Following the adoption of the Implementing Regulation (EU) 2023/1441 of 10 July 2023 (i.e. the ‘Implementing Regulation’), the notification requirements set out in Regulation (EU) 2022/2560 of 14 December 2022 (i.e. the ‘Foreign Subsidies Regulation’ or FSR) came into force on 12 October.
FSR
The EU Foreign Subsidies Regulation is a legislative act of the European Parliament and the European Council designed to ensure a level playing field for companies operating in the EU internal market and to prevent market distortions caused directly or indirectly by foreign state subsidies to companies, since these subsidies are not subject to EU competition and state aid rules.
Notification requirements
A Notification requirement arises in the case of a company merger or participation in a public tender by an operator that has received a 'foreign subsidy' from a non-EU country.
The Notification requirement was established to allow the European Commission to monitor (and if necessary prevent) corporate transactions or participation in public tenders that potentially distort the EU internal market, precisely because of foreign subsidies received from non-EU countries.
Companies subject to the FSR are those that do business in the EU internal market.
Distorting foreign subsidies in public procurement and notification procedures
As far as public procurement is concerned, the Implementing Regulation and Annex II contain the modalities for the application of the notification procedures under the FSR.
The FSR provides that – for participation in European public tenders with a value equal to or greater than EUR 250 million (or EUR 125 million if the tender is divided into lots) – a company that has received financial contributions equal to or greater than EUR 4 million from one or more non-EU countries in the three years preceding its participation in the tender must give a Notification to the Contracting Authority.
The amount of information required depends on the amount of the subsidies received by the companies over the previous three years.
Through the Notification, the company must provide detailed information on each individual subsidy exceeding EUR 1 million that falls under (or can be assimilated to) the categories listed in Article 5 of the FSR for which a distortive effect is presumed (e.g. foreign subsidies granted to a company in difficulty, unlimited guarantees, etc.).
Subsidies exceeding EUR 1 million that do not fall into the categories listed in Article 5 of the FSR must be described in less detail according to Table 1 of Annex II of the Implementing Regulation.
Some specific categories of subsidies, however, do not need to be reported in the table and are excluded from the total calculation. These include general tax exemptions, double taxation relief, etc., and subsidies of less than EUR 1 million.
If the thresholds are not reached, the undertaking must declare to the Contracting Authority that "None of the notifying parties have received foreign financial contributions subject to notification requirements under Chapter 4 of Regulation (EU) 2022/2560", and list the foreign financial contributions received in the previous three years in a Declaration.
It is not clear whether the Declaration is required in all public tenders (regardless of their value) or only for public contracts with a value equal to or greater than EUR 250 million. Given the procedural burden this would entail, the latter interpretation seems preferable.
The Declaration requirement applies to subsidies of less than EUR 1 million (excluded from the Notification requirement) but more than EUR 200,000 (i.e. the "de minimis" threshold, as defined in Commission Regulation (EU) No 1407/2013).
Such subsidies may be listed in total in Table 2 of the Annex to the Implementing Regulation, without specifying the individual amounts. On the contrary, subsidies less than the "de minimis" threshold are exempted from the declaration requirement.
In case of both a Declaration and Notification, the Contracting Authority must forward the Notifications and Declarations received to the European Commission.
Once the Commission has received the Notifications and Declarations, it initiates a procedure, which may be more or less in-depth depending on the case, in dialogue with the company and which may take up to 130 working days. During the procedure, the tender may continue, but the Contracting Authority cannot award the contract.
The Commission concludes the procedure by making one of the following decisions:
- It raises no objections if it considers that the subsidies do not distort competition;
- It imposes binding commitments if it considers that the distortive effect can be limited;
- It prohibits the award of the contract to the company under investigation if it considers its participation to be incompatible with the principles of the EU internal market.
A Commitment not to be underestimated
The requirements imposed by the FSR will have a significant impact on the timing of public tender procedures, the duration of which is an equally significant issue.
The possible implications of the procedure introduced by the Foreign Subsidies Regulation, however, make it necessary to carefully consider the Notification/Declaration requirement, especially in view of the amount of information that must be provided.
In fact, in addition to the considerable level of detailed information to be provided to the contracting authorities, it should be considered that, for the purposes of the Notification/Declaration:
- the companies must aggregate the data concerning the foreign subsidies received by all subsidiaries or parent companies, grouped companies, subcontractors, or sub-suppliers;
- in the case of temporary groupings of companies, the Notification/Declaration requirement is carried out by the agent in the name and on behalf of the grouped companies;
- if the tender procedure has multiple stages (e.g. pre-qualification), the Notification/Declaration must be updated at each stage.
It should also be noted that the FSR gives a particularly broad definition of 'foreign subsidy', including direct or indirect direct or indirect financial contributions granted by state authorities or public or private entities, whose actions may otherwise be attributed to a non-EU country, which confer an advantage through the transfer of funds or liabilities (e.g. cash injections, grants, loans, tax advantages, etc.), the renouncement of revenue otherwise due (e.g. tax exemptions or the granting of special or exclusive rights) or through the provision or purchase of goods and services.
Finally, in the event of a late Notification/Declaration or a false declaration, the Commission may impose a fine of up to 1% of the total turnover of the company (or group) in the last business year or a penalty payment of up to 5% of the average daily turnover for each day’s delay.
In the most serious cases (i.e. failure to notify, attempts to evade notification or failure to comply with any provisional or corrective measures imposed), the Commission may impose a fine of up to 10% of the total turnover.
