EC Publishes Foreign Subsidies Regulation Guidelines

The Foreign Subsidies Regulation (FSR), which became applicable on July 12, 2023, empowers the European Commission to investigate financial contributions from non-EU countries to companies operating within the EU. This measure is designed to close a regulatory gap, ensuring that companies receiving foreign subsidies do not have an unfair advantage in acquiring companies or winning public contracts, a principle the Dutch government has supported to safeguard a level playing field in the single market. For large public procurement projects, such as those in urban construction and mobility, bidders must now notify the contracting authority if the contract's estimated value is at least €250 million and the bidder has received €4 million or more in foreign financial contributions over the past three years. This requirement extends to main subcontractors and suppliers, adding a significant administrative layer to the tendering process for major infrastructure developments. The European Commission's enforcement priorities for the FSR align with broader EU strategic goals, including the European Green Deal. This means projects related to green energy, sustainable infrastructure, and digital transformation could see increased scrutiny. When assessing subsidies, the Commission can balance distortive effects against positive contributions to EU policy objectives, such as environmental protection. The guidelines clarify that a subsidy doesn't need to be the sole cause of a competitive distortion; it only needs to contribute to it for the Commission to intervene. For public tenders, a foreign subsidy is considered distortive if it enables a company to submit an "unduly advantageous" offer. This gives the Commission wide discretion to investigate bids even below the formal notification thresholds if it suspects unfair competition. This new regulatory environment directly impacts Dutch municipalities and planning departments acting as contracting authorities for large urban projects. They are now the first point of contact for notifications and must transfer these to the European Commission, integrating EU competition policy more deeply into local spatial and infrastructure planning. While the FSR aims to ensure fair competition, it also increases the administrative burden on companies, including those involved in public-private partnerships for urban development. The number of notifications for both M&A and public procurement has far exceeded initial estimates, affecting deal timelines and requiring firms to meticulously track all financial contributions from non-EU governments. Enforcement has been active, with the Commission launching investigations across sectors deemed vital to EU competitiveness, including energy and infrastructure. Penalties for non-compliance are steep, with potential fines of up to 10% of a company's global turnover, underscoring the importance of due diligence for all firms involved in large-scale European projects.