax exemptions or the granting of special or exclusive rights without payment of an appropriate remuneration, the waiver of revenues otherwise due, the provision or purchase of goods or services.

Pursuant to the Regulation, M&A transactions that fulfill the following conditions are subject to the notification:

• one of the merging parties or the target company or joint venture is established in the EU and has an annual turnover in the EU of more than EUR 500 million,
• total financial contribution received in the three years preceding the notification is more than EUR 50 million.

The Regulation also requires the European Commission to be notified of public tenders to be awarded within the EU, provided that;

• estimated value of the public procurement or framework contract is EUR 250 million or more,
• financial contributions provided to the economic entity (including its subsidiaries, group companies, key subcontractors and suppliers involved in the public procurement) in the last three years amounts to EUR 4 million or more per third state.

In case of non-compliance with the notification obligations, the European Commission may impose an administrative fine of up to 10% of the turnover to the parties of the transaction.

The notification obligations stipulated under the Regulation will start from 12.10.2023. Therefore, M&A transactions signed after 12.07.2023 but not closed as of 12.10.2023 will also be within the scope of the notification obligation.

You may access the full text of the Regulation here.