Regulation (EC) No. 2022/2560 of the European Parliament and of the Council on foreign subsidies (FSR) aims to ensure a level playing field for all undertakings operating in the internal market by preventing foreign (third country) subsidies that distort it, including by giving recipients of foreign subsidies an unfair advantage in the acquisition of undertakings or in the award of public procurement contracts. The FSR complements the existing competition and public procurement framework. The FSR gives the European Commission the power to investigate and prevent distortions of the internal market caused by foreign subsidies and imposes notification obligations on foreign subsidies granted on undertakings in cases of mergers, as well as on customers and tenderers in connection with public procurement contracts.
Foreign subsidies distorting the internal market
A foreign subsidy exists where a third country provides, directly or indirectly, financing that confers a benefit on an undertaking engaged in an economic activity in the internal market and which is limited to one or more undertakings or sectors. Financing includes, inter alia, the transfer of financial resources or liabilities (e.g., capital injection, loan), the foregoing of revenues otherwise due (e.g., tax exemption), and the provision of goods or services. Third-country financing is financing provided by a foreign central government and public authorities at all levels, or a public entity or private entity, where its activities are attributable to a third country.
Internal market distortion exists if a foreign subsidy can improve the competitiveness of an undertaking in the internal market by adversely affecting competition. The foreign subsidies most likely to distort the internal market are those granted to an undertaking in difficulty; in the form of an unlimited guarantee of the undertaking’s debts or liabilities; enabling an undue advantageous bid to be made in a public procurement procedure, etc.
The FSR gives the European Commission the right to examine:
- notified concentrations where the undertaking receives foreign subsidies and reaches a certain level of turnover;
- notified tenders submitted in public procurement procedures where the undertaking has been awarded foreign subsidies and the estimated value of the contract reaches a certain level;
- other market situations related to possible foreign subsidies on the initiative of the European Commission (ex officio), on the basis of the information provided.
Under the FSR, the European Commission has the power to investigate and remedy market distortions caused by foreign subsidies. If you have any information on possible foreign subsidies distorting the internal market, please contact the European Commission.
What are concentrations (mergers), when should they be notified, and how does the European Commission deal with them?
For the purposes of the FSR, a concentration transaction is a change of control on a lasting basis,
- merger of two or more independent undertakings or parts of undertakings,
- acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by the purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings,
- creation of a joint venture performing all the functions of an autonomous economic entity on a lasting basis.
A concentration transaction is to be notified if the acquired undertaking, one of the merging parties or the joint venture has an EU turnover of at least EUR 500 million and the parties have received a foreign financial investment of more than EUR 50 million in the last three years. The notification shall be submitted using the FS-CO template in Annex 1 to Commission Implementing Regulation (EU) 2023/1441 of 10 July 2023 on detailed arrangements for the conduct of proceedings by the Commission pursuant to Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market.
Notifiable concentration transactions shall be notified to the European Commission before they are implemented and after the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest. A notifiable concentration transaction shall not be implemented before it is notified. Where a notifiable concentration transaction has already been implemented, the European Commission may impose measures to dissolve the concentration or, as far as possible, to restore the situation prevailing prior to the implementation of the concentration.
The European Commission may require prior notification of a non-notifiable concentration transaction if it suspects that the undertakings concerned may have received foreign subsidies in the three years preceding the concentration transaction.
Following notification, the European Commission may initiate an in-depth investigation. If the notification contains false or misleading information, the European Commission may impose a fine not exceeding 1% of the total turnover of the undertakings concerned in the preceding financial year. Where a notifiable concentration transaction has already been implemented or is implemented during the European Commission’s investigation, or despite a prohibition order by the European Commission, the European Commission may impose a fine not exceeding 10% of the total turnover of the undertakings concerned in the preceding financial year.
FSR operation as regards public procurement
For the purposes of the FSR, foreign subsidies that cause or risk causing a distortion in a public procurement procedure shall be understood as foreign subsidies that enable an economic operator to submit a tender that is unduly advantageous in relation to the works, supplies or services concerned.
Accordingly, the FSR sets out the preconditions for the notification of a foreign financial contribution in a public procurement procedure:
- the estimated value of that public procurement or framework agreement, net of VAT, is equal to or greater than EUR 250 million;
and
- the economic operator, including its subsidiary companies without commercial autonomy, its holding companies, and, where applicable, its main subcontractors and suppliers involved in the same tender in the public procurement procedure was granted aggregate financial contributions in the three years prior to notification or, if applicable, the updated notification, equal to or greater than EUR 4 million per third country.
Notifications and declarations shall be made to the contracting authority or contracting entity by the economic operator or, in the case of groups of economic operators, main subcontractors or main suppliers, by the main contractor or main concessionaire referred to in Article 29(6) of the FSR. The notification shall be submitted using the FS-CO template in Annex 2 to Commission Implementing Regulation (EU) 2023/1441 of 10 July 2023 on detailed arrangements for the conduct of proceedings by the Commission pursuant to Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market.
Where the value of the procurement is subject to notification under the FSR, but no third country has provided a foreign financial contribution to tenderers, including subcontractors, in the procurement in the last three years that is subject to notification, those parties must make a declaration in lieu of notification.
The contracting authority or contracting entity (customer) shall then forward the notification, including any relevant supporting documents, or the declaration to the European Commission.
The principles governing public procurement procedures, including the principles of proportionality, non-discrimination, equal treatment, transparency and competition, shall be respected by all economic operators participating in a public procurement procedure. The investigation of foreign subsidies under the FSR must not result in the contracting authority or contracting entity treating the economic operators concerned in a manner contrary to these principles.
Examination of foreign subsidies at the initiative of the European Commission
The European Commission may, on its own initiative, examine information from any source, including Member States, natural or legal persons, on possible foreign subsidies distorting the internal market.
On the basis of the preliminary examination, the European Commission may initiate an in-depth investigation. In the course of its examination and investigation, the European Commission may request information from the undertaking under investigation, other undertakings and Member States, carry out inspections, and apply interim relief measures.
European Commission decision
If the European Commission finds that a foreign subsidy distorts the internal market, it can decide on corrective measures. If the undertaking under investigation offers commitments sufficient to remedy the distortion, the European Commission shall adopt a decision with commitments. The European Commission decides not to raise objections if a foreign subsidy distorting the internal market cannot be found.
The European Commission can balance the negative effects of a foreign subsidy in terms of distortion of the internal market against its positive effects on the development of the economic activity concerned in the internal market, as well as on policy objectives.
Role of the Competition Council of Latvia
Under the FSR, the European Commission can request assistance from the Competition Council of Latvia, i.e., ask the Council to:
- provide the European Commission with the information it needs to carry out its duties under the FSR;
- at the request of the European Commission, carry out inspections in Latvia or other fact-finding measures to establish whether there is a foreign subsidy distorting the internal market;
- if the Competition Council considers that a foreign subsidy might exist and distort the internal market, send the information to the European Commission;
- in carrying out a market investigation concerning a particular sector, a particular economic activity or the use of a particular subsidy instrument, the European Commission may also request the Competition Council to provide information at its disposal;
- at the request of the European Commission, take action to enforce payment of the fine or periodic penalty payment;
- the Competition Council has delegated two representatives to the Advisory Committee to be involved, for example, in the drafting of implementing acts – one specialising in mergers and one specialising in public procurement procedures.