Foreign subsidies distorting the internal market – practical comments on the Regulation 2022/2560 – Subsidies granted by non-EU countries to companies operating in the EU

Publication date: May 23, 2025

The purpose of Regulation (EU) 2022/2560 of the European Parliament and of the Council (FSR) on foreign subsidies distorting the internal market is to enable the European Commission to conduct analyses of subsidies granted by non-EU countries to companies operating in the EU and to combat their negative impact on the single internal market in the European Union.

The rules and procedures set out allow the Commission to assess any foreign subsidies from third countries that directly or indirectly benefit economic activities carried out in the EU and to correct any distortions caused by the subsidies. The aim of this action is to ensure a level playing field and fair competition for all businesses operating in the EU.

A foreign subsidy is a financial contribution that has been provided directly or indirectly by a third country, which benefits an undertaking and is limited to one or more undertakings or industries. It is considered to be recognised from the moment the beneficiary becomes entitled to receive the foreign subsidy. The actual payment is not a necessary condition for the foreign subsidy to fall within the scope of the Regulation.

Foreign subsidies can give recipients an unfair advantage when buying companies or winning public contracts in the European Union. They can drive out non-subsidized companies, hinder innovation, and negatively impact the quality and range of consumer products and services.

Examples of foreign subsidies that distort competition:

• Subsidized merger – The company plans to acquire another entity in the European Union. This transaction is supported by a third-country government through a direct subsidy and a state guarantee on a loan. Such financial support reduces the costs of obtaining financing and gives the buyer an advantage over competitors also interested in the acquisition, allowing him to offer better purchase conditions.
• Public procurement -The company plans to participate in a public tender announced by an institution from an EU member state. Thanks to direct financial support from the government of a non-EU country, the company can offer an exceptionally low price, which it would not be able to offer without public aid. This situation allows it to win the tender, overtaking other bidders operating on market principles.
• Ex officio controlled activities – A subsidiary based in the EU, which is part of a capital group based outside the EU, benefits from preferential financing conditions provided by the state where the parent company is based. This can take the form of unlimited state guarantees or direct subsidies. Thanks to this, cheap financing allows it to invest – for example in building production plants in the EU – and gain an advantage over competitors who do not have access to such forms of aid.

Article 3(2) of the Regulation explains the key concept of financial contribution:

• transfer of funds or liabilities, such as capital injections, grants, loans, credit guarantees, tax incentives, offsetting of operating losses, compensation for financial charges imposed by public authorities, debt cancellation, debt-for-equity swaps or rescheduling of repayments;
• the giving up of income that is otherwise due, such as tax exemptions or the granting of special or exclusive rights without receiving adequate compensation; or
• delivery of goods or services or purchase of goods or services.

The financial contribution provided by a third country includes the financial contribution made by:

• central government institutions and public authorities at all other levels;
• a foreign public entity whose actions are attributable to a third country, taking into account elements such as the characteristics of the entity and the legal and economic environment prevailing in the country in which the entity operates, including the role of government in the economy; or
• a private entity whose actions are attributable to a third country, taking into account all relevant circumstances.

The lack of issue of many foreign subsidies and the complexity of the actual trade situation may make it difficult to clearly identify or quantify the impact of a specific foreign subsidy on the domestic market. This is determined on the basis of indicators that include:

• The amount and nature of the foreign subsidy
• The company’s situation, including its size, level and evolution of business activity, and markets or sectors
• Purpose and conditions related to foreign subsidy

A foreign subsidy is unlikely to distort the internal market if the total amount for the undertaking does not exceed EUR 4 million over three years, and furthermore does not distort the operation of the internal market if the total amount of the subsidy for the undertaking does not exceed the established threshold for de minimis State aid (EUR 200 000) over three years. Furthermore, they are intended to make good damage caused by natural disasters or other exceptional occurrences.

Foreign subsidies, on the other hand, have a high probability of distorting the internal market if they go to a failing enterprise without a restructuring plan, and also have the nature of an unlimited guarantee to cover the debts or receivables of the enterprise. Market distortion may additionally occur when subsidies have the nature of export financing incompatible with the principles of the Organisation for Economic Co-operation and Development, directly facilitate competition or enable the enterprise to submit an unreasonably advantageous offer.

The Commission may conduct the various types of necessary inspections of undertakings and associations of undertakings. When it undertakes such an inspection, the officials authorised by the Commission to conduct the inspection are empowered:

• enter the enterprise’s premises, its premises and means of transport;
• review accounting records and other documents related to business activities, regardless of the form in which they are stored, as well as obtain access to information held by the company and prepare or request copies or extracts from these documents;
• ask questions of employees or representatives of the company in order to obtain clarification on facts or documents related to the inspection, and record the answers;
• secure the premises and documents by sealing them – for the time and to the extent necessary to conduct the inspection.

Companies and their associations are required to submit to inspections based on the Commission’s decision. Authorized persons perform their duties upon presentation of this decision, which includes:

• indication of the purpose and scope of the inspection;
• information that, in the event of refusal to cooperate, the Commission may rely on the information available (pursuant to Article 16);
• a reference to possible financial sanctions pursuant to Article 17;
• information on the right to appeal to the Court of Justice under Article 263 TFEU .

The Commission shall give sufficient notice to the Member State in whose territory the inspection is to be carried out, stating when it is planned to begin and when. The Commission may carry out inspections in the territory of a third country, provided that the government of that third country has been officially notified and does not object to the inspection. The Commission may also ask the undertaking or association of undertakings for consent to the inspection.

Article 27 of the Regulation states that foreign subsidies that cause or may cause distortions in the context of a public procurement procedure are considered to be foreign subsidies that enable the contractor to submit an unreasonably advantageous offer for works, supplies or services, and only foreign subsidies granted in the three preceding years are taken into account when assessing the offer. If the Commission finds that there are foreign subsidies that distort competition in the EU, it may take action under the obligation to notify concentrations of undertakings (mergers or acquisitions) involving a financial contribution from a government outside the EU, where the turnover in the EU of the acquired undertaking, at least one of the merging undertakings or a joint venture is at least EUR 500 million and the foreign financial contribution is at least EUR 50 million. The obligation to notify in the context of public procurement procedures where the value of the contract is at least EUR 250 million and the offer involves a foreign financial contribution of at least EUR 4 million for each non-EU country. In all other market situations, the Commission may initiate an investigation on its own initiative (ex officio), including by requesting ad hoc notification of smaller concentrations and public procurement procedures.

In relation to both notification obligations, the purchaser or bidder will be required to provide prior notification of any financial contributions received from a government or public institutions of a third country (outside the EU) in connection with the planned concentration or participation in public procurement – provided that they exceed certain limits. Until the analysis is completed and the Commission issues its consent, the implementation of the concentration will be inadmissible. In the case of public procurement, if an investigation procedure has been initiated against the bidder, the award of the contract will be suspended until the end of the procedure or the expiry of the prescribed period.

The Commission will also be able to request the notification of a transaction or participation in a public procurement contract, even if its value does not exceed the established thresholds, if there is a suspicion that foreign subsidies were involved. In the context of public procurement, this also applies to situations in which the Commission receives new information indicating a possible incomplete notification or declaration, or its complete absence. Such notifications will also be subject to the aforementioned suspension clause – until the Commission’s assessment is completed.

In addition, the Commission will be able to open, on its own initiative, a general investigation into various economic activities and market situations – such as greenfield investments or the provision of services – if it considers that they may have been supported by foreign subsidies.

In accordance with the provisions of the Regulation, if during the process of examining and evaluating offers the contracting authority has doubts as to the existence of foreign subsidies in a specific case, it has an absolute obligation to immediately inform the European Commission of its suspicions. The Regulation also states that a notification may be sent to the European Commission by other entities, which may include in particular competitors of the entity accused of using foreign subsidies.

The Commission conducts a preliminary review no later than 20 working days after receiving the full notification and may extend the deadline by 10 working days only in justified cases. The rules of procedure for multi-stage procedures have been shaped differently. The decision to initiate a detailed procedure is taken by the Commission to initiate it, it should adopt a decision closing the detailed procedure no later than 110 working days from the date of receipt of the full notification, with the possibility of a single extension of a maximum of 20 working days, after consultation with the contracting authority and only in duly justified cases. After the decision to initiate a detailed procedure, the contract may not be awarded to a contractor who uses foreign financial contributions. The prohibition ceases to apply if the Commission issues a relevant decision or after the expiry of the maximum deadlines for its issuance.

If the Commission, after conducting a detailed investigation, finds that a foreign subsidy used by the contractor distorts the internal market, but the contractor submits a proposal for an undertaking that effectively addresses the problems, a decision imposing an appropriate undertaking is adopted. On the other hand, if the Commission does not find that a foreign subsidy causing problems is being used, a decision is also adopted that does not cause any inconvenience to the contractor. However, if the contractor does not propose commitments or if the Commission considers the proposals to be inappropriate and insufficient to fully and effectively address the distortions, a decision prohibiting the award of the contract will be issued, which obliges the contracting authority to reject the offer of such contractor.

When examining the situation of entrepreneurs bidding for public contracts in the EU, the European Commission may impose fines and periodic penalty payments. Regardless of whether bidders intentionally or through negligence provide incorrect or misleading information in the proceedings, the Commission may impose fines of up to 1% of the total turnover in the preceding financial year, and periodic penalties of up to 5% of the average daily turnover. In the event of complete silence and failure to report foreign financial contributions or other circumvention of the requirement to report them, the fine may amount to 10% of the total turnover in the preceding financial year.

Balancing Test:

The test examines whether the distortive effects of a foreign subsidy are mitigated by the positive effects on the development of the relevant subsidised economic activity. The test is intended to help in making a decision and in determining the nature and level of any compensatory measures or obligations.

Examples of compensatory measures that the Commission will be able to impose structural or non-structural compensatory measures (e.g. divestment of assets, granting access to infrastructure, prohibition of certain market conduct).

Acceptance of commitments offered by the undertaking. Prohibition of the subsidised concentration or refusal to award a public contract to a bidder granted a subsidy. A concentration subject to notification cannot be implemented before notification is made. Once notification has been made, the following restrictions apply:

• Once a complete notification has been received, the concentration may not be implemented for 25 business days from the date of receipt.
• If the Commission initiates an in-depth investigation within 25 working days of receiving a full notification, the concentration may not be implemented for a further 90 working days from the initiation of that investigation. That period may be extended by an additional 15 working days if the participants in the investigation propose remedies pursuant to Article 7.
• If the Commission takes a decision pursuant to Article 25(3)(a) or (b), the concentration may be implemented only after that decision has been adopted.

All the above deadlines start running from the next business day after receipt of a complete notification or the Commission’s decision.

The above restrictions shall not prevent the implementation of a public offer or a series of transactions on the market for securities, including exchangeable securities, leading to the acquisition of control from different sellers, provided that the Commission receives notification of the concentration pursuant to Article 21 without delay and the acquirer does not exercise the voting rights attached to the acquired securities unless this is necessary to protect the value of the investment and only if the Commission grants an appropriate derogation pursuant to paragraph 3.

The Commission may grant, upon request, a derogation from the requirements of the regulation if adequate justification is provided. In deciding, the Commission takes into account, among other things, the effects of stopping the concentration on the participating undertakings or third parties, as well as the risk of distortion of competition. A derogation may be granted before or after the transaction, sometimes with additional conditions.

The time limits may be extended at the request of the participants in the proceedings if such a request is submitted no later than 15 working days after the initiation of the detailed procedure pursuant to Article 10. Such a request may be submitted only once. The Commission, with the consent of the participants, may also extend this period at any time during the proceedings. The maximum total extension may not exceed 20 working days.

In exceptional cases, the Commission may suspend the deadlines if undertakings have not provided the information required (under Article 13) or have refused to submit to an inspection (under Article 14).

So far, the European Commission has initiated:

Two ex officio proceedings concerning:

• deliveries of wind turbines to wind farms located in Spain, Greece, France, Romania and Bulgaria,
• safety equipment, including inspections at the manufacturer’s offices in the Netherlands and Poland,

Three detailed procedures following notifications of public tenders related to:

• supply of photovoltaic materials in Romania (with the participation of two suppliers),
• delivery of electric push-pull trains in Bulgaria,

One detailed takeover proceeding in the telecommunications sector involving a state-controlled operator based in the United Arab Emirates.