The FSR focuses on subsidies granted by non-EU countries to companies operating in the EU and aims to address the potential distortive effects on the EU internal market to ensure a more level playing field for EU and non-EU companies. A more detailed analysis of the FSR can be found in our earlier article.

In addition to the notification obligations discussed in more detail below, the FSR enables the Commission to launch investigations on its own initiative, a power that has been in effect since 12 July 2023.

The M&A notification obligation

Businesses carrying out “concentrations” (i.e., mergers, acquisitions and the creation of full function joint ventures) are subject to a mandatory, suspensory notification and approval requirement where:

• at least one of the merging parties, the target or joint venture is established in the EU and has an EU turnover of at least €500m; and
• the companies involved in the transaction received aggregate foreign financial contributions of more than €50m from non-EU countries in the three years prior to notification.

The concept of foreign financial contribution is very broad and is not limited to monetary transfers. Rather, it covers any form of value transfer, whether direct (e.g., the transfer of funds through direct grants) or indirect (e.g., tax exemptions or reductions and interest-free or low-interest loans) and also captures a wide range of commercial and economic relationships.

The notification obligation applies to transactions that meet the thresholds from 12 October 2023. Transactions that signed on or after 12 July 2023 but that have not been implemented by 12 October 2023 will also need to comply with the mandatory notification obligations and await clearance before the deal can be implemented.

The Commission’s review timetable

Notifiable concentrations cannot be implemented until they have been approved.

The Commission’s formal review is subject to strict statutory time limits which commence the day after the Commission receives a complete notification. However, notifying parties are encouraged (and in practice will be expected) to engage in pre-notification discussions with the Commission based on a draft notification form. As has proven to be the case with the EU Merger Regulation, both the preparation of the draft and pre-notification discussions with the Commission may each take several months.

The FSR timetable is modelled on the EU Merger Regulation and both processes could in theory run simultaneously. However, since the issues examined by the Commission under each regime will generally be distinct, aligning the strategy and synchronising the timelines may not always be possible in practice: pre-notification discussions may take longer under one process than another (leading to different start dates for review); points of substantive interest will vary as between the regimes; and Commission could “stop the clock” in one or other process to obtain additional information.

The Commission recently confirmed that it is currently engaged in pre-notification discussions with companies participating in 17 M&A deals and that all of them are running in parallel to pre-notification discussions under the EU Merger Regulation. It will therefore be interesting to see whether those discussions under the two separate regimes run in parallel all the way through to formal notification and approval.

The Public Procurement notification obligation

The FSR also requires that bidders in EU public procurement tender processes notify the relevant contracting authority (which in turn must notify the Commission) where:

• the estimated value of the public procurement or framework contract is at least €250m (net of VAT). Where the tender is divided into lots, the aggregate value of the lots applied must be at least €125m; and
• the bidder (including its main contractors and suppliers) has received foreign financial contributions of at least €4m per third country in the previous three financial years.

Where the value of the public procurement process satisfies the first threshold, bidders must either submit a notification (as part of the tender response) or provide a declaration that none of the bidders have received a notifiable foreign financial contribution.

The contracting authority cannot award a contract to a bidder subject to the notification obligation prior to Commission approval. A contracting authority can, however, still shortlist bidders in advance of Commission approval, and evaluate and identify the most economically advantageous tender during that period.

The Commission’s review timetable

Although the Commission encourages bidders to engage in pre-notification discussions, preferably on the basis of a draft notification form, these may only take place in respect of a published tender. This is likely to prove challenging given the short timescales (often 30 days from publication of the contract notice) for the submission of pre-qualification questionnaires.

Once the notification has been submitted, the contracting authority must send the notification (or declaration) to the Commission “without delay”. In contrast to the M&A procedure, the Commission cannot defer the start to the statutory timeframe on the basis that the notification is incomplete. This appears to reflect a desire to avoid public contracts being delayed or other bidders being disadvantaged, which is consistent with wider procurement principles of equal treatment. Instead, if a notification is considered incomplete, the bidder has ten working days to complete it. If the notification remains incomplete after this period, the tender must be declared irregular and rejected.

Where the tender involves a multi-stage process, there is an obligation for the bidder to re-submit an updated notification alongside their final tender. The Commission may pause their review pending that final submission.

Notification forms

Similarities for M&A and public procurement

The Commission has published notification forms for both the M&A and public procurement regimes. They focus on identifying foreign financial contributions, especially those that might constitute foreign subsidies. Following concerns raised during consultation, the main reporting requirements regarding foreign financial contributions relate to those contributions that individually exceed €1m and that are considered most likely to distort the internal market. These include foreign subsidies that:

• are granted to an “ailing” or insolvent undertakings (although the detailed definitions applied here can inadvertently catch companies that are highly geared);
• take the form of an unlimited guarantee;
• are export finance measures not in line with OECD rules;
• directly facilitate the concentration; and
• enable a bidder to submit an unduly advantageous tender on the basis of which it could be awarded the contract. (There is no description of what may fall within this category, but it could, for example, cover contributions towards operating costs.)

For any foreign financial contribution satisfying those criteria, the notifying parties must also provide significant additional information and supporting evidence in relation to their form, value, purpose and economic rationale, any conditions attached to their grant, whether they confer a benefit, and whether they are selective. Other foreign financial contribution in excess of €1m may also need to be reported but will typically require far less detail.

It is important for information submitted to the Commission to be correct and complete as incorrect or misleading information can render a notification incomplete (and can lead to fines in cases of intention or negligence), the Commission can revoke decisions based on incomplete or misleading information, and the Commission can in certain situations take adverse substantive positions where an undertaking fails to provide relevant information.

Key takeaways

• 12 October 2023 marks the beginning of the notification obligations and the full entry into force of the FSR.
• Those contemplating transactions or who regularly bid for large EU public procurement opportunities should take steps now to gather information about foreign financial contributions already received by their corporate group and to record future contributions going forward.
• Businesses should assess whether their organisation deals with counterparties in jurisdictions where the line between governmental bodies and private entities is blurred and if so, assess whether those dealings to fall within the scope of foreign financial contributions.
• Businesses should adjust transaction timetables, not only to reflect the statutory review period but also to reflect the time needed to collate information on foreign financial contributions received on a group-wide basis, to prepare draft notifications, and to engage in (potentially lengthy) pre-notification discussions.
• Businesses should ensure regular sub-contractors or consortia partners are aware of the FSR obligations and are well placed to provide the necessary information to complete the notifications or declarations.